New customers, secondary, and earnings forecast.
I understand (from a very reliable source), that Flextronics had a conference call for analysts after the close today. Here are some of the items discussed:
1. They have five new customers; Acer, Rockwell, Kodak, Compaq and a large telecom customer, for whom they wouldn't reveal the name. Compaq and the large telecom could be pretty large customers (perhaps 10% customers?).
2. In order to fund these new programs, they will also have to do a secondary in the range of $100mm-$150mm to support the growth. They filed shelf registration for 5mm shares (this could be larger than they need, and maybe will be trimmed?).
3. Marks basically said share issuance would be dilutive by $.01/$.02
per Q for several quarters. But they expect to come in ahead of analysts expectations for these quarters, so no need to bring numbers down to adjust for secondary. Longer-term (3-4 quarters out) will be accretive as they ramp up and use capacity.
Thats all I have at this time. I don't know how the market will perceive the secondary. But at least it doesn't appear to dilute much due to current strong business at FLEX. And the new customers are a big positive.
I guess it breaks down to short term versus long term. Short term, we get a bunch of shares on the market, and until this overhang is absorbed, we aren't going to see much price improvement (i'm guessing). Longer term, the announcements seem to be a confirmation of a growth rate in the 50-60+% range. The company says they can grow at 30-35% per year based on internal cash flow, so if they need this much new capital, they expect a growth rate significantly above these rates. Also longer term, the new customer relationships are important.
The increased number of shares out will increase liquidity. We will end up with something like 50M shares after the split and the secondary.
Overall, I expect short term factors will cause the price to weaken a bit, until the demand for the secondary is assured. Lets hope the big guys who have been buying want 2-5M more shares at close to the current price. If they do, I hope the company does sell 5M; this could strengthen the balance sheet and drive growth.
A lot to digest tonight. I had a huge dinner at a terrific little Italian restaurant, and get home to have dig through this stuff.
Bon appetit. (I hope the big boys are hungry.)
Paul |
