Flextronics' taste for growth --
Expansion effort one of CEM industry's most aggressive
By Darrell Dunn May 04, 1998, TechWeb News
Over the past two years, Flextronics International Ltd. has
perhaps epitomized the contract electronics manufacturing
industry's fast growth and global expansion.
The company's annual revenue has grown to more than $1
billion for fiscal 1998 ended March 31, from $640 million
in fiscal 1997 and less than $200 million five years ago.
Its growth has been fueled by one of the most active
expansion and acquisition efforts in the industry. In less
than four years, the San Jose company has completed eight
acquisitions on three continents. "We now have low-cost
manufacturing campuses in each of the three major
markets, each with plastics expertise, engineering
services, and advanced manufacturing technologies," said
Michael Marks, chairman and chief executive. "This
global service offering has resulted in an increasing
number of new programs awards from multinational
OEMs."
While establishing its capacity for growth, the company
has also fine-tuned its facilities and services in order to
offer complete box-build manufacturing.
Marks, who served as a consultant to Flextronics in 1988,
joined the company as chief executive in 1993 with a
mandate to transform the struggling company into a
world-class competitor in a fast-growing industry.
A gauge of his success is Flextronics' rapid ascension in
the rankings of contract electronics manufacturers from
ninth-largest two years ago to fifth-largest in 1997.
"I would consider that they've moved into that elite status,"
said Matthew T. Saltz, an analyst at Frost & Sullivan,
Mountain View, Calif. "They've been willing to spend the
money necessary to get into that range, and it appears they
have the business to justify the investment."
James Savage, a CEM industry analyst at BT Alex. Brown
Inc., New York, said Flextronics has become one of only a
handful of "major players, particularly in high-volume,
consumer-type contracts."
Laying the groundwork
Although Flextronics' revenue was relatively low when
Marks took over, the company had already moved to
establish a significant manufacturing presence in the United
States and the Asia-Pacific region, with operations in San
Jose, Singapore, Hong Kong, China, and Malaysia.
It was under the leadership of Marks, however, that the
company entered into a series of major acquisitions and
greenfield projects in Europe and Latin America.
Since 1994, Flextronics has acquired Relevant
Technology, a San Jose-based box-build CEM; nChip Inc.,
a Milpitas, Calif.-based multichip module specialist;
Assembly & Automation Ltd., a printed-circuit-board
assembly facility in Wales; Astron Group Ltd., a
printed-circuit-board (PCB) fabrication company in Hong
Kong and China; FICO Plastics Ltd., a plastic-molding
specialist in Hong Kong; and Fine Line Printed Circuit
Design Inc., a San Jose-based PCB layout and prototype
company.
Perhaps Flextronics' most significant acquisition occurred
in March 1997, when the company purchased a
600,000-sq.-ft. plant from Ericsson Business Networks
AB in Karlskrona, Sweden. In addition to buying the
facility, the company signed a service contract with
Ericsson that has provided about $350 million in annual
revenue.
In October, Flextronics announced the acquisition of
Neutronics Electronic Industries Holding AG, a Central
European CEM owned by Malaysian businessman S.L.
Hui, subsidiaries of Philips Electronics NV, and
Neutronics' management. Neutronics is headquartered in
Austria and has three manufacturing facilities in Hungary.
In addition to electronics assembly, Neutronics handles
injection-molded plastics, which is expected to
complement Flextronics' plastics offerings.
But Flextronics' expansion binge was not complete. In
January, the company announced the acquisition of
Conexaco Informatica Ltda., a Sao Paulo, Brazil-based
CEM with three manufacturing facilities.
In March, Flextronics acquired Altatron, a Fremont,
Calif.-based CEM. The acquisition includes a
170,000-sq.-ft. plant in Fremont; a 55,000-sq.-ft. plant in
Moorpark, Calif.; a 50,000-sq.-ft. plant in Hamilton,
Scotland; and a 6,000-sq.-ft. prototype facility in
Richardson, Texas. Altatron had revenue of approximately
$100 million in its recent fiscal quarter.
As part of the deal, Flextronics is considering shutting
down its facility in Wales and transferring operations to
the facility in Scotland.
In the midst of its acquisitions, the company establish a
greenfield facility in Guadalajara, Mexico, in 1997.
When the dust settled earlier this year, the company had
established about 2.5 million sq. ft. of manufacturing space
at 22 facilities in 11 countries.
A shift to complete box-build
The acquisition of the Ericsson plant immediately boosted
Flextronics' box-build business. Before the Ericsson deal,
Flextronics derived only about 10% of its revenue from
box-build integration. That share has grown to 50% to
60% as a result of the addition of the Ericsson facility and
through the growth of other box-build projects. The
company has set a goal of having box-build programs
account for 80% of all future contracts.
What services Flextronics does not offer on its own, it
provides through its "campus concept." The company has
"co-located" suppliers of such services as plastic molding,
chip packaging, and component distribution at campus
facilities in Guadalajara, Mexico; Sarvar, Hungary; and
Doumen, China. The suppliers lease space from
Flextronics at the campuses, where they not only provide
services to Flextronics but also build their own merchant
business.
"We don't intend to ever consume more than probably 30%
of any of our co-located partners' output," said David J.
Garcia, Flextronics' vice president of sales and marketing
for the Americas. "The whole idea is every one of these
guys is contracted, and they have to go out and compete in
the open market. That will enable the whole effort to
improve our service to our customers through lower
inventory cost and lower packaging costs."
Flextronics has also established a series of Product
Introduction Centers (PICs) to help customers in the design
stages reduce product-development cycles and time to
market.
"The strategy has been to position these PICs in areas that
are close to customers so we can provide concurrent
product-development engineering support in the customer's
backyard prior to transferring the products into a volume
factory," said Nicholas E. Brathwaite, Flextronics' vice
president of advanced technology and engineering
services.
The company currently has four PICs in San Jose;
Westford, Mass.; Stockholm-Karlskrona, Sweden; and
Althofen, Austria. Additional PICs in the United States are
expected to be established this year.
"Getting a product from concept to market realization
requires a large set of resources," Brathwaite said. "Most
startups cannot afford it. They may have 20 or 30 total
employees, and they are mostly engineers focused on
getting a design completed. They don't have the time or
experience on the implementation side. Even with the
OEM with more financial resources, they have to balance
implementation teams on projects that change every two to
three years, and it's easier in many cases to outsource those
activities and certainly more cost-effective."
Savage said one of the reasons Flextronics launched the
PIC program was to address what was the company's lack
of expertise in the design and prototype market. Other
major CEMs have also embarked on expanding such
services.
"Solectron made the Force acquisitions to put themselves
right in the forefront of the design side, and Jabil has long
been known as a design firm, while SCI has historically
had big design capabilities," Savage said. "I think they've
made this big push to remain competitive on the front end,
and you're going to see more and more companies trying to
do that."
Saltz said the PIC program has succeeded at "building
goodwill with customers. Although it has also probably
brought in more customers, it's not geared as much at
building the bottom line, but at establishing a network of
potentially lucrative customers."
Copyright (c) 1998 CMP Media Inc.
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