Flextronics' Growth Strategy

Dec. 21, 2004
The focus: lots of new business and many low-cost locations.

Like many other contract manufacturers, Singapore-based Flextronics International Ltd. is taking some financial hits this year. Two months ago, Flextronics' stock was trading about 30% below its all-time high.

And earnings in the calendar quarter just completed, the first three months of Flextronics' 2002 fiscal year, were projected to be 18 cents to 22 cents per share, compared with 22 cents a share in fiscal 2001's final quarter and 26 cents a share in the third quarter of fiscal 2001.

But Chairman and CEO Michael E. Marks expects business to get a whole lot better in part because of what he calls "the final capitulation of the OEMs." He anticipates, for example, such well-known OEMs as Motorola Inc., L.M. Ericsson Telephone Co., Siemens AG, and Lucent Technologies Inc. will be outsourcing new programs as they go through massive restructurings.

Marks is aggressively going after such new business as part of his growth strategy for Flextronics. In May, for example, he was negotiating a total of $10 billion in new business, a figure only $2.1 billion shy of Flextronics' $12.1 billion net sales for all of its 2001 fiscal year.

Another key strategic element in Marks' growth strategy is manufacturing in low-labor-cost locations. With its OEM customers themselves increasingly cost-conscious, Marks expects the bulk of Flextronics' high-volume production will now be done in such countries as China, Malaysia, Mexico, Poland, Hungary, and the Czech Republic.

Low-volume, more-complex work will be done in higher-cost locations, although capacity at Flextronics' manufacturing facilities in high-cost San Jose, the company's operational headquarters, has been cut about 50% and, says Marks, "we will not increase that again."

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