Nortel Networks Ltd. is in talks to divest most of its major operations, including factories and supply chains, to Flextronics Inc., a contract electronics manufacturer. If the talks materialize, it may lead to a major loss of up to 2,500 jobs.
“This proposed transaction would solidify Flextronics as the leader in the infrastructure market,” said Michael E. Marks, chief executive officer of Flextronics. “The significant increase of complex, multi-technology network solutions, including carrier-grade products, would accomplish a long-standing company initiative to better balance our product mix and reduce seasonality.”
The deal will affect operations in Montreal and Calgary in Canada, Campinas in Brazil, Monkstown in Northern Ireland and Chateadun in France. The operations affected amount to more than $2 billion, and Nortel said it will receive more than $500 million in cash from Flextronics over a nine-month period, if a deal is concluded.
“The resulting financial impact would be accretive to Flextronics in the first year of an agreement,” said Robert Dykes, president, systems group and chief financial officer of Flextronics, adding that his company has adequate cash reserves and revolving loans to withstand the nine months.
Flextronics would assume systems integration activities such as final assembly, testing and repair as well as managing the supply chain and related suppliers.
The company said if the deal succeeds, it will consolidate and provide full-service supply chain offerings, including circuit-board assembly, fabrication of printed circuit boards and enclosures.
It is not clear how many jobs may be lost since that will be part of the terms of the discussion. Nortel has shed about half its work force since 2000, and this move is likely to bring the company to a much leaner size. The Brampton, Ontario, company already has outsourced about 75 percent of its operations.
Flextronics also works with other vendors, including L.M. Ericsson, Sony Ericsson, Siemens AG and Motorola Inc. as part of the trend to cut costs and focus on core competencies.
Flextronics is largest CEM in the world. Other major players include Celestica and Sanmina-SCI. Many of these companies expanded operations in the 1990s and compete furiously and thrive on thin margins. That makes them attractive to the major vendors.
Analysts have seen companies like Flextronics as future threats to the infrastructure companies in that they can learn their technologies and even compete with them for contracts. Already, Flextronics is a UMTS network infrastructure provider for Telia Mobile and Tele2 in Sweden. The acquisition of Nortel’s operators, which is seen a leader in Internet Protocol technologies, will enhance Flextronics technology capabilities.
Last year, it acquired Microcell Group an original design manufacturer of GSM, GPRS and EDGE handset products. Flextronics also signed a licensing agreement with ARM Ltd for the ARM7TDMI microprocessor core.
