Flextronics bulks up with $3.6 billion Solectron acquisition

Singapore-based Flextronics International Ltd. said it would acquire Solectron Corp., of Milpitas, Calif., for $3.6 billion in cash and stock to create an even larger electronics manufacturing service that will generate more than $30 billion in annual revenue.
Flextronics is well-known in the cellular industry for providing manufacturing services to some of the top-tier handset vendors. Under the arraignments, handset vendors provide the designs and Flextronics builds the gadgets.
Flextronics is variously referred to as an original device manufacturer or as an EMS, depending on the role it serves in any particular deal with a customer. The company also makes a range of consumer electronics devices, including mainframe computers.
Scale appeared to figure prominently in today’s deal, according to statements made by Flextronics’ CEO Mike McNamara, who said that while Solectron was “a strategic addition,” its purchase would give Flextronics “increased scale (that) will enable us to further extend our market-segment reach and leverage an increased vertical integration opportunity (and) realize significant cost savings.”
The combined companies will operate in 35 countries with 200,000 employees-though the transaction announcement made no mention of job cuts, typical in mergers and acquisitions that tout “cost savings.” Flextronics said it would take up to two years to fully integrate the two operations and expects about $200 million in savings.
According to a range of media reports, the ODM and EMS industries have faced over-capacity issues, and this deal may be aimed at the situation. Solectron is in the midst of a restructuring and job cuts; its CEO resigned in February to work for Dell Inc. and the company has been operating with an interim CEO.