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Electronics Production | June 30, 2004

Flex receives bulk of manufacturing

Nortel Networks will divest certain optical, wireless, and enterprise manufacturing operations and optical design operations to Flextronics.
Subject to closing the four-year manufacturing agreement, Flextronics will assume most of Nortel Networks’ systems integration activities, final assembly, testing and repair operations, along with the management of the related supply chain and suppliers. Over time, Flextronics expects to consolidate and internally source its vertically integrated supply chain solutions, which include the fabrication and assembly of printed circuit boards and enclosures, as well as logistics and repair services.

Through an optical design services agreement, Flextronics will acquire engineers with expertise in end-to-end, carrier grade optical network products that include Edge, Core Switching, and Transport Line products. The design and engineering skills to be transferred to Flextronics include hardware development, software development and project management.

“Flextronics will be acquiring a design group with broad experience in telecommunications and optical networks, with extensive knowledge of optical products and processes. There are no independent design companies in the world that have this degree of design expertise, so we are thrilled to have expanded the scope of our engagement with Nortel Networks to include these services,” said Michael Marks, Chief Executive Officer of Flextronics.

As part of the transaction, which is subject to customary closing conditions, including the completion of the required information and consultation process with employee representatives in Europe, approximately 2,500 employees would transfer to Flextronics. The business transfer to Flextronics is expected to begin in November 2004 and will take approximately six months to complete. During this time period, Flextronics’ revenues from Nortel Networks will increase each quarter and should reach an annual revenue rate of approximately $2.5 billion.

Flextronics expects that the Nortel Networks program will be neutral to earnings in the last two quarters of its fiscal year ending March 31, 2005, accretive by approximately $0.10 per diluted share in its fiscal year ending March 31, 2006 and accretive by approximately $0.15 per diluted share in its fiscal year ending March 31, 2007. Cash payments of approximately $75 million will be made to Nortel Networks in the fourth quarter of calendar 2004, and installment payments of approximately $600 million to $650 million will be made over a four quarter period in calendar 2005. Of the estimated aggregate payment amount, approximately $60 million is for fixed assets, $200 million is for intangible assets relating to, among other things, the design and engineering transfer, and the balance is related to inventory.

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