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Electronics Production | November 02, 2004

EU clears Flex, Nortel deal

The European Commission has authorised the acquisition by Flextronics of some of Nortel’s manufacturing assets, employees and related supply chain activities as well as some assets and employees relating to hardware and software design for optical networking products (“the target business”).
The parties have also entered a four years outsourcing agreement according to which Nortel will source all of its manufacturing requirements from Flextronics. The transaction concerns the acquisition by Flextronics, of the manufacturing activities of Nortel, active in products and services that support the Internet and other public and private data, voice and multimedia communication networks using wireline and wireless technologies.

According to the EU-Commission, EMS include the whole range of services involved in the production of electronics products for OEMs from the design of the product, component selection and procurement, prototyping, product assurance, production, assembly, testing, failure analysis, logistics, distribution and after-sales services. These services are outsourced by OEMs active in the consumer electronics, telecommunications, computer, medical, and automotive industries.

According to the EU-Commission, the market for EMS sales to OEMs is fast growing, with forecast compound annual growth rates in excess of 10% in the period 2003-2007. The focus of EMS services is on the manufacturing of various types of electronic products on an outsourcing/procurement basis. OEMs are the primary customers for EMS.

According to Flextronics, the product market includes at least all EMS sales to OEMs. Different electronic products are manufactured using similar production processes (assembly of printed circuit boards). However, according to some respondents to the Commission market investigation, EMS can be broken down into specific electronic product segments, according to the final product/service in which EMS are incorporated. The relevant geographic market is at least EEA-wide, due to the increased level of sourcing by OEMs from various countries around the globe.

The Commission has found that, regardless of the market definition, the transaction does not give rise to any competition concern. While Flextronics has gained the leadership in the market for EMS to OEMs as a whole, as well as in some of the narrower segments - especially those relating to telecoms - its market shares remain relatively small (below 25% even taking the narrowest market definition). In these markets there are a number of credible competitors, such as, inter alia, Solectron, Sanmina-SCI, Foxconn and others, with significant market shares. Finally, in house capacity that some OEMs retain is an additional competitive constraint to EMS providers.

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