Electronics Production | March 11, 2009
Flextronics to shift manufacturing to lower-cost locations
Flextronics announced restructuring plans which are intended to rationalise the company's global manufacturing capacity and infrastructure as a result of the current macroeconomic conditions and a decline in demand from its OEM customers.
The current global economic crisis and related decline in demand for its customers's products across all of the industries served has caused its OEM customers to reduce their manufacturing and supply chain outsourcing - ultimately impacting Flextronics capacity utilisation levels. Flextronics' restructuring activities are intended to improve its operational efficiencies by reducing excess workforce and capacity. Additionally, the cost reductions and other activities will result in a further shift of manufacturing capacity to locations at the company with higher efficiency and - in most instances - lower costs. The costs associated with these restructuring activities include employee severance, cost related to owned and leased facilities and equipment that is no longer in use and is to be disposed of, and ither costs associated with the exit of certain contractual arrangements due to facility closures. The exact timing of these charges and cash outflows, as well as the estimated costs ranges by category type, have not been finalised. Additionally, the amount and timing of the actual charges may vary due to several factors such as required consultation with the company's employees and their representatives and the compliance with the statutory severance requirements in certain jurisdictions. Flextronics expects to recognise between $220 million and $250 million in pre-tax restructuring and impairment costs over the course of the company's fiscal years 2009 and 2010. Approximately $190 million to $210 million of these costs are expected to be recorded in the company's operating results for the fiscal year ending March 31, 2009. Flextronics expects that a significant portion of the total restructuring costs will be related to employee benefit and severance arrangement. The charges, are expected to result in cash expenditures between $130 million and $150 million that will be payable primarity during fiscal year 2010. Additionally, Flextronics anticipates that upon the compleion of these restructuring activities, the potential savings in costs of goods sold achieved through lower depreciationh, reduced employee expenses, reduced operating costs and improved operational efficiencies, as well as reduced selling, general and adminstrative operating expenses will yield annualised savings ranging from $230 million to $260 million. More information will be added as soon as it is available.