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Electronics Production | November 24, 2009

Moody revises Flextronics’ outlook to stable

Moody's Investors Service affirmed Flextronics changed the outlook from negative to stable. This reflects the improvement in operating performance, increase in Y-o-Y gross cash flow generation, good execution on vertical program penetration, as well as an improved demand environment.

It also considers the company's good progress on debt repayment, cost reductions and working capital management. Operating margin (Moody's adjusted) in the September quarter increased sequentially to a more normalized 2.2% from 1.1% in the June quarter and -2.2% (trough) in the March quarter due to cost savings from restructuring initiatives and ramp of higher margin vertical mandates with new and existing customers, according to the report. During the downturn and recent recovery, the company benefited from OEM supply chain consolidation as some customers are said to have transitioned several programs from financially weaker EMS players to Flextronics. Additionally, the top ten client concentration has continued to decline and exposure to weaker customers substantially reduced. Flextronics has demonstrated relatively good performance in its notebook and industrial/automotive/medical segments, which helped to offset year-over-year weakness in consumer digital, infrastructure and mobile.
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