Electronics Production | January 13, 2005

Nortel important for Flex´s revenue

Credit Suisse First Boston(CSFB) expects Flextronics International to report fiscal third-quarter earnings of 18 cents per share on
revenue of $4.25 billion. That revenue estimate includes $50 million in contribution from Nortel Networks.
EMS company Flextronics has already issued fiscal fourth-quarter guidance of earnings per share ranging from 15 cents to 18 cents on revenue of $3.8 billion to $4.2 billion; CSFB estimates that that revenue estimate includes $100 million in Nortel revenue.

Handsets (33% of Flextronics’ revenue) could exceed CSFB’s third-quarter estimate for 5% growth quarter over quarter, “as we believe the cellphone market surprised on the upside late in the[calendar] fourth quarter, with top customer Sony-Ericsson (15% of revenue) one of the beneficiaries. However communications infrastructure(14% of revenue) may have declined on weakness at Ericsson(8% of revenue), with some additional risk in information technology infrastructure.” The research firm said it believes the transfer of operations from Nortel to Flextronics “is on track” and that the completion date of September 2005 “should be intact.” “Our bigger concern is Nortel itself, which lost some U.S. business” with Cingular Wireless’ acquisition of AT&T Wireless, CSFB said. Cingular is a joint venture of SBC Communications and BellSouth. “Flextronics remains the class of the industry in working capital management, an area where our contacts say the company is getting even better,” the firm said. “The story is different however on the liquidity side, where Flextronics has the highest net debt position in the industry, $1.15 billion. This means the risk of dilutive financing is continuously high; a solid cash flow performance would help alleviate these concerns.” CSFB, which maintained an “outperform” rating on Flextronics, said that although the valuation of the shares isn’t “cheap,” “Flextronics is one of the few EMS companies that could see numbers going up in 2005, provided Nortel remains on track.”


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