Solectron Corp.'s quest to maintain its global footprint has pulled the CEM down under.The world's largest CEM has agreed to purchase Bluegum Group Ltd., a four-year-old CEM based in Victoria, Australia. Financial terms of the deal were not disclosed.
Solectron, Milpitas, Calif., will become a major presence in Australia, where the majority of Bluegum's 700 employees are located. The deal, slated to close in July, will also give Solectron access to the New Zealand market that Bluegum serves.
Solectron has been on an expansion tear this year. In April, the company announced plans to expand its services in North America and Turkey by purchasing certain manufacturing assets of telecom company Nortel Networks Corp. for $900 million. The transaction also guarantees Solectron a $10 billion four-year outsourcing agreement with the Canadian company. The CEM told analysts earlier this year that its acquisitions will help it generate revenue of $14.5 billion this year.
"We're pleased that [the Bluegum] acquisition will bring Solectron into a new geography," said Ken Tsai, Solectron's senior vice president and president of Solectron Asia, in a statement.
Under the terms of the agreement, Solectron will gain a New Product Introduction center in Victoria, along with manufacturing operations in Liverpool, Melbourne, New South Wales, and Wangaratta.
"Solectron's size, global manufacturing footprint, and financial strength are a competitive advantage that positions the company to continue gaining market share in the coming years," said Jerry Labowitz, an analyst at Merrill Lynch & Co. Inc., New York. Bluegum was launched in 1996 by two Silicon Valley veterans, Ned Strong and Paul Zuber. While working as consultants for the Australian government, Strong and Zuber discovered the country's need for a sizable CEM.
With an eye toward offering the flexibility, variety of services, and strong supply-chain management that Australia's mainly small CEMs are unable to provide, the two entrepreneurs acquired an IBM Corp. plant in Victoria. Later, they opened an international procurement office in Singapore and purchased Alcatel's manufacturing facility in New South Wales.
Bluegum's sales now stand at approximately $300 million and are increasing 25% a year, according to company executives. Solectron finds Bluegum an attractive asset because the company's 30 active customers include such major companies as Hewlett-Packard, IBM, and Philips.
Among Bluegum's turnkey manufacturing services are product support, final system assembly, R&D testing, and warranty and repair. The company also exports to Japan, a country that many CEMs are anxious to tap.
"The merger gives us access to the substantial financial resources and technological capabilities of Solectron," said Zuber, Bluegum's chief executive, in a statement.
For Solectron, the pending deal will add 317,000 sq. ft. to its global manufacturing capacity and will most likely boost the company's sales in Asia. In fiscal 1999, the United States and Canada accounted for 65% of Solectron's revenue, while Europe represented 12%, Asia 12%, and Latin America 11%.