Last week's acquisition of Alcatel S.A.'s manufacturing operations in Richardson, Texas, could make Sanmina Corp.'s merger with SCI Systems Inc. more complex, analysts said.
By adding to the 47 facilities the EMS provider will take on when it completes its purchase of SCI, Sanmina will be all the more burdened with restructuring and realignment efforts, said Patrick Parr, an analyst at ABN Amro Inc., New York.
"It complicates the merger with SCI because there will be further headcount reductions and facility consolidations. They are probably going to scale it back," Parr said. "But it strengthens Sanmina's relationship with a good customer."
Jure Sola, Sanmina's chairman and chief executive, believes the transaction underscores the company's commitment to working closely with its customers.
"For over 15 years, Alcatel has been a valued customer, and we are pleased they have selected us as a strategic manufacturing partner," Sola said in a statement.
Alcatel announced in February that it would divest the Richardson plant. As part of the company's effort to focus its resources on new-product introduction and product integration, the deal will enable the Paris-based supplier of next-generation networks to focus its internal resources on "providing the latest technology our customers require," said Mike Quigley, president of Alcatel Americas.
It's also expected to result in operational efficiencies that will improve cash flow and further strengthen Alcatel's position in the marketplace. In July, Alcatel reported net cash provided from operations was negative due to excess inventory. Analysts estimate that at least $25 million in inventory could be tied to the Richardson facility.
"Alcatel is starting to further unwind its manufacturing obligations and is beginning to resemble more the virtual model these companies strive for: [having] product, design development, and prototyping in-house, while leaning on the EMS community [for manufacturing]," Parr said.
Although large OEMs typically want to deal with more than one EMS company, Parr expects Sanmina to purchase additional Alcatel facilities in the near future.
Terms of the transaction, which includes a multiyear supply contract, were not released. Analysts estimate Sanmina paid about $30 million to $50 million for the 300,000-sq.-ft. facility.