Flextronics International Ltd. has embarked on a cost-reduction program that will include closing certain plants in high-cost locations as it prepares to ramp up production for large programs from Epson, Ericsson, and Toshiba.
During a mid-quarter conference call with analysts Thursday, Michael Marks, Flextronics chairman and chief executive said that he is optimistic about the Singapore EMS company??s future despite plans to implement a restructuring program that will make Flextronics "leaner and meaner." Despite the changes, Marks maintained the company's fiscal guidance for the upcoming quarter.
Analysts polled at First Call/Thomson Financial have indicated the EMS should earn 26 cents a share in the current quarter.
As technology-driven companies undergo see slower demand for their products in the end markets, many EMS providers have been forced to run even tighter ships these days to ring out costs for their customers. Earlier this week, SCI Systems Inc., a Huntsville, Ala., EMS company, revealed plans to lay off 3,800 workers-which is 10% of the company's global 38,000 workforce-because of softer demand in PC and telecom markets.
"We're cutting back expenses at the same time that we're seeing significant growth," Marks said. "There is quite a bit of customer-specific weakening, but there are positive signs that balance that picture."
Flextronics, like most EMS providers, is experiencing weakness in its telecom business, Marks said. He expects the company's Enclosure Business unit, which was formed last year, will contribute less revenue than anticipated in the current ??tough?? market. About half of Flextronics' revenue is generated from telecom and datacom products.
However, Marks sees a bright spot with knowledge that the other half of the EMS company's business is tied to high volume manufacturing which has attracted lucrative contracts from telecom giant Ericsson for cell phones and Microsoft??s X-Box video game console.
In addition, Flextronics has won contracts with Toshiba and Epson to make consumer products and printers respectively. Both multi-million dollar programs will produced in Europe and are expected to begin modest production runs in the June quarter and will boost the company's revenue. Marks anticipates Flextronics have 2001 revenue that exceeds $16 billion.
However, as Flextronics downsizes its marginally performing manufacturing operations that include some enclosure facilities, the company will increase the capacity at its lower cost locations to satisfy customers, Marks said.
Top-tier EMS companies are becoming commodity driven manufacturers, just like the companies they do business for, said Kevin Kane, an analyst at International Data Corp. in Austin, Texas. "They want the low mix, higher volume products that OEMs want to outsource [in low cost areas]," he said.