Company Perspectives:

Headquartered in Singapore, Flextronics International is a leading provider of

flexibility and speed in Electronics Manufacturing Services (EMS) to Original
Equipment Manufacturers (OEMs) in the fast-growth communications,
networking, computer, medical and consumer markets. Flextronics is a major
global operating company with design, engineering and manufacturing
operations in 28 countries and four continents. This global presence allows for
manufacturing excellence through a network of global facilities situated in key
markets that in turn provide its customers with the resources, technology and
capacity to maximize productivity. Flextronics' ability to provide design and
manufacturing services, coordinate innovative product design, provide a full
spectrum of specialized services and IT [information technology] expertise, in
conjunction with their global presence, establishes Flextronics as a top-tier EMS
provider.

History of Flextronics International Ltd.

Flextronics International Ltd. claims to be the second largest electronic
manufacturing services (EMS) provider in the world in terms of revenue, with
estimated fiscal 2001 revenue of between $10 and $12 billion, behind industry
leader Solectron Corp., with projected revenue of $15 billion. Through global
expansion the company has more than 16 million square feet of facility space
and some 70,000 employees worldwide. Flextronics expanded significantly by
acquiring other manufacturers while taking advantage of the desire of original
equipment manufacturers (OEMs) to outsource manufacturing and sell off their
manufacturing facilities. In addition to manufacturing, Flextronics offers a full
range of design services that enable it to create, test, and manufacture a
product based on a customer's concept. Flextronics serves the manufacturing
needs of customers in telecommunications, networking, computers, consumer
electronics, and related industries.
Developing from 'Board Stuffer' to Contract Manufacturer: 1969-92
Flextronics Inc. was founded in 1969 by Joe McKenzie to provide overflow
manufacturing services to Silicon Valley companies that needed more printed
circuit boards than they could produce in-house. The companies sent their
overflow work to Flextronics, where McKenzie and his wife hand-soldered all
the parts onto the boards and then returned the finished goods. This type of
work was known as 'board stuffing.'
The business did well in the 1970s, and in 1980 Flextronics was sold to Bob
Todd, Joe Sullivan, and Jack Watts. Todd became CEO and transformed the
company from a board stuffer to a contract manufacturing firm. The company
pioneered automated manufacturing techniques to reduce labor costs
associated with board assembly. It introduced board-level testing
to insure quality and in 1981 became the first American manufacturer to go
offshore by setting up a manufacturing facility in Singapore.
Flextronics expanded its services in the 1980s and began delivering turnkey
solutions in the middle of the decade. Based on customer specifications,
Flextronics would handle everything from buying parts to manufacturing. The
company also began offering computer-aided design (CAD) services, designing
and blueprinting an entire printed circuit board based on a customer's idea. In
1987 the company was able to go public, but it was just three weeks before the
stock market crashed.
Flextronics expanded to produce working, shippable products in the late 1980s.
Its disk and tape subsystems were used in Sun Microsystems workstations. The
Hayes modem was also a product that Flextronics helped assemble. The
company built a global manufacturing base with factories located throughout
Asia. Unfortunately, these factories relied on a high-volume U.S. market that
virtually crashed during the economic recession of the early 1990s. As profits
disappeared and losses mounted, survival of the company became paramount.
Since the Asian operations were still profitable, one option would have been to
scale back or close the company's U.S. facilities. The high cost of closing a
manufacturing facility, however, would have bankrupted the company. Instead,
the Asian plants were spun off as a separate company and taken private in
1990 with the help of outside funding. The U.S. plants were subsequently
closed.
Growth Through Acquisitions: 1993-98
The new, private company--renamed Flextronics International Ltd.--had its
headquarters in Singapore. Michael Marks became chairman in July 1993 and
CEO in January 1994. The company had its initial public offering (IPO) in 1994,
becoming a publicly traded company for the second time. Marks's strategy was
to rebuild the company's U.S. presence. From 1992 to 1995 revenues nearly
tripled to $237 million.
From 1993 to 1998, when Flextronics' revenues surpassed $1 billion (later
restated to $2.3 billion to reflect acquistions), the company completed more
than 12 acquisitions. It built a global infrastructure for high-volume
manufacturing, expanded its purchasing and engineering capabilities, and
increased its workforce from 3,000 to more than 13,000. At the core of
Flextronics' international growth was its industrial park model. Located in low-
cost regions of each major geographic area--including Mexico, Brazil, Hungary,
China, and later in Poland and the Czech Republic--Flextronics' industrial parks
brought suppliers onsite to decrease logistics costs, increase time-to-market,
decrease shipping costs, and improve communication and quality. The co-
location of manufacturing operations and suppliers in the industrial parks gave
Flextronics greater operational flexibility and responsiveness to customer
needs.
In 1994 Flextronics acquired nChip, which specialized in semiconductor
packaging and multichip modules. In 1995 Microsoft picked Flextronics as its
new turnkey contract manufacturer for its mouse. Among the products being
discussed were wallet-size PCs and intelligent home devices linked to
computers and other hardware.
In December 1996 Flextronics closed its contract electronic manufacturing plant
in Richardson, Texas. The closure was part of the company's strategy to shutter
its smaller plants in order to create larger campuses, or industrial parks, at other
locations. Workers at the plant were offered jobs at Flextronics' San Jose,
California facility. During the same year Flextronics acquired two companies in
Hong Kong--the Astron Group and FICO Plastics Ltd.--and
the Ericsson Business Networks production facility in Karlskrona, Sweden,
which was finalized in April 1997.
In 1997 Flextronics completed a 150,000-square-foot expansion of its
manufacturing and R & D facilities in San Jose, California, where its U.S.
headquarters was located, giving it a total of 280,000 square feet in two
buildings. Toward the end of the year a secondary stock offering of 1.5 million
shares was expected to raise about $56 million. The company also expanded
its global facilities, including an expansion of its plant in China from 210,000
square feet to 450,000 square feet, and built a new plant in Guadalajara,
Mexico. By the end of 1997 Flextronics was ranked as the fifth largest contract
manufacturer in the United States, up from tenth in 1995.
To better serve the wireless market, Flextronics and Dow Chemical Co. formed
a joint venture called Intarsia Corp.--with Dow holding the majority
interest&mdashø produce thin-film integrated passive components. Flextronics
expected to make use of Intarsia's capabilities to build and develop products for
wireless communications OEMs.
Between March 1997 and mid-1998 Flextronics acquired seven manufacturing-
related operations in Brazil, Hungary, Italy, Sweden, and the United States. As
a result of these acquisitions, Flextronics' revenue more than doubled from
$640 million in fiscal 1997 ending March 31 (subsequently restated to $1.5
billion), to $1.34 billion in fiscal 1998 (subsequently restated to $2.3 billion). Net
income nearly doubled from $11.6 million (later restated to $43.6 million) to
$22.4 million (later restated to $77.7 million).

More Acquisitions, Partnerships: 1998-2000

In 1998 Flextronics introduced a worldwide network of Product Introduction
Centers (PICs), which were facilities that designed, prototyped, tested, and
launched new products, thereby shortening critical time-to-market. Among the
products designed and built by Flextronics were 3Com's Palm Pilot and the
Microsoft mouse.
Hewlett-Packard selected Flextronics to be a primary manufacturer in Europe
for its inkjet printers. Flextronics would supply printed circuit board assemblies
and complete box assembly for the printers, which would be manufactured at
the company's industrial park in Hungary.
By mid-1998 Flextronics had 2.6 million square feet of manufacturing space in
26 operation centers in Europe, the Americas, and Asia. Recent acquisitions
included contract manufacturers Neutronics Holdings A.G., Conexao
Informatica Ltd. of Brazil, and Altatron Inc. It also acquired DTM Products Inc.,
which produced injection molded plastics, and Energipilot A.B., which provided
cables and engineering services.
Flextronics had aggressively gained manufacturing contracts among
telecommunications and networking OEMs, including Ericsson A.B., Motorola
Inc., Alcatel Alsthom, Bay Networks Inc., and Cisco Systems Inc.
Telecommunications and networking products accounted for 46 percent of the
company's revenue, followed by consumer goods (29 percent), computer
products (12 percent), medical products (four percent), and others (nine
percent). Having gained outsourcing contracts from computer OEMs Hewlett-
Packard Co., Compaq Computer, and Intel, Flextronics expected computer
products to account for 25 percent of its revenue in fiscal 1999. For the fiscal
year ending March 31, 1999, Flextronics had revenue of $2.2 billion and net
income of $60.9 million.
After letting up on acquisitions to consolidate its holdings, Flextronics
announced in December 1998 that it would acquire the ABB Automation
Products manufacturing plant in Vasteras, Sweden, which produced printed
circuit boards and other electronic components. As a result, ABB would become
a Flextronics customer, purchasing output from the plant's new owner.
In April 1999 Flextronics entered into a service partnership with Corio Inc., an
application service provider. Under the agreement, Flextronics would host and
maintain application software on its servers, while Corio would implement the
software for their joint clients. This would enable clients to rent, rather than
purchase, expensive enterprise resource planning (ERP) systems and help
them meet capacity demands without big investments.
Also in April 1999 Flextronics announced that it would purchase a second
manufacturing facility from Ericsson, this one located in Visby, Sweden. The
purchase was part of a trend among contract manufacturers to acquire the
manufacturing facilities of OEMs. Upon completion of the purchase Flextronics
also announced a new global supply agreement with Ericsson. In June
Flextronics strengthened its presence in Western Europe by acquiring Finnish
telecommunications contract manufacturer Kyrel EMS Oyj for approximately
$100 million in stock. Flextronics strengthened its relationship with Compaq
when it won a new order to supply Compaq with printed circuit board
assemblies for PC servers.
In October the company made a secondary stock offering of five million shares.
Around this time it also expanded its manufacturing operations in Richardson,
Texas, by leasing an additional 109,000 square feet, primarily to serve
customer Lucent Technologies Inc. Then, in November 1999, Flextronics
announced that it would purchase The Dii Group Inc. of Niwot, Colorado, for
$2.4 billion in stock. It was the largest acquisition among contract manufacturers
to date.
In January 2000 Flextronics was ranked third on Industry Week's list of '100
Best-Managed Companies.' The company continued to acquire manufacturing
facilities from OEMs, who were willing to divest them to concentrate on their
core competencies. The acquisitions positively affected Flextronics' bottom line,
as it reported its best quarter ever for the fiscal quarter ending December 31,
1999, when it had a 103 percent increase in quarterly revenue to $1.2 billion
and a 117 percent increase in quarterly net income to $34.3 million. In January
2000 it acquired facilities in Rochester, New Hampshire, and Limerick, Ireland,
from networking solutions provider Cabletron Systems for about $100 million.
In a move to increase its design capabilities, Flextronics appointed Nicholas
Brathwaite to the new post of senior vice-president and chief technology officer.
Brathwaite came to Flextronics in 1996 when the company acquired nChip, and
he led the development of Flextronics' Product Introduction Centers (PICs).
Flextronics planned to establish two or three more PICs in 2000, noting that
more than half of the company's revenue was from products impacted by the
centers.
In March 2000 Flextronics added more than 600,000 square feet of
manufacturing space on the East Coast with the acquisition of four companies
based in North Carolina's Research Triangle: Circuit Board Assemblers,
Newport Technology Inc., EMC International, and Summit Manufacturing.
Flextronics also joined with Cadence Design Systems Inc. and Hewlett-Packard
Co. to establish SpinCircuit Inc., an e-commerce company. SpinCircuit was an
Internet gateway that would link printed circuit board (PCB) design engineers
directly to suppliers of more than two million parts through its online catalog.
SpinCircuit was intended to cut costs associated with PCB development and the
selection of electronic components. Later in the year Flextronics and Cisco
Systems partnered to integrate their supply chains via the Internet.
For fiscal 2000 ending March 31, Flextronics reported revenue of $4.3 billion
(later restated to $6.4 billion), a 93 percent increase over the previous year. Net
income nearly doubled to $120.9 million (later restated to $143.2 billion).
Flextronics made several acquisitions during 2000, with no end in sight. The
largest was The Dii Group, completed in April 2000 for $2.4 billion, which gave
Flextronics a manufacturing presence in Ireland, Germany, and the Czech
Republic as well as additional PCB assembly capacity in China, Malaysia,
Mexico, Austria, and the United States. Other acquisitions included Uniskor
Ltd., the largest and fastest-growing EMS in Israel, for $20 million; enclosure
maker Palo Alto Products International; Chicago-based Chatham Technologies
Inc. for $590 million; Singapore-based JIT Holdings for $640 million; and
plastics supplier Li Xin Industries Ltd. for about $69 million.
Major outsourcing contracts won in 2000 included a five-year agreement with
Motorola Inc. with an estimated value of $30 billion in revenue. Motorola would
outsource as much as 40 percent of its manufacturing operations affecting cell
phones, two-way radios, set-top boxes, and other broadband cable products.
Anticipating that consumer demand could fluctuate unpredictably, Motorola
sought the greater flexibility offered by outsourcing the development and
manufacture of communications-related products. As part of the agreement,
Motorola made a $100 million equity investment in Flextronics that
was convertible over time into 11 million shares of Flextronics stock,
representing a three to five percent stake in the company.
Flextronics also continued to strengthen its manufacturing capabilities in
Europe. It announced plans for an industrial park in Gdansk, Poland. For fiscal
1999 Europe accounted for 40 percent of Flextronics' revenue. The company's
new Multek unit, acquired from The Dii Group, gained a 60,000-square-foot
PCB manufacturing facility in Guadalajara, Mexico, with the purchase of Cumex
Electronics S.A. de C.V.
In August 2000 Siemens signed an outsourcing agreement with Flextronics to
build 33 million mobile telephones for Siemens by the end of 2003. Later in the
year Flextronics purchased the Siemens operations in L'Aquila, Italy.
Around this time Flextronics acquired Chicago-based Chatham Technologies
Inc. for about $590 million in stock. Chatham was a leading provider of
integrated electronic packaging systems to the communications industry. Later
in the year Flextronics would form a new enclosures business unit.
Flextronics' aggressive acquisitions strategy began to affect the company's
bottom line in fiscal 2001. For the first quarter ending June 30, 2000, the
company reported a $368.9 million loss. Without amortization and one-time
charges, though, the company would have reported a $71.7 million profit.
In the meantime, Flextronics was anticipating aggressive growth over the next
five years. According to Business Week, Chairman Michael Marks predicted
Flextronics' revenue could grow to $50 billion in five years. Leading contract
manufacturer Solectron Corp. was already on track to reach the $20 billion mark
within a year. The electronic contract manufacturing industry was expected to
grow at a 20 percent annual rate, and in the past four years the industry had
more than doubled to $88 billion annually. Fueling this growth was the
willingness of OEMs not only to outsource manufacturing, but also to sell their
manufacturing facilities to contract manufacturers to achieve greater flexibility in
meeting consumer demand.
Principal Divisions: Flextronics Design; Flextronics Enclosures; Flextronics
Semiconductor; Flextronics Network Services; Multek; Flextronics Photonics.
Principal Competitors: Celestica Inc.; SCI Systems, Inc.; Solectron Corp.;
Jabil Circuit, Inc.