Flextronics plays down impact of revised Motorola deal

Under terms of the deal reached last May, Flextronics was expecting to make more than US$30 billion of Motorola’s products, including parts for wireless, two-way pagers, wireless infrastructure products and other devices.

However, the sagging demand for wireless handsets and the current high technology recession prompted both companies to "mutually unwind" the contract, Flextronics said in a statement Monday. It added that both companies would "remove volume incentives and five-year timeframe originally negotiated within their agreement".

In the statement, US-based Motorola said the slowdown in cellular phone sales made it difficult to reach the volume of goods Flextronics was asked to make.

When asked of the impact the changes to the terms of its deal with Motorola had on its manufacturing plans, including expansion, possible plant closures and downtime, a Flextronics spokesperson said there is "no impact". She was responding to email queries made yesterday.

The spokesperson noted that there would be no effect on jobs either. "Our manpower planning is based on volume we see today and not based on forecast," she said.

Flextronics said in the statement that Motorola will continue to rely on it (Flextronics) as an outsourcing provider, and that both companies remained committed to growing and continuing their strategic relationship.

"Motorola is currently a top 10 customer of Flextronics," the spokesperson said. "We think they will move into the top 5 over the next year."

The spokesperson added that Flextronics had so far been awarded infrastructure, handsets and set-top box contracts by Motorola. For instance, she noted that Flextronics had been awarded "additional board assembly, enclosure and third generation infrastructure" businesses. "We feel we are winning the broadest range and largest portion of new outsourcing business from Motorola."

Meanwhile, as part of the modification to the US$30 billion deal, Motorola will allow Flextronics to repurchase a US$100 million equity stake previously sold to the former. "With no obligation to do so, Motorola graciously allowed us to buy back the equity instrument," Flextronics chairman and CEO Michael Marks said in the statement. "We appreciate this tremendously, as it enables us to remove barriers that have limited our progress with other suppliers."

The spokesperson said the revised strategic alliance with Motorola would have "no effect" on Flextronic’s bottom line in its current financial year. "Our guidance has been based on known customer wins," she said. "The buy back will not affect our sales performance with Motorola."

Meanwhile, she declined to comment on the status of Flextronic’s bid to buy Lucent Technologies’ two manufacturing plants in the US.

In the US, Motorola shares last traded at US$16.90, up US$0.13. Shares of Nasdaq-listed Flextronics last traded at US$25.88, down US$0.19.