Tuesday, June 05, 2007

Electronics assembly giants merge This week Singapore-based Flextronics, the #2 electronics manufacturing services (EMS) company in the world, announced it would buy out rival Solectron (#5). The deal is for $3.6 billion. Flextronics' biggest competitor is Taiwan-based Hon Hai Precision Industry Co., the little known #1, a little better known for the brand name Foxconn. Even after the acquisition, Flextronics will remain #2. Flextronics designs and manufactures electronic components for other companies, and even whole assemblages, For example, it produces digital cameras for Kodak. Last year, it acquired US-based International DisplayWorks ($300 million), a maker of liquid crystal displays used on cell phones and other handheld device. Other clients include Dell, Microsoft, and Hewlett-Packard. Solectron manufactures often higher-end components used in telecom and computing. Its clients include IBM, Nortel, Ericsson, and Cisco. Solectron has grown over the last decade through a series of acquisitions of specialized component makers. The expanded company will have 200,000 employees, with operations in 30 countries. The competitive electronics components industry is starting to consolidate. The top 10 companies now control over 70 percent of sales, according to a Bloomberg story. Margins are low, so scale and leverage are important. Most important, there is major overcapacity in the industry. Already shares for Canadian-based Celestica are up on further consolidation rumors, especially involving Hon Hai. US-based Sanmina-SCI is also being seen as a takeover target. Signs are good for a rapid sector consolidation, and perhaps a buying panic. 9:35:48 PM

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