Corporate Overview

Flextronics is a leading provider of Electronic Manufacturing Services ( EMS). It competes with the likes of Hon Hai Precision Industries, Jabil Circuit, Celestica, Benchmark Electronics, Sanmina-SCI, Plexus, Quanta Computer, ASUSTEK Computer, and Compal Electronics. Flex provides a wide range of vertical integration service, and its design, construction, ship and service a complete product for their customers. Integration Services include printed circuit boards, flexible circuit manufacturing, system components and the manufacturing industry, logistics, after-sales services, design and engineering, and Original Design Manufacturing (ODM) service. We believe that the large-scale and global presence of Flextronics' operations serves as a competitive advantage. It helps appeal to customers seeking to do business with a limited number of vendors, as well as with procurement of supplies, with distribution, and with siting acilities in low-cost regions. (Forrestor Research, 2012).
The company has grown during the past five years in part by acquisition, with its purchase of Solectron Corporation in October 2007 standing as a landmark deal in the industry and total consideration was about $3.6 billion.

How the Industry is served?
Consumers demand electronics products that provide more utility, convenience and user-friendly. These showed results of electronics sales are driving global demand for electronics components. This should be a boon for the Circuit Board and Electronic Component Manufacturing industry, which primarily manufactures printed circuits, circuit boards, capacitors, transformers, connectors and other products. However, import penetration is having a stark effect on the industry’s bottom line.
The Circuit Board and Electronic Component Manufacturing industry has a low level of concentration, with the three largest companies representing 19.3% of industry revenue. Flextronics, TE Connectivity and Sanmina are all global electronics manufacturers with a manufacturing presence in multiple countries. The remainder of industry revenue comes from smaller, often contract-based, suppliers that represent less than 5.0% of industry revenue each. The standardized nature of the industry’s products lends itself to high levels of competition between smaller industry players.

Net sales of $28.7 billion in FY 11 (Mar.) came 52% from Asia, 29% from the Americas, and 19% from Europe. In FY 11, revenue came 27% from the Infrastructure segment; 21% from Mobile; 21% from Industrial, Auto, Medical & Other; 18% from Computing, and 13% Consumer Digital. (Adams Media Research, 2012)
In Fiscal Year 11, the company's top 10 customers were accounted for 52 per cent of net sales by continuing to operate. The net sales increase from 47 per cent in Fiscal Year 10 and 50 per cent in Fiscal Year 09. However, there was only 55 per cent and below in Fiscal Year 08. FLEX have production of various commodities, including smart phones, personal computers, computer peripherals, electronics products for consumers, cameras, inkjet printers and servers.
There were many customers such as Dell, Microsoft, Sony Ericson, Huawei and Lenovo are buying electronics products from Flextronics. (Junseok Hwang, 2009)

Impact of Major Developments

The company has grown in part by acquisition, with its purchase of Solectron Corporation in October 2007 standing as a landmark deal in the industry, in our view. FLEX acquired Solectron by paying approximately $1.07 billion in cash and issuing about 222 million FLEX ordinary shares. The total consideration was about $3.6 billion. The initial combined operations operated in 30 countries and had about 200,000 employees; FLEX's global staff numbered about 176,000 at March 31, 2011.We views the integration of Solectron operations, which were similar in nature but often complementary in segment focus, as having been accomplished relatively smoothly. The company occasionally makes small acquisitions to add expertise or capacity in certain industry segments. There were four such acquisitions that made by FLEX in Fiscal Year 11 and 10 and paid about $17 million and $76 million. In FY 09 it made six acquisitions, paying about $200 million, and in FY 08, it made three acquisitions for about $189 million. (Preez, 2003)The company had located around 75 per cent of their manufacture capacity in low-cost countries in the month of March 31, 2011, those countries included were China, Malaysia, India, Indonesia, Mexico, Romania and Slovakia. These countries often located facilities in industrial parks which offer logistical advantages.

Financial Trends

Revenues reflect the strong cyclical nature of the EMS industry, rising 19% in FY 11 after a 22% decrease in FY 10. The share price can likewise be volatile, and the beta is above 2. For FY 11, free cash flow was reported by the company (operating cash flow less net capital expenditures) of $463 million, following $622 million for FY 10 and $855 million for FY 09. FLEX continues to execute and maintain a competitive cash conversion cycle, in our view. In the end of FY 11, the inventories rose to amount that is around $3.6 billions compare to FY 10 which the inventories was at $2.9 billions and at the end FY 09 was $3.1 billions, but below the level of $4.0 billion in FY 08. (Adams Media Research, 2012)
The company borrowed about $1.7 billion to help cover the Solectron acquisition costs in FY 08. As of March 31, 2011, FLEX's long-term debt stood near $2.2 billion, down from approximately $3.4 billion at the end of FY 08, but above the $1.5 billion level of FY 07. (Forrestor Research, 2012)
We are encouraged by what we see as FLEX's generally improving financial metrics, despite reported losses for FY 08 and FY 09 resulting in part from a substantial write-down of goodwill in FY 08, and high restructuring costs associated with integrating Solectron in FY 09. The company had no restructuring charges in FY 11, following restructuring costs of about $108 millions in the FY 10, $181 millions in the end of FY 09, and $448 million in FY 08.
During FY 11, the company repurchased about 65.4 million shares for approximately $400 million, and we expect share repurchases to continue at a moderate pace in the near term, helping to support per-share results. (Rovere, 1998)

EMS Market

The major market of EMS which include Original Design Manufacturers (ODMs), had represented and own around 40% of the major EMS market by achieving sales of $283 billion in 2008 before falling 12.1% in 2009 to show industry revenue near $248 billion, according to market research firm IDC. In the recovery year of 2010, industry sales rose 24.8%. IDC estimates industry growth was 8.7% in 2011, as the global economy expanded. As the economic recovery matures, it foresee sales growth edging down toward 7.0% for 2012. We believe that the implementation is the key component to success in the electronics industries. Besides that, firms that have strong control on their cost, worldwide scale and the best prospects for revenue base. (S Claessens, 2010)
The last big EMS merger was in 2007, when Flextronics International (FLEX 7, Hold) completed its acquisition of Solectron Corporation. Rather than simply seeking larger scale, we believe that EMS companies are finding opportunities to increase their manufacturing capabilities which include vertical integration in order to gain more and large amount of the order of specifics items from their customers.
EMS companies are struggling and diversifying their instability revenue bases in order to reduce their business models and enter higher profits industries. Other than that, Integration in the supply chain of suppliers, resulting in the electronic manufacturing industry tradition other than add features integration in the supply chain of suppliers resulting adding capabilities outside traditional electronic manufacturing in areas such as electro-mechanical assemblies, plastics and metals. Companies are also coping with wage-hike pressures in China, as workers are gaining bargaining leverage (Silicon Valley insider, 2012)