The Flexible Flextronics

The electronics contract manufacturing industry struggled right along with the rest of the tech sector over the past few years. But it's an industry on the mend. Now, more than ever, technology companies are looking for ways to cut costs. Many choose to outsource manufacturing while focusing on product development and marketing.

One such company is electronics manufacturing services (EMS) provider Flextronics International (Nasdaq: FLEX  ) , which is part of the Nasdaq 100, has a market cap of nearly $8 billion, and has more than 80,000 employees working in a hundred facilities throughout the world.

For fiscal 2004 ended in March, the company had $14.5 billion in sales versus $13.4 billion for 2003. On a generally accepted accounting principles basis for the same period, it had a net loss of $352.4 million, or $0.67 per share, compared with a loss of $83.5 million, or $0.16 per share, a year earlier. On a pro forma basis, though (excluding amortization, debt retirement, and a legal settlement), net earnings were a positive $234.8 million, or $0.42 per share, compared with $161.6 million, or $0.31 per share.

That's a lot of numbers to juggle, but they show that -- discounting nonrecurring items -- the financials are improving. And that is further evidenced by the deals Flextronics International has put together recently.

Last week, it agreed to purchase factories in several countries from telecommunications equipment company Nortel Networks (NYSE: NT  ) for about $500 million. The company expects the plants to add $2.5 billion in annual sales. And earlier last month it agreed to pay $308 million for a majority stake in India-based telecom software company Hughes Software Systems, owned by DirecTV Group (NYSE: DTV  ) , which is in turn 34% owned by News Corp. (NYSE: NWS  ) . The company has even gotten into the fuel cell game. You can read more about that in the recent Take Fuel Cells for the Masses?

Flextronics International and main competitor Solectron (NYSE: SLR  ) are the Wal-Marts (NYSE: WMT  ) of the EMS industry, having the scale and scope to produce many items cheaper than the companies that invent them. It's a business model akin to selling picks and shovels in a gold rush where the vendors got a whole lot richer than the majority of the miners. And Flextronics International's diversification makes it potentially a good fit in any tech portfolio.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.


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