Flextronics Signals Good News for Tech Stocks

"All that is gold does not glitter,
Not all those who wander are lost;
The old that is strong does not wither,
Deep roots are not reached by the frost.
From the ashes a fire shall be woken,
A light from the shadows shall spring;
Renewed shall be blade that was broken,
The crownless again shall be king."

-- "All That Is Gold Does Not Glitter," by J.R.R. Tolkien

One of the most positive signs for the electronics and computer hardware markets this earnings season comes from manufacturing expert Flextronics (Nasdaq: FLEX). The company just reported earnings of $0.26 per share, up from $0.20 per share a year ago, on 66% higher revenue of $7.78 billion. That's sales at the upper end of management guidance, and earnings well above the official forecast that topped out at $0.23 per share.

This is good for the entire field of electronics, because it means that Flextronics is receiving plenty of orders from its customers, which range from Cisco Systems (Nasdaq: CSCO) and IBM (NYSE: IBM), for their corporate IT product needs, to consumer gadgets like the Microsoft (Nasdaq: MSFT) Xbox 360 and Dell (Nasdaq: DELL) desktop systems. If those guys are keeping their production lines busy, it stands to reason that they expect to sell a lot to their customers, and their management teams should be way too smart to make uninformed gambles in that arena.

We might get some more confirmation of this angle tonight, when rival electronics manufacturer TTM Technologies (Nasdaq: TTMI) reports its results. Granted, Flextronics and TTM serve slightly different target demographics, with Flex going the low-cost, high-volume route and TTM looking for quick-turnaround custom orders and complex designs. But both serve as canaries in the global electronics coal mine, by showing the general direction of the sector slightly ahead of the end-product designers themselves.

So it wasn't a massive earnings shocker by any means, but when the ether is abuzz with recession talk 24/7, even a mild outperformance is good news. Place your investment dollars accordingly, and remember that rock-bottom markets offer the biggest discounts.

Further Foolishness:

• Best International Stock: Flextronics
• TTM Turns a Corner
• The $75 Billion (and Growing) Opportunity