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Optical networking news and information website Light Reading was the first to report it might happen, and now it has. Telecom equipment maker Lucent (NYSE: LU) is buying privately held Chromatis Networks, which makes metro optical networking systems. Under terms of the deal, Lucent will exchange about 78 million shares of common stock, worth about $4.5 billion, for Chromatis. More Foolishness
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Under terms of the deal, venerable Motorola will turn over roughly 15% of the manufacturing duties in its Communications Enterprise unit to Singapore-based Flextronics, which will provide components and complete units for Motorola's wireless phones, pagers, and other communications devices. Flextronics provides manufacturing services for original equipment manufacturers such as Cisco (Nasdaq: CSCO), Lucent (Nasdaq: LU), and IBM (NYSE: IBM).
That's what contract electronics manufacturers do, and there are a host of fast-growing players in the field. Rivals include Solectron (NYSE: SLR), Celestica (NYSE: CLS), and Jabil (NYSE: JBL). Their core competency is manufacturing, of course, and they make up for low-margin work with efficiency, high volume, and a wide range of product lines.
The advantage for a company like Motorola is that it gets to concentrate on what it does best: innovation and sales. The program may be just what the doctor ordered for the Schaumburg, Illinois company. In the first quarter, Motorola said its Q2 and full-year earnings would fall short of estimates in part because it's selling more and more low-margin products. This cuts into profit margins. (For the full story on Motorola's first quarter click here.)
Excluding special items, Motorola's manufacturing and other costs of sales stood at 59.9% last year, down from 61.8% in 1998 but up from 58.6% in 1997. With the company's increasing focus on PCS (personal communications) devices, the lowest manufacturing margin products the company makes, production costs are expected to rise this year. Maybe the outsourcing deal with Flextronics can turn things back in Motorola's favor.
Unfortunately, Motorola didn't give any guidance in its release as to how much it expects to save or shave off margins with the deal.
As part of the agreement, Motorola is buying a 9% stake in Flextronics for an initial payment of $100 million. The instrument is convertible over time into 11 million shares, worth about $551 million at yesterday's closing price.
Ted Briscoe, president and chief operating officer at the Web search engine company Ask Jeeves (Nasdaq: ASKJ), has resigned to become chief executive of privately held Play Streaming Media Group. Briscoe joined Ask Jeeves as head of marketing in January 1999. He'll remain with the company through the end of the second quarter.
Electronics retailer Circuit City (NYSE: CC) has reached agreement with budding satellite company XM Satellite Radio (Nasdaq: XMSR) to sell the company's radios in its 600 stores. XM Satellite plans to beam up to 100 channels of music, news, and sports from a fleet of satellites into consumers' cars starting next year. The company's first satellite launch is scheduled for November.
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