Electronics maker Solectron (NYSE:SLR) reports its fiscal Q3 2006 earnings tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Three analysts say buy Solectron, nine say hold, and a whopping eight out of 20 analysts urge you to sell.
  • Revenues. Wall Street expects to see Solectron post flat sales against last year, so $2.6 billion.
  • Earnings. Flat profits are expected, too. $0.04 for this line.

What management says:
Grab hold of your gyroscopes, Fools, and get ready to enter the Yes-Spin Zone. As fellow Fool Stephen Simpson warned in reviewing last quarter's results, management at Solectron "uses the same gobbledygook as many other tech companies, talking about sequential performance and liberally quoting non-GAAP numbers." Looking over the same press release Stephen saw, I see exactly what he means. Listen to how CEO Mike Cannon describes his "pleasure" at the fiscal second-quarter's revenue trends: "We are pleased to see that revenue growth has resumed over the past two quarters and that we are delivering on our commitment to return to growth in fiscal 2006."

Cannon isn't prevaricating, exactly. But he is interpreting the results in their most favorable light. Sequentially, sales were up in each of the last two quarters. But year over year, both Q1 and Q2 2006 were down significantly in comparison to the previous year's results.

What management does:
With margins like these, Solectron has an income statement only a mother could love. As already noted, revenues continue to decline -- down 9% on average over the last six months, compared to last year's numbers. But cost of goods sold is only down 8% in the same time period, and operating costs have risen nearly 6%. As a result, the company continues to flirt with breakeven on a net basis, while its average operating margin slides ever closer to zero.

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

5.1%

5.5%

5.5%

5.5%

5.3%

5.2%

Op.

1.5%

1.8%

1.7%

1.5%

1.2%

0.9%

Net

0.1%

0.7%

(0%)

0%

(0.3%)

0%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Over on the balance sheet, the picture is mixed. Solectron has done a good job of collecting on bills come due, knocking its average accounts receivable down by 13% over the last six months. On the other hand, the company isn't doing as well on managing its inventories. With sales down 9% recently, you'd expect to see a corresponding drawdown in inventories, but they've actually only declined 2% year over year.

That's a trend we'd like to see change tomorrow -- even if only sequentially.

Is Solectron on the cusp of a turnaround? Stephen Simpson argues that that's a definite maybe.

Competitors:

  • Benchmark Electronics (NYSE:BHE)
  • Celestica (NYSE:CLS)
  • Ingram Micro (NYSE:IM)
  • Jabil Circuit (NYSE:JBL)
  • Nam Tai Electronics (NYSE:NTE)
  • Sanmina-SCI Corp (NASDAQ:SNMA)

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Fool contributor Rich Smith does not own shares of any company named above.