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Flextronics Readies for Telecom Gear Rebound

Contract manufacturer Flextronics is buying a majority stake in Hughes Software Systems (HSS) to expand its outsourcing offerings for telecom equipment manufacturers.

The Singapore firm will pay $226 million to Hughes Network Systems for a 55 percent ownership share. Hughes Network Systems is a subsidiary of DIRECTV.

Based in New Delhi, HSS provides 250 telecoms with software to run voice and data networks on a number of optical, wireless, satellite and broadband platforms.

When the transaction is completed, Flextronics can tap into HHS' three development centers (New Delhi and Bangalore, India, and Nuremburg, Germany) to provide end-to-end services, including engineering, manufacturing and assembly, shipping and after-market maintenance and repairs. HSS employs about 2,500 people.

Spokespeople for the companies were not immediately available. In a statement, Flextronics CEO Michael E. Marks said, "HSS will enable us to move quickly into the telecom infrastructure space."

Marks also said the deal should help it cross-sell its products and services to a customer base that is complementary to its current IT manufacturing customers.

It's the company's second large move toward the telecom industry in the last year. In August, it bought Microcell Group, a maker of wireless communications equipment.

In that deal, Flextronics paid $80 million in cash and assumed $120 million of Microcell's debt. In return, it gained development centers in Finland and Denmark, with major manufacturing operations in Nanjing, China.

For HHS, its new ties with Flextronics will give it a wider reach. As carriers emerge from the economic slump, they are starting to upgrade their networks to handle Voice over Internet Protocol and other advanced services.

That is driving business for firms like HSS, which reported revenue of about $80 million and earnings of about $17 million in the fiscal year that ended March 31, 2004. The 2004 revenue figure was up 63 percent over the previous year. The company is forecasting a 25 percent jump in revenue for 2005.