It’s been a busy, but fruitful, week for Solectron Corp. ,
a company that provides electronic components and supply-chain management
services to networking manufacturers.
Thursday’s announcement of a $2 billion, three-year deal with Lucent
Technologies is just icing on the cake, proving more and
more manufacturers are willing to outsource its component needs rather than
make it themselves, according to Solectron officials.
The deal comes after months of negotiating
between the two companies: since January, Solectron has been trying to buy
up between $250-$290 million in equipment and other inventory.
Both sides reached a compromise agreement Thursday morning, with Solectron
agreeing to buy up $125 million in equipment and lease space from Lucent’s
North Andover plant to build the components required for the $2 billion deal.
Now, the company is the primary advanced optical systems provider for
Lucent’s Lambda and WaveStar product families.
Saheed Zohouri, Solectron executive vice president and chief operating
officer, said the Lucent deal is a good stepping stone for future
networking equipment contracts down the road.
“This agreement is significant from several perspectives,” he said. “It
broadens our relationship with Lucent, an important Solectron customer. It
takes advantage of our technical expertise in producing highly complex
products. And it is a showcase example of a customer relying on Solectron
to provide complete supply-chain solutions.
It would seem the company is poised for greatness, so why doesn’t Wall
Street think so?
In recent weeks, a bevy of Wall Street analysts either downgraded or
announced plans to review Solectron’s books for a possible downgrade
because of its performance last quarter, which barely met its guidance and
was below analyst expectations.
Many analysts said they had concerns over Solectron’s ability to find
customers in a tight market, resulting in the company’s credit downgrade
from double B plus to double B, what a Reuters report calls “junk status.”
Matt Roszell, Solectron spokesperson, said those downgrades were made last
week, before they knew about this week’s success.
“You look at these wins and it shows that people are finally taking
advantage of what our outsourcing can do,” he said.
What it shows is the telecommunications might be on the mend, as equipment
makers sign contracts to meet carrier needs down the road. If these
manufacturers feel an upswing is in the wind, it makes sense to get ready
for the demand.
On Tuesday, Solectron signed a deal with Lucent rival Juniper Networks
, expanding its existing service and repair contract
with the company, to provide circuit board and manufacturing services for
Juniper’s G10 cable modem termination system (CMTS).
A day earlier, Xbox makers Microsoft Corp. signed a
three-year quality control and repair agreement with
the outsourcing company, while troubled European set-top box maker Pace
Micro Technology signed the company to a multi-billion dollar deal March 5.
Last quarter’s meager showing is the result of Solectron’s restructuring
and acquisition-related costs in 2001, as it struggled to define itself as
an outsourcing choice for equipment makers. In the second quarter (which
ended March 1), the company posted a net loss of $126 million and a 45
percent slump in revenues.
The acquisition of Iphotonics, Inc. in October 2001 is finally seeing dividends, though,
and is the likely reason Solectron was able to bring aboard both Lucent and
Juniper. Iphotonics manufactures fiber handling, splicing, and optical
subsystem manufacturing, as well as providing optical engineering and
design services.
