Flextronics Makes Wireless Play in Microcell

Singapore-based Flextronics International Ltd. , a
leading contract manufacturer for a variety of technology products, is
buying Microcell Group, a maker of wireless communications equipment.

Flextronics will pay $80 million in cash, and will assume $120 million of
Microcell’s debt. The purchase is not expected to significantly impact
Flextronics sales, but could have a slightly positive effect on earnings in
2004. The deal is expected to close in October.

Microcell has product development centers in Finland and Denmark, with major
manufacturing operations in Nanjing, China and administrative offices in the
United States and Switzerland.

The move puts Flextronics in the forefront of the original design and
manufacturing of mobile phone systems. In a press release, Flextronics said
that Microcell is “a leading original design manufacturer (“ODM”) of
wireless Global System for Mobile Communications (“GSM”), General Packet
Radio Service (“GPRS”), and Enhanced Data Rates for Global Systems for
Mobile Communications Evolution (“EDGE”) handset products.”

“Microcell is especially strong in the product creation area with over 300
product creation engineers that have a proven track record of providing
mobile phone solutions to leading OEMs,” Flextronics said.

Flextronics is expected to discuss details of the deal on its regularly
scheduled mid-quarter conference call, which is scheduled for August 18.

Analysts are mixed in their outlook on Flextronics, with three starting
coverage back in July.

On July 10, Banc of America started Flextronics with a “Buy” rating, then on
July 15, UBS started its coverage of the high-tech manufacturer with a
“Neutral” rating. And on July 18, Wells Fargo started coverage of the
company with a “Hold” rating.

On July 31, Flextronics sold $500 million of seven-year convertible senior
subordinated notes in a private placement market. CSFB was one of several
major banks managing the sale, sources told Reuters.

Minutes after the placement was announced, Standard & Poor’s Ratings
Services said it assigned its “BB-” rating to Flextronics notes that come
due in 2010. S&P also affirmed Flextronics’ “BB+” corporate credit rating
and gave the company its “stable” outlook.

S&P went onto say Flextronics had total debt outstanding of $1.7 billion as
of June 2003. The report added that sales growth at Flextronics “has slowed,
as revenue remained flat in the 12 months ended June 2003, with total sales
of about $13 billion.”

“We expect end-market demand in communications and computing to remain weak
over the near term. We believe it will be an ongoing challenge for
Flextronics to maintain its operating performance while executing
management’s growth strategy in the midst of a severe downturn in end-market
demand. On the other hand, the long-term nature of the company’s customer
relationships and its moderate financial profile provide ratings
protection,” said Standard & Poor’s credit analyst Emile Courtney, in her
company’s report on Flextronics issued on July 31.

Then on August 6, Credit Suisse First Boston said it raised its price target
for Flextronics shares to $15, up from $12. CFSB cited new financing for the
company for its analyst recommendation.

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