Electronic product manufacturer
Flextronics International Ltd. (
recently announced the acquisition of Rochester Hills, Michigan
based Saturn Electronics & Engineering Inc. for an
Saturn is a well-known supplier of electronic manufacturing
services, solenoids and wiring to the automotive, appliance,
consumer, energy and industrial markets. Saturn's operations are
spread over a number of locations that include Coopersville,
Michigan, Mexico, the Philippines and China.
Saturn reported revenue of more than $300.0 million in the
most recent fiscal year. More than 70% of the company's revenue
comes from the automotive sector.
Flextonics has a decent penetration in the automotive market
where it supplies products and services for lighting, interior,
power electronics and connectivity.
We believe that the acquisition will further boost Flextronics
access into the automotive market going forward. Moreover,
Saturn's existing units in the low cost areas of Asia-Pacific and
China will expand Flextronics manufacturing capacity and
profitability over the long term.
Acquisitions have been an integral part of Flextronics growth
story. Over the last three years (2010-2012), the company
acquired 11 companies for an aggregate amount of $185.2 million
net of cash. Although most of the acquisitions were that of
start-ups and small companies, they helped Flextronics to expand
its presence in the communications, medical, infrastructure and
In the first six months of fiscal 2013, Flextronics acquired
three companies catering to different sectors namely medical,
hardware manufacturing and LED design and manufacturing market.
We believe that Flextronics will continue to pursue strategic
acquisitions in different markets that are easy to integrate
along its product line going forward.
Flextronics has undertaken a number of new initiatives in
order to become more competitive, which includes divestiture of
non-core assets and deployment of new technologies. New programs
are expected to boost production volumes by early fiscal 2014,
although profitability is expected to remain weak due to
In this regard, we believe that strategic acquisitions and
strong new bookings will also drive top-line growth over the long
term. However, macro-economic concerns and weak end-market
demands are major concerns in the near term.
Moreover, the portfolio realignment is also expected to hurt
Flextronics' top-line growth in the near term. Further,
increasing competition from
Jabil Circuit Inc. (
remains a concern going forward.
Thus, we have a Neutral recommendation on Flextronics over the
long term. Currently, Flextronics has a Zacks #4 Rank, which
implies a short-term Sell rating (for the next 1-3 months).
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