As announced earlier (Dec 2012), electronic product contract
manufacturer, Flextronics International Ltd. (FLEX) recently completed the acquisition of certain
assets of Motorola Mobility LLC, a division of Google
(GOOG) . The deal makes Flextronics Motorola's biggest
Flextronics acquired Motorola's manufacturing facility,
equipment and employees in Tianjin, China and Jaguariuna, Brazil
for an undisclosed amount. Flextronics expects the deal to be
accretive on both operating income and earnings per share basis for
fiscal year 2014.
Revenue potential is expected to be of several billions and
operating margin remains within the target range for its High
Velocity Business segment. The company expects to earn a return on
invested capital ("ROIC") of 20% going forward.
Flextronics announced that the two facilities, along with
equipment and assets are worth approximately $75.0 million and the
company is not paying any premium for these items. Flextronics is
expected to provide further details of the transaction at its
upcoming fourth quarter conference call scheduled on Apr 30.
We believe that the deal will be significantly beneficial for
Flextronics as it will help in expanding the company's
manufacturing capacity in the low cost regions of China and Brazil.
Notably, in Aug 2012, Nokia Siemens Network signed a contract with
Flextronics to open an assembly line in Brazil.
Moreover, Flextronics will acquire a highly trained and skilled,
ready-to-deploy employee group, which will save a lot of time and
training resources, in our view. We believe that the Motorola
facility acquisition will further drive its growth prospects over
the long term.
In May 2012, Google acquired Motorola Mobility for approximately
$12.5 billion. Since then the company has been looking to divest
the unprofitable part of the business to save costs and the current
deal is a part of that broader strategy.
However, Google's intentions regarding the Motorola hardware
operations are not very clear. The search giant has already
announced its intentions of exiting the entry-level low-margin
handset business and focusing on high-end smartphones, where
Motorola used to have minimum presence.
We believe that this uncertainty related to Google's motive over
Motorola's handset manufacturing business will be a significant
headwind for Flextronics going forward. If Google suddenly decides
to wind up the whole business, both the current facilities will
become idle (currently they will only manufacture Motorola
handsets), which will hurt Flextronics' top-line growth going
Moreover, the portfolio realignment is also expected to hurt
Flextronics' top-line growth in the near term. Further, increasing
competition from Jabil Circuit (JBL)
and Plexus Corp (PLXS) remains a concern going forward.
Currently Flextronics has a Zacks Rank #3 (Hold).FLEXTRONIC INTL (FLEX): Free Stock Analysis
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