Flextronics Wins $30-Billion Motorola Contract
Motorola Inc. said Wednesday that it signed an outsourcing pact with Flextronics International Ltd. worth more than $30 billion over five years and will take a small stake in the contract manufacturer.
Singapore-based Flextronics will supply parts and units for Motorola’s lines of wireless phones, two-way pagers, wireless infrastructure products and other devices, the companies said in a joint statement.
The deal is the latest in the recent trend of broad outsourcing pacts by electronics makers with smaller firms such as Flextronics and Solectron Corp.
Schaumburg, Ill.-based Motorola said the pact, which marks one of the largest outsourcing agreements between a contract manufacturer and a name-brand electronics firm, is similar to other programs throughout its business segments to outsource manufacturing and is part of its strategy to improve supply-chain efficiencies and meet increasing product demand.
The companies said the value of services is expected to exceed $10 billion in the fifth year.
As part of the deal, Motorola will buy an equity instrument at a discount for an initial payment of $100 million. That instrument is convertible over time into 11 million shares of Flextronics stock, representing about a 5% stake.
Motorola said the deal will cover about 15% of its Communications Enterprise division’s manufacturing needs over the five years.
The deal will let Motorola better anticipate its customers’ needs and speed the time to market for its products globally. Both companies have agreed to develop their businesses together in several ways and share financial costs and gains.
In early April, customized-electronics maker Solectron signed a similar deal with Nortel Networks Corp. operations in North America and Europe for $900 million to supply parts and services to the equipment maker in a $10-billion contract.
Motorola shares fell $2.69 to close at $93.75 on the New York Stock Exchange, and Flextronics shares rose $4.38 to close at $54.44 on Nasdaq.
