The deal, if consummated would result in the transfer of Nortel's optical, wireless and enterprise manufacturing operations to Flextronics although Nortel said it would retain control over the strategic management of its supply chain.

Flextronics, the world's largest electronic contract manufacturer by revenue, would pay Nortel more than $500 million over nine months and an undisclosed amount over an unspecified period to manage supply chain operations related to the identified businesses.

The completion of the transaction would mark the transfer of most if not all of Nortel's manufacturing operations to EMS providers, with the company handling mainly design and marketing activities, according to analysts.

"We're heading towards zero touch for Nortel," said J. Keith Dunne, an analyst at RBC Capital Markets in San Francisco. "This deal was no great surprise because it is a normal progression in outsourcing for Nortel."

In a statement, Nortel noted that it had over the last five years outsourced most of its manufacturing activities to EMS providers and said it had secured substantial savings. During the period, Nortel has more than halved its workforce and the latest transaction would also result affect 2,500 jobs at the company.

"By continuing to leverage the growing supply-chain capabilities of the EMS industry, we expect to take Nortel Networks supply chain to new levels of performance and competitive differentiation, for the benefit of our customers," said Chahram Bolouri, president, global operations, Nortel Networks.

"Flextronics has the supply chain capabilities to meet our time-to-market, quality and cost-reduction objectives," added Bolouri. "At the same time, divesting the remaining parts of our manufacturing operations would enable us to focus on the core capabilities required to deliver converged networks to our customers."

Singapore-based Flextronics reportedly made a preemptive move to acquire the Nortel business in a bid to diversify its revenue stream by securing additional PC board assembly work at Nortel. The deal would also further strengthen Flextronics' relationship with the communications gear maker by transferring more than $2 billion in cost of sales to the contract manufacturer.

"The significant increase of complex, multitechnology network solutions including carrier grade products, would accomplish a long-standing company initiative to better balance our product mix and reduce seasonality," said Michael Marks, chief executive of Flextronics.

The deal would result in the transfer of Nortel's Systems Houses operations in Canada, Brazil, Northern Ireland and France to Flextronics.

The EMS provider said it would assume systems integrations work, including final assembly, testing and repair operations currently done at the North American and European sites. Some of the services would be performed at other locations.

"The resulting financial impact would be accretive to Flextronics in the first year of an agreement," said Robert Dykes, president, systems group and chief financial officer at Flextronics.

Flextronics said it expects to announce the details of the ongoing discussions with Nortel on Jan. 27 when its fiscal 2004 third quarter results would be released.

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved