Technology infrastructure and wireless equipment OEMs and consumer electronics makers seem to love what Flextronics does for them: L.M. Ericsson handed over its entire handset
manufacturing operation to Flextronics, while Microsoft Corp. signed it to make its Xbox game console system.
Deals like these have made Flextronics about the brightest star in the EMS galaxy. Its revenue surged from $640 million in fiscal 1997 to $12.1 billion in fiscal 2001, a 1,800% increase. Flextronics' revenue has stabilized in recent quarters, while some competitors see declines.
�They went from $93 million in 1993 to $12 billion eight years later,� said Michael Morris, an analyst at Salomon Smith Barney Inc. in San Francisco. �That was a pretty fast ride. Do we foresee a day when Flex becomes the No. 1 revenue company? This will happen. Flextronics is at a record revenue pace, Solectron isn't.�
Today, Flextronics' biggest challenge is managing its growth. Many other EMS providers, including some facing the prospects of bankruptcy, wish they had growth to manage. But Flextronics insists that it is up to the challenges that come with rapid growth and that its management has the experience to see it through.
�Not only is [Flextronics' management] a highly skilled executive team, the neat thing about it is we get along very well and work well together,� said Jim Sacherman, Flextronics' senior vice president of marketing. �We feel we have one of the strongest balance sheets in the industry, [and] we currently have the highest market value in the business.�
In the past, analysts had criticized Flextronics for expanding too rapidly through acquisition and by buying OEM assets. They raised concerns that the company could encounter difficulties integrating the new assets. Those criticisms have faded as Flextronics successfully closed each acquisition, and now it is lauded for its vision.
�[Flextronics' chairman and chief executive] Michael Marks has had a terrific vision and [its] execution has been carried out very well,� said Tony Boase of A.G. Edwards & Sons Inc., St. Louis.
That vision has propelled the company's growth as it moved into new product areas ahead of many of its major competitors.
�They are moves our customers asked us to make or which we decided to make, and these gave us an advantage over our competitors,� Sacherman said. One example Sacherman cited was Flextronics' push into the enclosure business about two years ago.
�Our competitors didn't see a reason to enter that area,� he said. �Now we're two years ahead of them. That means our enclosure business is fully integrated.�
This year the company is taking on network services and logistics capabilities, according to Sacherman.
Though Flextronics has been making advances, some concerns remain in the investment community about its expansion strategies and future profitability.
For instance, Randall Sherman, an analyst at New Venture Research Corp., Nevada City, Calif., said he is concerned that Flextronics may trip up like rival Solectron, which analysts said grew rapidly and has encountered problems integrating some businesses.
�Some fly too high and melt their wings,� Sherman said. �Flextronics faces the danger of collapsing upon its own weight.�
Flextronics may avoid tripping if it remains focused on the things it does well, including reliable contract assembly work and efficient supply chain operations, Sherman said.
�Flextronics has become the golden child of the EMS industry,� he said. �They have done this with raw talent, excellent vision, and via an understanding of the fundamentals of this business that exceeds the ability of its nemesis, Solectron.�