Word: telecoms
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...computer and telecom-equipment makers now facing rebellious shareholders and piles of inventory, the prospect of a cash infusion from the sale of their factories to EMS companies is especially appealing. "We used to have to fight and plead for companies to divest assets to us," says Dave Fargnoli, a director of finance at Flextronics. "Now we're in the driver's seat because they are rushing to off-load them." Marks, a salesman to the bone, tells potential customers: "You can be a market-leading company and not make a single thing." Why not, he adds with a grin...
...rate to do three dozen acquisitions in less than 15 months, especially when many of them are in new areas for the company." In the meantime, the big EMS players must also adjust to the economic woes of their customers. In a speech last month, Marks predicted that the telecom industry is "going to get a lot nastier, with a lot of dislocation"--referring to the number of plants (including his own) that are closing and to workers who will be laid...
Then providence intervened. Swedish telecom giant Ericsson decided that it had become too costly to produce all its wireless switching equipment and, after researching Silicon Valley's contract manufacturers, awarded a $300 million deal to Flextronics (whose revenues at the time were only $400 million). "That launched us in Europe almost overnight," says Marks. "There was no other contract manufacturing going on there, so we were able to move very quickly with other acquisitions...
...after eight weeks of dickering, the deal got done--as both companies recognized that it was the only way they could compete against larger rivals Solectron and Flextronics. SCI, with $9.1 billion in sales last year, mainly assembles PCs and telecom gear, using relatively low-paid labor in countries like Mexico and Malaysia. Sanmina manufactures more complex switches, routers and optical-networking equipment for the likes of Cisco, Alcatel and Motorola, often using skilled labor or factories equipped with robots and lasers. If the merger is approved, as expected, by shareholders and regulators in the U.S. and Europe, the combined...
...would surely be good for business. Goldman Sachs expects TV advertising revenues in China to grow from $2 billion today to $7 billion in 2010. And someday, additional revenues may come from the use of China's upgraded cable network to access the Internet. First though, warring broadcast and telecom regulators have to sort out who would control such transmissions...