Nortel NI operations will transfer to Flextronics

18 Oct 2004

Contract electronics manufacturer (CEM) Flextronics has confirmed that Nortel Networks’ manufacturing operations near Belfast, which employ some 350 people, will formally transfer to Flextronics’ ownership next month as part of a massive US$2.5bn deal. was first to report in January last that Nortel intended to divest itself of all remaining manufacturing activities in Northern Ireland (NI), as well as France, Brazil and Canada, and outsource the activities to Flextronics. The transaction will generate approximately US$2.5bn worth of revenues for Flextronics.

In recent days, however, it is understood that a hitch in the transfer procedure has delayed the transfer of two Canadian Nortel manufacturing operations scheduled to take place in November, and February 2005. The transfer will take place instead in February and May of next year.

According to Flextronics, the transfer of optical design groups in Canada and NI is still on schedule to take place next month.

The Nortel campus in Monkstown employs around 720 people engaged in activities ranging from manufacturing to optical research and development (R&D), customer services, supply chain management, software development and strategic management. Approximately 350 of these workers are engaged in manufacturing communications systems and will be affected by the transfer insofar as Flextronics will be their new employer. Nortel Networks employs an additional 220 people in Galway engaged in strategic R&D.

Successful completion of the transfers could result in Flextronics undertaking and managing in excess of US$2bn of Nortel Networks’ annual cost of sales on a go-forward basis and involve the transfer from Nortel Networks to Flextronics of more than US$500m of manufacturing and inventory assets.

Michael Marks, chief executive officer of Flextronics, stated: “The delay in the transfer of these two manufacturing operations is due to Nortel Networks continuing focus on the completion of the company’s restatement of its financial statements and the required regulatory filings. We are still on track for the targeted completion date of May 2005, so these changes to the schedule are a timing issue not a deal or relationship issue.”

Marks added: “Of course this will reduce revenue expectations in the December and March quarters, and it may reduce our earnings per share by US$0.01-US$0.02 in each of those quarters as a result of the costs we have invested that won’t be offset by the expected volume. On the other hand, this will also delay some of the cash payments to Nortel Networks, which should allow us more time to accumulate cash from operations to fund such payments.”

By John Kennedy