Nortel Networks to Transfer Supply Chain Operations to Flextronics

Largest program award in EMS history expected to add $2.5 billion in annual revenues for electronics manufacturing service provider

Singapore — July 1, 2004 — Canada's Nortel Networks has inked an agreement to transfer its supply chain operations to electronics manufacturing service (EMS) provider Flextronics, with Nortel set to divest itself of certain optical, wireless and enterprise manufacturing operations and optical design operations.

The deal marks the largest program award in EMS history, according to the two parties, and Flextronics expects the deal to generate approximately $2.5 billion in annual revenues for the company. Nortel expects to receive estimated cash proceeds of approximately $675 million to $725 million from the transaction.

Subject to closing the four-year manufacturing agreement, Flextronics will assume most of Nortel's systems integration activities, final assembly, testing and repair operations, along with the management of the related supply chain and suppliers.

Over time, Flextronics expects to consolidate and internally source its vertically integrated supply chain solutions, which include the fabrication and assembly of printed circuit boards and enclosures, as well as logistics and repair services.

Through an optical design services agreement, Flextronics will acquire a group of engineers with expertise in carrier-grade optical network products that include the Edge, Core Switching and Transport Line products. The design and engineering skills to be transferred to Flextronics include hardware development, software development and project management.

"Flextronics will be acquiring a design group with broad experience in telecommunications and optical networks, with extensive knowledge of optical products and processes," said Michael Marks, CEO of Flextronics. "There are no independent design companies in the world that have this degree of design expertise, so we are thrilled to have expanded the scope of our engagement with Nortel Networks to include these services."

Added Marks, "We believe hardware design, software design, and manufacturing are converging, which makes the addition of the Nortel Networks design group an excellent fit with our long-term strategy of providing the lowest total cost solutions to customers in each of the market segments that we serve."

Chahram Bolouri, president of global operations with Brampton, Ont.-based Nortel, said that the latest announcement was an important part of his company's overall strategy. "By leveraging the vertically integrated supply chain capabilities of Flextronics, we can focus our resources and efforts on those areas that offer us greater competitive differentiation," Bolouri said. "Flextronics has industry leading vertical supply chain expertise, resources and the global presence to meet our time-to-market, quality and product cost-reduction objectives and take Nortel Networks' supply chain to new levels of performance and competitive differentiation."

As part of the transaction, which is subject to customary closing conditions, including the completion of the required information and consultation process with employee representatives in Europe, approximately 2,500 employees would transfer to Flextronics. The business transfer to Flextronics is expected to begin in November 2004 and will take approximately six months to complete. During this time period, Flextronics' revenues from Nortel Networks will increase each quarter and should reach an annual revenue rate of approximately $2.5 billion.

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