Flextronics Isn't Soft on Software

Flextronics Corp. (Nasdaq: FLEX) is flexing muscles in the software area, making moves that could boost the contract manufacturer's standing as OEMs outsource bigger chunks of system design.

Yesterday, the company announced the planned acquisition of Future Software Ltd. (FutureSoft), an India-based firm that provides protocol stacks and Layer 2/3 switch software (see Flextronics to Acquire FutureSoft ). Per Indian law, terms of the FutureSoft deal haven't been disclosed yet, as the companies are awaiting government approval.

FutureSoft isn't the only deal of its sort that Flextronics is working. The company is also acquiring a 55 percent stake in Hughes Software Systems Ltd. (HSS), an Indian subsidiary of The DirecTV Group Inc. That deal is expected to close in the next several weeks.

Flextronics appears to be the first large contract manufacturer to amass a software group, beating out competitors Celestica Inc. (NYSE, Toronto: CLS), Jabil Circuit Inc. (NYSE: JBL), and Solectron Corp. (NYSE: SLR). It's no small team, either; FutureSoft boasts 524 engineers, and HSS has 2,400 employees.

Some software power would certainly complement Flextronics' June contract to take over Nortel's manufacturing operations (see Nortel Sells Plants, Supplies Update). But there's a more ambitious possibility. Flextronics already assists customers in hardware design. The addition of software expertise would make it possible for the firm to take over the entire design.

Whether Flextronics is interested in full systems design is yet to be seen. Company officials did not return a call for comment. But given the massive cost cutting of the last few years, most industry insiders expect OEMs to contract out more of their operations; some sources say the trend has already extended to R&D and product design.

In any event, analysts are expecting to see Flextronics broaden its offerings. "We continue to believe Flextronics could eventually introduce ODM [original design manufacturer] products for the networking market," wrote Brian White, an analyst with Kaufman Bros. LP, in a report last week.

Outsourced software design will also help Flextronics boost margins. In a July earnings call, Flextronics CEO Michael Marks told analysts HSS would be "probably the highest margin business unit" in the company, with post-tax margins of 21 percent.

Should both acquisitions come through, Flextronics will have a broad software team. FutureSoft's expertise is on the datacom side; the company has IP and ATM expertise and can do all the software for a Layer 2/3 switch, for example. HSS is more closely related to telecom, providing software for areas such as SS7 signaling.

FutureSoft, by the way, is no flash-in-the-pan startup. The company was founded in 1985 and got into the protocol stacks business in 1994. Officials are expecting revenues of $23 million for the fiscal year ending in March; and, before the Flextronics deal, they had talked of expanding to 2,000 employees by 2007.

— Craig Matsumoto, Senior Editor, Light Reading

brahmos 12/5/2012 | 1:18:40 AM
re: Flextronics Isn't Soft on Software they also purchased a firm Deccanet Designs or
were planning to a couple months ago.



dodo 12/5/2012 | 1:18:33 AM
re: Flextronics Isn't Soft on Software Flam

This is the case when you have ops VPs and CEOs who can't and don't understand the basics about H/W and S/W. All they know is the bottom line even though they are killing their youngsters (reminds me of the male bears going after the young cubs).

Shareholders values entail a lot of things, not only quick profits ( a la Nortel) which will only result into big bonuses for the fat cats who won't be accountable in the next 3 years.
We have seen so many examples but we have not learned.

Some of the BODs need to be flushed- can't have someone who does not know the industry and the market decide on the future of a company.

Just my 2 cents
flam 12/5/2012 | 1:18:33 AM
re: Flextronics Isn't Soft on Software You guys are going to be toast soon.

* First you outsource manufacturing to Flex
* Then you outsource hw design to Flex
* Then you outsource sw to HSS
* Flex buys HSS
* Flex scratches head and wonders "why do I need
all these bozos to sell my stuff?"

bsd_devil 12/5/2012 | 1:18:06 AM
re: Flextronics Isn't Soft on Software anyone know what the "strategery" is on all these deals? What is flex trying to achieve? Why aren't their competitors doing the same? is it something that flex sees and their competitors don't? or is it that their competitors see that flex just doesn't get?

who knows the truth? (ye shall know the truth and the truth shall make you miserable)
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