Mergers & acquisitions

Flextronics Preps Software Fleet

Contract manufacturer Flextronics Corp. (Nasdaq: FLEX) is building an enormous software division aimed at providing design services to beleaguered systems vendors.

Due to be launched next month, Flextronics Software Systems (FSS) will number roughly 3,900 employees, according to Deepak Satya, a vice president of marketing and business development who joined Flextronics through its recent acquisition of Future Software Ltd. (FutureSoft) (see Flextronics Isn't Soft on Software).

Size matters, because Flextronics aims to prove it can displace the design teams of large systems houses. "This is a big enough organization to take on very complex systems development," Satya says.

Satya says FutureSoft's staff of nearly 500 will be a part of FSS, as will other Flextronics acquisitions including Deccanet Designs, a 300-employee Indian firm that Flextronics acquired on Dec. 14, according to reports from India. Hughes Software Systems Ltd. (HSS), in which Flextronics owns a stake, will help out as well (see Flextronics Isn't Soft on Software).

Officials at the Flextronics mother ship declined comment, with a spokeswoman noting that the company hasn't officially announced details concerning FSS.

Flextronics is betting that the trend of outsourcing product design will increase. Equipment vendors' engineering staffs were depleted as the downturn wore on, and many no longer have the expertise to design every product from scratch.

The hope, at least from Flextronics's end, is that this kind of designing will become the norm. Architectural initiatives such as Advanced Telecom Computing Architecture (AdvancedTCA) are intended to help the process along by creating standards applicable across all vendors' hardware (see ATCA's at a Fork in the Road and the Light Reading report on AdvancedTCA ).

Some chip companies have headed down this path already. Likewise, software vendors see a chance to capture a larger share of systems design (see Software Battle Brews at Layer 2). FutureSoft, for example, has been shipping a prefab Layer 2-through-4 switch design to OEMs, a production-ready system atop which OEMs can add applications and custom software. On the enterprise side, the company recently shipped beta versions of an unannounced VPN router for small and medium-sized businesses.

Contract manufacturers already build much of the hardware for systems OEMs in the form of boards or even entire boxes -- hence, Nortel Networks Ltd.'s (NYSE/Toronto: NT) June deal to sell manufacturing operations to Flextronics (see Nortel Sells Plants, Supplies Update and Nortel Completes 1st Flextronics Transfer). But to take over the software component -- especially to do it from the very start of the design process -- would be new territory. The sheer mass of FSS could help Flextronics stand out against competitors including Celestica Inc. (NYSE, Toronto: CLS), Jabil Circuit Inc. (NYSE: JBL), and Solectron Corp. (NYSE: SLR).

— Craig Matsumoto, Senior Editor, Light Reading

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AdvancedTCA – The Architecture of Tomorrow's Telecom Systems
at the Hyatt Regency in Burlingame, Calif., on Thursday, January 27, 2005

This one-day event, hosted by Simon Stanley, will provide qualified attendees from Light Reading's global audience with original research into the ATCA components market, from its Heavy Reading market research division.

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rajmv001 12/5/2012 | 3:24:34 AM
re: Flextronics Preps Software Fleet I have worked with some of the guys/gals from FutureSoft. The company tout them as having experience but mostly, you find they come and learn on the job. Somehow, these guys find placements/contracts in svalley ilicon companies that have offshoring contacts in India.
Not sure how long the author of this msg have worked with FutureSoft.Maybe, he/she has worked with only a specific team from which the conclusion was made.FutureSoft has many good experienced ppl.I myself have seen the quality of these experience ppl. from FutureSoft and the experience ppl. from other well know software firms who are nowhere near the talent and the experience from FutureSoft.FutureSoft is a core technical company and i dont think any other Indian company provides such a wide space in the datacom area as much as FutureSoft provides.

edgecore 12/5/2012 | 12:58:13 AM
re: Flextronics Preps Software Fleet The large OEM's have up to 25 years of experience building extremely reliable bodies of software (from their own OS'es, to middleware to stacks). This takes tremendous expertise and a ton of in service real world soak time.

Isn't Future Soft the company that shopped around a few semi-working L2 and L3 reference/demo platforms?

Isd the goal for FSS to focus on BSP's and deveice drivers...?

stephenpcooke 12/5/2012 | 12:58:11 AM
re: Flextronics Preps Software Fleet Contract manufacturing of hardware is a business plan that most on these boards are familiar with. Intellectual Property (IP) is generally folded into custom ASICs or other highly technical components. This model has been under assault for quite some time by the 'fabless' semiconductor people who offer components to everyone but trade off the hidden IP for time-to-market.

Systems vendors have embraced this model during the downturn because it enabled them to unload a pile of top-class hardware talent. Their justification was that they wanted to approach the business model of Microsoft which is very lean on capital expenditure (ie: minimal hardware research/design and test capability necessary, which are capital intensive.).

The real questions I see relate to who the customers will be. At what point will Flex become a system house to compete with Lucent, Cisco, and Nortel? They already have the hardware designs of all 3, with a software force the size quoted, how long would it take to compile the best features of each and make their own equipment?

So what is the plan? What are the steps required for this business unit to be successful?

First of all they need more strict adherence to design standards by all their suppliers and customers (don't forget that their customers are the Lucents', Ciscos', and Nortels' of the world). Why is this important? It allows them to build a library of 'standard' software features that can be used for any system without the entanglement of licensing (as they are 'standard').

Second is the code library. What they are selling is, once again, time-to-market. They want all those software guys working on something billable to a customer. What will really drive revenue growth is having one customer pay for the code development of certain key functionality modules which can then be sold to other customers. "They would not be allowed to do this by the customer who paid for it in the first place!!!" Software is a wierd animal in that sense. It can be really difficult to prove software re-use by a contract manufacturer because this would involve potentially violating the product confidentiality of another client.

OK, so we won't keep a software re-use library, we'll just have a couple of designers that are 'experts' in this type of functionality whose time is billed to customers hourly. Well, remember that bug in the module that these guys wrote for Lucent...? It didn't happen to show up in the same module for Nortel... (ie: these 'experts' learned from one customer's development process and applied what they had learned to another's). In the current model, these resident Lucent 'experts' generally have legal prohibitions against working for a competitor on similar areas for several years. There is also the attached distant logistical probability that any x-Lucent Feature-A code writer, working for Nortel would meet the Nortel Feature-A code writer at the water cooler and discuss detailed implementations. The logistical probability is almost a guarantee if all the software is written by a single company.

Good Luck to them, I have a couple of good friends working for Flex...I just can't see it at the moment.

[email protected]
sigint 12/5/2012 | 12:58:10 AM
re: Flextronics Preps Software Fleet This is a very interesting trend, and the spaprseness of the message board for this article suggests that most of us aren't cognizant of it.

I think Solectron has tried to move up the chain by acquiring a few design companies (such as Force Computers), which they later sold to Motorola.

As CMs seek to move lower down the chain, design services companies like Wipro try to move down a bit offering to "arrnage" all logistics of manufacturing and shipping. They already have teams which can test and support. I have a feeling that other services companies are likely to follow suit.

Which probably leaves the have beens in the OEM category with finance and marketing. There's nothing to suggest (from the quarterly results, at any rate) that these companies are fantastic with finance and marketing. How long before CMs and services companies metamorphose into de-facto product companies?

Happy holiday, everyone.
flam 12/5/2012 | 12:58:10 AM
re: Flextronics Preps Software Fleet First of all, I told you so.


Secondly, do not underestimate the guys at HSS. I've dealt with them and their senior people are extremely good. Till now, I believe that they only lacked hardware design skills, which should not be far to find in the design ocean that is Flex.

I've also heard good things about Deccanet.

gothal 12/5/2012 | 12:58:09 AM
re: Flextronics Preps Software Fleet Isn't Future Soft the company that shopped around a few semi-working L2 and L3 reference/demo platforms?
I have worked with some of the guys/gals from FutureSoft. The company tout them as having experience but mostly, you find they come and learn on the job. Somehow, these guys find placements/contracts in svalley ilicon companies that have offshoring contacts in India.
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