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

Need to know more about the latest developments in AdvancedTCA? check out the coming Light Reading Live! conference:

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.