Outlining Flextronics Exposure To Nortel Bankruptcy (FLEX, NT)

Print Email

We have already highlighted that Nortel Networks Corp. (NYSE: NT) has filed for Chapter 11 bankruptcy protection.  But the fallout from the filing continues to reverberate in the industry. For instance, Flextronics International Ltd. (NASDAQ: FLEX) is an electronics manufacturing services company ("EMS") that has exposure to Nortel.

Nortel in its release outlines its relationship withFlextronics.  The company said that it hasamended its arrangements with Flextronics, which it calls its keysupplier. This gives Nortel "confidence thatFlextronics will continue to maintain the supply chain followingcommencement of the proceedings.." in reference to the bankruptcy.

Nortel has agreed to purchase $120 million of existing inventory byJuly 1, to make quarterly purchases of other inventory, and hasagreed to terms relating to payment and pricing.  This amendment isgoing to be subject to Canadian court approval. Certain arrangements with Flextronics will terminate in July.Other arrangements between the Lextronics and Nortel are tocontinue under their amended terms.

According to Flextronics’ most recent annual report,  Nortel had beeninvolved in customer reimbursements and was listed as a key customerfor the combined Flextronics and Solectron operations.

Earlier this week there was a report that Flextronics would lay off about 150 people in its Louisville location.

Flextronics shares are trading off by 8% pre-market on very thintrading.  Shares closed at $3.00 yesterday and its 52-week tradingrange is $1.23 to $12.17.

Jon C. Ogg
January 14, 2009