Message Font: Serif | Sans-Serif
No. of Recommendations: 0
UPDATE 2-Flextronics posts quarterly profit vs loss

(Adds comments from conference call)
By Duncan Martell

SAN FRANCISCO, Oct 24 (Reuters) - Flextronics International Ltd. (FLEX.O), the biggest contract electronics manufacturer, on Tuesday posted a quarterly profit against a year-earlier loss and said demand was accelerating across virtually all its businesses.

The company forecast revenue for the current quarter of $5.1 billion to $5.3 billion, which compared to the average estimate of $5.3 billion from analysts surveyed by Reuters Estimates. Flextronics shares fell 3.3 percent in composite Nasdaq trade.

Chief Financial Officer Thomas Smach said in an interview that Flextronics was well positioned for holiday sales, with its mobile and consumer digital businesses showing stronger growth and only its computer division relatively weak.

"Every single one of our market segment categories was up, with the exception of computing, which was relatively flat on a sequential basis," Smach said. "The holiday season will come in in line with our expectations, which are for a pretty good season."

Click the above link to read the full article. I am slowly warming up to the idea of investing funds in FLEX because they are enjoying strong revenue growth, and I do believe that revenue growth will eventually lead to greater gross margin dollars which will then lead to increased profits.

One thing that continues to concern me is the fact that they continue to restructure and that these type of charges continue to occur quarter after quarter. If there is an ongoing need to restructure operations then maybe these are just the costs of doing business and should not be excluded from consideration when figuring out the earnings per share. I don't have any insight as to how much further "restructuring" will be necessary and if these charges will continue indefinitely...

It seems to me as if there are conflicting signals as to the direction of future economic growth, and how this may impact FLEX's business results in 2007 and beyond. I don't think there is much doubt that economic growth here in the USA is slowing (I'm expecting around 2% GDP growth for Q3 2006 based on what I have been reading) and that there is at least the possibility of even slower growth during 2007.

On the other hand, the fact that the Federal Reserve has stopped hiking short-term interest rates and that the oil price has dropped back to around $60 a barrel seems to be helping sentiment regarding the ability of the US consumers to continue spending. Also tech stocks in general seem to be rising along with the market averages and FLEX seems to be enjoying good demand for its services.

I am leery of putting money into most stocks right now because the NASDAQ Composite has risen from the lows of July 2006 (below 2050) up to the peak values of April 2006 (2378), and the S&P 500 has risen from 1220 in June 2006 to 1389 (an increase of 14% in 4 months!). In FLEX's favor is the fact that the shares hit their recent peak in early 2004 at $19.62 and have been in a broad downtrend since then. I think I would get more bullish on the shares if the price drops below $11.00...

JT :-)
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.