May 31, 2000 5:45 AM PDT

Motorola, Flextronics ink 5-year, $30B outsourcing pact

Motorola (NYSE: MOT) said Wednesday it awarded a five-year, $30 billion outsourcing contract to Flextronics International (Nasdaq: FLEX), a contract equipment manufacturer.

Under the deal, Motorola said the fifth year could be worth more than $10 billion. Motorola also said it will invest $100 million in Flextronics. Motorola's investment is convertible over time into 11 million shares of Flextronics stock.

Motorola said Flextronics will supply and manufacture components and complete units included in Motorola's wireless phone, two-way pager, wireless infrastructure portfolios and various other communication devices.

The deal, which will affect about 15 percent of Motorola's products, should streamline the supply chain across various product lines, including wireless consumer devices, network equipment and set-top boxes, the company said.

The companies said production will take place throughout the world including North and Latin America, Western and Eastern Europe and Asia.

For Flextronics, the Motorola pact is the second big deal in two months. In April, the company teamed with Microsoft (Nasdaq: MSFT) to manufacture the software giant's X-box video game console.

Motorola has been outsourcing manufacturing to many of its units in a move to cut costs and become more efficient. Motorola said it will link with Flextronics' systems to provide seamless supply chain integration.

Shares of contract manufacturers have been hot of late. Flextronics competes with Jabil Circuit (NYSE: JBL), Solectron (NYSE: SLR) and SCI Systems (NYSE: SCI) among others.

In a similar pact, Nortel Networks (NYSE: NT) awarded Solectron a $10 billion outsourcing contract. Solectron also makes gear for Cisco Systems (Nasdaq: CSCO).


 

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