Handing it over

Nortel Networks is to sell off most of its design, systems integration, final assembly, testing and repair operations to Flextronics in a multi-million dollar transaction.

To seal the deal, Flextronics will make a cash payment of approximately $75 million to Nortel Networks in the fourth quarter of this year, and instalment payments of approximately $600 million to $650 million over a four quarter period in calendar 2005.

Of the estimated aggregate payment amount, approximately $60 million is for fixed assets, while $200 million is for intangible assets relating to, among other things, design and engineering, and the balance is related to inventory.

As part of the transaction, which is subject to the customary closing conditions, approximately 2,500 Nortel employees will be transferred from Nortel to Flextronics.

The business transfer itself is expected to begin in November 2004 and will take approximately six months to complete.

Nortel will not only divest itself of its manufacturing operations and related activities in Canada and Brazil, but it is also anticipated that its manufacturing operations in France and Northern Ireland will be acquired by Flextronics too.

In Europe, Flextronics has made an offer to purchase similar operations at the Nortel Networks Monkstown, Northern Ireland and Chateaudun, France Systems Houses.

Under the terms of the agreement and offer between the two companies today, Flextronics would also acquire Nortel Networks global repair services, as well as certain design assets in Ottawa and Monkstown related to hardware and embedded software design, and related product verification for certain optical products.

As part of the announcement, both companies said that they plan to enter into a four-year supply agreement for manufacturing services (whereby Flextronics will manage approximately $2.5 billion of Nortel Networks annual cost of sales) and a three-year supply agreement for design services.

“The expertise acquired from the Nortel Networks’ operations will enhance the capabilities in our Industrial Parks in China, Poland, Mexico, and Brazil and will create a sustainable competitive advantage for large-scale, low-cost manufacturing of very complex products,” said Mike McNamara, Chief Operating Officer of Flextronics.

In a related move, Flextronics recently acquired a majority share of Hughes Software Systems in India.