Nortel Networks reached an agreement with Flextronics regarding the divestiture of certain manufacturing operations and related activities in Calgary and Montreal (Canada) and Campinas (Brazil). It is also anticipated that Flextronics will acquire Nortel Networks manufacturing operations in France and Northern Ireland, subject to the completion of the required information and consultation process. 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 established optical products.
The manufacturing outsourcing means that Nortel Networks will move towards a 100% variable cost structure for manufacturing, which the company said leads its major competitors. The company anticipates proceeds of approximately US$675–US$725 million in cash payments to be received in the fourth quarter of 2004 and during 2005 which is comprised of approximately US$475–US$525 million for inventory and equipment, dependent on the asset value at closing, and US$200 million for intangible assets relating to the design and engineering transfer.
As part of today’s announcement, both companies would also enter into a four-year supply agreement for manufacturing services (whereby Flextronics will manage approximately US$2.5 billion of Nortel Networks annual cost of sales) and a three-year supply agreement for design services.
Approximately 2,500 Nortel employees would transfer to Flextronics. http://www.nortelnetworks.com
- In January 2004, Nortel Networks first announced its plans to divest substantially all of its remaining manufacturing activities, including product integration, testing, and repair operations carried out at its facilities in Calgary and Montreal (Canada), Campinas (Brazil), Monkstown (Northern Ireland), and Chateaudun (France). At the time, Nortel confirmed discussions with Flextronics about the activities being considered for divestiture.
- In June 2004, Flextronics announced plans to acquire Hughes Network Systems’ entire ownership stake of fifty-five percent (55%) in Hughes Software Systems (HSS), a leading provider of software products and services to telecom infrastructure companies, for a total cash consideration of approximately US$226 million (Rs547 per share). HSS, which is based in India, provides convergent software solutions for fixed and mobile networks for both voice and data. Its products and services span a variety of domains, such as optical networks, wireless networks, satellite networks, switching systems, convergent networks and broadband networks. HSS’ product portfolio includes protocol stacks and value-added frameworks and are comprised of licensable technologies focused on Voice over Packets (VoP), SS7, broadband and wireless (GPRS/UMTS) products that provide customers with open architecture solutions.
