Nortel outsources bulk of manufacturing to Flextronics
In one of the telecom industry's largest contract manufacturing deals, Nortel Networks (Toronto) has outsourced almost all manufacturing to Flextronics in a deal valued at between $675 million and $725 million.
Subject to closing, the four-year agreement calls for Flextronics (Singapore) to acquire Nortel's remaining facilities, testing and repair operations in Calgary, Alberta, and Montreal as well as Campinas, Brazil.
Flextronics has also offered to buy Nortel's facilities in Northern Ireland and France. The deal would include taking over hardware and software design activities in Monkstown, Northern Ireland, and Ottawa.
In total, Flextronics will take over manufacturing of equipment valued at $2.5 billion. About 2,500 employees would be transferred to Flextronics, and Nortel said it hopes to reap annual savings of as much as $100 million from the deal.
Of the employees being transferred, 900 are in Montreal, 650 in Calgary, 100 in Ottawa and 30 in Campinas. Under the deal still being negotiated for European operations, about 440 employees at Monkstown, including 55 designers, would be transferred along with 330 in France.
Flextronics expects to consolidate and internally source the fabrication and assembly of pc-boards and enclosures as well as logistics and repair services.
Through an optical design services agreement, Flextronics will acquire engineers with expertise in carrier-grade optical network products, including Edge, core switching, and transport line products. Hardware and software development capabilities along with project management expertise are also part of the deal, the companies said.
“Flextronics will be acquiring a design group with broad experience in telecommunications and optical networks, with extensive knowledge of optical products and processes. There are no independent design companies in the world that have this degree of design expertise,” said Flextronics chief executive Michael Marks.
Chahram Bolouri, president of global operations at Nortel, added: “By leveraging the vertically integrated supply chain capabilities of Flextronics, we can focus our resources and efforts on those areas that offer us greater competitive differentiation.”
The transfer is expected to begin in November and will take approximately six months to complete.
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