Company key to brand-name electronics gets bigger
In this 2001 photo, a Flextronics employee tests Microsoft's Xbox in Sarvar, Hungary.
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KAI RYSSDAL: Before we go any further though, I should probably tell you that what I'm about to suggest might void your warranty. But go get a screwdriver and take the back off your favorite electronic appliance.
Doesn't really matter what it is — a Dell computer or a Sony DVD player. Maybe a cell phone. Whatever. Have a good peek inside. Chances are most of the electronics bits you're looking at weren't actually made by the company whose brand name is on the gizmo in question.
Singapore's Flextronics is the world's second-largest manufacturer of electronic components produced for retailers. This morning, it announced it's buying the number five company in the market, U.S.-based Solectron.
Marketplace's Amy Scott reports.
AMY SCOTT:If you haven't heard of Singapore-based Flextronics, you've probably heard of its customers.
Technology analyst Roger Kay says companies like Hewlett-Packard, Eastman Kodak, Motorola and Xerox outsource to Flextronics.
ROGER KAY: And what they do is a range of services — from designing to figuring out how to manufacture to actually making electronic goods, which other companies then brand and resell.
Flextronics deals mostly in consumer electronics. California-based Solectron does the same thing, but it specializes in business products. Today, Flextronics said it would buy Solectron for more than $3.5 billion.
Kay says it makes sense for the companies to join forces because the services they offer aren't very different from one another.
KAY: They own the process, the ability to do it. And they own some real estate, places to do it. But when it comes to what do they have that's truly unique, there's not that much. And because their customers are in very competitive environments, they can't take much out of the sandwich.
Steve Biggs is a computer analyst with Zack's Investment Research. He says companies like Flextronics got their start buying the manufacturing assets of the companies who are now their customers.
STEVE BIGGS: That has already played out. So the growth now is, I think, gonna be mostly through the companies acquiring each other.
There's still plenty of competition in the sector. So analyst Roger Kay says Flextronics won't be able to demand higher prices from the electronics giants. He says the deal probably won't affect consumers much either.
In New York, I'm Amy Scott for Marketplace.