Crista Souza EETimes Supply Network (06/04/2007 12:25 PM EST)

With the contract manufacturing sector under increasing competitive pressure to expand design and manufacturing capabilities on a global scale, two of the world's largest electronics manufacturing services (EMS) providers announced today they will become one.

Flextronics International Ltd. agreed to pay $3.6 billion in stock and cash to acquire Solectron Corp., creating what the companies described as a diversified global provider of advanced design and vertically integrated EMS.

The companies ranked second and fourth, respectively, on Electronics Supply & Manufacturing's 2006 ranking of the top global EMS providers. Based on their combined 2006 revenue of $26.3 billion, the merged company would become the largest EMS provider, handily surpassing Taiwan's Hon Hai (Foxconn).

By joining forces, said Flextronics CEO Mike McNamara, the companies would have the scale to increase their market share and vertical integration, realize significant cost savings, and better serve the needs of customers, employees and shareholders.

"Solectron's strength in the high-end computing and telecom segments will be an invaluable addition to Flextronics's existing capabilities and the combined company will be a market leader in most product market segments," McNamara said. "The combined company is clearly more diversified and formidable than either on its own, and we are better positioned to increase shareholder value through greater cash flow and earnings."

The transaction will allow the two companies to "transcend what we have accomplished individually and significantly reshapes and reenergizes our industry," added Paul Tufano, executive vice president and interim CEO of Solectron

Having spend the last 18 months restructuring, Flextronics is well prepared to take on the integration of a large-scale operation such as Solectron's, McNamara added.

The combined company will have operations in 35 countries, with a combined workforce of approximately 200,000 employees, including approximately 4,000 design engineers. Combined revenue for 2007 is expected to exceed $30 billion.