Multek Struggles Prompt Plant Closings, Possible Management Changes | Print |  E-mail
Written by Mike Buetow   
Friday, 25 January 2013 18:19

SAN JOSE -- Flextronics will reduce its printed circuit board manufacturing footprint and take up to $225 million in one-time charges as it attempts to reverse losses at its Multek operations.

"Our recent revenue declines have resulted in significant underabsorption of costs at some of our facilities, and while we see our business growing throughout fiscal 2014 driven by a new booking, some of our facilities will not be benefiting from this growth. We're, therefore, taking swift action to rightsize and/or reduce our manufacturing footprint in order to position us for improved operational efficiency and profitability in the future," chief financial officer Paul Read told analysts on Jan. 23.

The cuts will include factory closures, Read said. "The intention here is ... to take out some of the sites that are significantly underperforming."

The company expects to incur total restructuring charges of $200 million to $225 million -- $110 million to $125 million in cash charges -- during its fiscal 2013 third and fourth quarters. In its third quarter ended Dec. 31, Flextronics took $103 million in charges, including $21 million in cash charges related to employee severance costs.

Multek employs about 10,500 workers in sites in China, Brazil, Germany and the US. Management did not disclose which sites might be closed or how many workers would be affected by the cuts.

Flextronics believes the cuts will result in annualized savings of $140 million to $160 million.

The PCB business has been a drag on the company's operating margin, dropping it 25 basis points, or roughly $15 million, in the most recent quarter, leading to renewed questions over Flextronics' commitment to the Multek unit.

In response, chief executive Michael McNamara said, "We were disappointed [that] some of the programs that we felt were coming on last year didn't come on. We're taking pretty significant and pretty aggressive actions to go rightsize that business.

"As far as what we're going do with the business long-term, right now we're focused at continuing to go fix it. Like any business that we have, we'll always look at any kind of strategic options open to us. But for right now, we're just very, very focused at getting the business rightsized to what it needs in order to be able to execute."

He added that Flextronics would make "appropriate changes from a management standpoint" to improve execution.

 

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