Flextronics International Ltd posted a quarterly profit and gave an outlook that fell short of Wall Street expectations, hurt by poor demand for cell phones and consumer electronics, sending its shares down 12.5 percent after the closing bell.
The contract electronics manufacturer, whose customers include Cisco Systems Inc, Sony Ericsson and Nortel Networks, which recently filed for bankruptcy protection, also signalled it could cut jobs as the global economic slowdown continues to wring out revenue.
Flextronics expects revenue of $5.5 billion to $6.5 billion for the current fiscal quarter, and adjusted earnings per share of 2 cents to 7 cents. Analysts expect Flextronics to earn 15 cents per share on revenue of $7.3 billion for the quarter, according to Reuters Estimates.
Flextronics was hit especially hard by lower demand from cell phone manufacturers, as thriftier consumers bought fewer gadgets during the holiday season, Chief Financial Officer Paul Read said in an interview. But "demand is generally weak across all market segments, (with) some being hit harder than others," Read added. "It's a broad-based demand slowdown."
As a result, the Singapore-based manufacturer is "adjusting our headcount and cost base to match our new revenue base," Read said, but did not provide further details. Jabil Circuit Inc, which competes with Flextronics, said on Wednesday it would slash about 3,000 jobs as part of a restructuring plan in response to falling customer demand.
In recent years, Flextronics has aggressively diversified its sources of revenue and now supplies equipment to manufacturers of computers, medical equipment, appliances, cell phones, consumer electronics and automotive equipment, among others.
That strategy is helping the company weather the downturn better than rivals, Flextronics Chief Executive Mike McNamara said on a conference call. But customers "accelerated" their demand pullback in the third quarter and are continuing to do so in the fourth quarter, he said. Controlling costs and making sure Flextronics has enough cash to soldier through the recession are among management's top priorities, McNamara said.
Excluding items, profit for Flextronics' fiscal third quarter was $127 million, or 16 cents per share, compared with $250 million, or 30 cents, in the year-ago quarter. Net sales for the quarter fell to $8.1 billion, from $9 billion in the year-ago quarter. Wall Street analysts expected Flextronics to earn 20 cents per share on revenue of about $8 billion, according to Reuters Estimates.
Flextronics said it took a $5.9 billion non-cash impairment charge during the quarter due to significantly lower demand for its products. It also took a distressed customer charge of $145 million during the quarter related to the bankruptcy filing for Nortel Networks. Flextronics supplies nearly 75 percent of the equipment for Nortel, which filed for Chapter 11 bankruptcy earlier this month.
Read said the $145 million charge covers Flextronics' exposure to Nortel for now, but that could change if new information comes to light. Flextronics shares closed Wednesday's session at $2.72, up 3.8 percent on the Nasdaq, but dropped sharply after the results and outlook to $2.38.
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