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Solectron announces $2B acquisition; 4Q earnings ahead of estimates

Solectron Corp. (NYSE: SLR) will issue $2 billion in stock to expand its reach into memory components and embedded computers.

On the same day it announced fourth quarter earnings slightly ahead of analyst estimates, the world's largest contract electronics manufacturer for OEMs unveiled a plan to buy Smart Modular Technologies Inc. (Nasdaq: SMOD) in a stock swap valued at $2 billion. Solectron will issue 23.1 million shares -- or 0.51 shares of stock for every Smart share -- to buy Smart, a maker of memory modules and cards, embedded computers, and input/output products. The companies said it would be the largest ever seen in the contract electronics manufacturing industry.

The deal requires shareholder approval. It will add 9 cents per share to Solectron's earnings in fiscal 2000, excluding one-time charges, the company said.

"The acquisition will significantly enhance Solectron's current technology capabilities," said Saeed Zohouri, Solectron's senior vice president and chief operating officer.

Smart brings 1,900 employees and 290,000 square feet of manufacturing capacity to Solectron. Smart's chairman, CEO and co-founder, Ajay Shah, will become president and CEO of Solectron's technology solutions business unit, the companies said.

Monday's announcement came even as Solectron reported fiscal fourth quarter earnings a penny ahead of consensus expectations. Solectron posted fourth quarter net income of $88.8 million, or 33 cents per share. First Call's survey of 22 analysts predicted earnings of 32 cents per share.

Fourth quarter revenues increased 41.5 percent year-over-year, to $2.4 billion. Solectron saw an operating margin of 5.4 percent, compared to 5.1 percent in the year earlier period.

For the full fiscal 1999, Solectron earned $293.9 million, or $1.13 per diluted share, on revenues of $8.4 billion. The company saw net income of $198.8 million, or 82 cents per diluted share, on sales of $5.3 billion in the previous fiscal year.

Shares of Solectron closed Monday's regular trading at 75, down 2 1/2 for the session. Of 20 analysts surveyed by Zack's Investment Research, 11 rate Solectron the equivalent of a "moderate buy", six recommend it as a "strong buy", and maintain "hold" advisories on the stock.>