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Solectron rises on strong quarter, analyst reaction

Electronics maker Solectron Corp. (NYSE: SLR) saw its shares gain 13 percent Tuesday after beating estimates for its first quarter and receiving favorable reviews from analysts.

After market close Monday, the company reported fiscal first quarter net income of $190.6 million, or 31 cents a share, beating First Call's expectation. Shares moved up 3.6 to 30.32 on Tuesday.

The company also said it expects to post sales of between $5.4 billion to $5.7 billion in the second quarter. For the fiscal year, it sees sales in excess of $23 billion and earnings in the range of $1.22 to $1.25 a share, above First Call's estimate of $1.15 a share.

Analyst reviews of the company's performance were generally favorable, although some brokerages raised concerns about margins and acquisition issues. Here's a look at some of the highlights.

On the positive side, analyst Chris Whitmore at Deutsche Banc Alex. Brown reiterated his "strong buy" rating on the stock and maintained his fiscal year 2001 and 2002 earnings estimates. He indicated, however, that his estimates are conservative and may be revised upward in the spring.

According to Whitmore, "Solectron is among the best positioned EMS vendors to take advantage of the secular growth opportunity in key EMS end markets such as: Asia (consumer), Europe, and communications".

Roger Norberg at Chase H & Q was also bullish, raising his estimates for fiscal 2001. He also maintained his "buy" rating on the stock along with the $55 price target. Citing the strength in Solectron's core business, he noted that he believes that sentiment on Solectron shares is overly negative relative to fundamentals.

At ING Barings, analyst Patrick J. Parr reiterated his "buy" rating and 12-month price target of $44. Estimates for fiscal 2001 and 2002 were trimmed to reflect the company's pending deals with Natsteel and Sony.

Analyst Scott Heritage at UBS Warburg had a more conservative assessment.

"Our view of Solectron remains unchanged as we continue to be cautious over the near to intermediate term. We still believe that Solectron may experience some weakness in its business with Cisco (Nasdaq: CSCO), its second largest customer, over the coming few months after lead times on certain Cisco products come down," he noted in his research report. Heritage also noted the company will face significant challenges in its acquisition and integration of Natsteel.

Lastly, at Prudential Securities, earnings estimates for the company were lowered to reflect acquisition concerns and the price target was lowered to $33. The "accumulate" rating on the stock was maintained.