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Solectron sees more dips ahead

Although business is not falling as sharply as it did in previous months, company executives say things are still looking bad.

Solectron's business isn't falling as sharply these days as in previous months, but company executives say things are still looking bad.

"We ought to be expecting still a downward trend," said Susan Wang, chief financial officer of Solectron, which reported third-quarter earnings and made a fourth-quarter forecast after the bell Monday.

"And of course, all of us are hopeful that things will eventually come to a trough. But we are unable at this time to make that prediction."

The contract electronics manufacturer said it expects to earn 5 cents to 9 cents per share on fourth-quarter revenue of $3 billion to $3.5 billion. Analyst consensus was predicting a profit of 16 cents per share, with individual estimates ranging from 12 cents to 24 cents per share, according to earnings tracking firm First Call.

Shares of Solectron traded at $16.84 on the Island ECN following the news. Solectron fell $1.21 to $16.78 in regular trading ahead of the news.

Solectron, like many companies trying to top analyst estimates, typically sets its publicly announced revenue targets slightly below the sales figure suggested by customer data. But continuing weakness in the technology market prompted Solectron to issue a fourth-quarter forecast that was even further below that target, Wang said.

"The outlook that we are given by our customers still includes a great deal of uncertainty and instability," Wang said during a conference call with analysts. "The negative trend has moderated, but given that this is still a negative trend we thought that it was prudent to discount the information we have in hand."

Third quarter
Also Monday, Solectron reported a third-quarter loss of $186 million, or 28 cents per share. Not including special charges, Solectron earned $90.8 million, or 12 cents per share in its fiscal third quarter, which ended June 1.

Analyst consensus predicted a Solectron profit of 13 cents per share in the third quarter, according to earnings tracking firm First Call. Estimates collected by First Call typically exclude goodwill write-downs and one-time charges.

Third-quarter revenue increased 9.3 percent year over year to $4 billion. Solectron previously projected third-quarter revenue of $4.1 billion to $4.5 billion.

That shortfall explains why Solectron is being especially cautious about the fourth quarter, said Patrick Parr, analyst with ABN AMRO.

Most analysts expected Solectron to meet the latest forecasts, or miss them slightly. However, the estimates were less than half of what they were in March, when Solectron predicted third-quarter earnings of 12 cents to 16 cents per share. Prior to that announcement, First Call consensus was calling for third-quarter earnings of 31 cents per share.

Solectron's restructuring plan announced earlier this year produced $285 million in one-time charges during the third quarter. The cost-cutting moves require non-recurring charges of $50 million in the fourth quarter, the company said.

Much of the savings will come from job cuts that were first announced in March. By the time the fourth quarter ends in August, Solectron will have cut more than 20,000 jobs, or about 26 percent of its work force, in six months, said Kevin Whalen, a company spokesman. Most of those cuts have already been made, he said.

Although the company could eliminate more employees if the economy gets worse, Solectron also wants to be ready in case things start improving quickly, Parr said.

"Clearly, they're leaving some flexibility in the organization to capture an uptick in demand, or new business," he said.

Solectron is the first of two contract-manufacturing giants expected to report quarterly results this week. Jabil Circuit is scheduled on Tuesday to post earnings for its latest completed quarter.