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Solectron shares jump on strong quarter

Shares of the world's biggest contract manufacturer for electronics close 18 percent higher after the company beats estimates for the quarter.

Shares of Solectron, the world's biggest contract manufacturer for electronics, closed 18 percent higher Tuesday after the company beat estimates for its fiscal first quarter and reaped favorable reviews from analysts.

After market close Monday, the company reported sales of $5.7 billion and net income of $190.6 million, excluding acquisition-related and one-time charges. That worked out to earnings of 31 cents a share, beating First Call/Thomson Financial's expectations of 28 cents per share.

The Milpitas, Calif.-based company also said it expects to post sales of $5.4 billion to $5.7 billion in its second quarter. For the full fiscal year, it predicts sales in excess of $23 billion.

On Tuesday, the stock closed up $5.03 at $31.75 on a volume of 12.7 million shares--more than twice its average daily volume.

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

Chris Whitmore, an analyst 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 up in the spring.

Roger Norberg at Chase Hambrecht & Quist was also bullish, raising his estimates for fiscal 2001. He also maintained his "buy" rating on the stock along with a $55 stock price target. Citing the strength in Solectron's core business, he noted he believes that the 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 deals to buy two Sony plants and to acquire rival NatSteel Electronics.

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, its second-largest customer, over the coming few months after lead times on certain Cisco products come down," he wrote in his research report. Heritage also noted the company will face significant challenges in its acquisition and integration of NatSteel.

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.