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Solectron tops 1Q estimates, sets 2Q, 2001 targets

Solectron topped analysts' estimates in its first quarter and said it expects to earn more than analysts predicted for the fiscal year.

After market close Monday, the contract electronics reported fiscal first quarter net income of $190.6 million, or 31 cents a share, on sales of $5.7 billion.

First Call Corp. consensus expected Solectron to earn 28 cents a share in the quarter.

Ahead of the earnings report, Solectron (NYSE: SLR) shares finished off $1.32 to $26.72.

The company predicted fiscal 2001 earnings of $1.22 to $1.25 per share, with sales of more than $23 billion.

First Call consensus had been predicting a profit of $1.15 a share for Solectron's full fiscal year.

Solectron sees second quarter earnings of 29 to 30 cents per share, excluding one-time charges. That would be 1 to 2 cents ahead of the current First Call estimate.

Second quarter revenue, including sales from acquired companies, will range between $5.4 billion and $5.7 billion, executives said, during a conference call with analysts.

Solectron's new financial targets are conservative, CFO Susan Wang told analysts.

"This year, I look forward to providing upward guidance as major events unfold," Wang said.

The first quarter's $5.7 billion in sales marks a 101 percent improvement from the year-ago quarter when it earned $109.8 million, or 19 cents a share, on sales of $2.8 billion.

Including a variety of one-time charges, Solectron posted diluted earnings of 29 cents a share, up from 17 cents a share in the year-ago quarter.

In the quarter, Solectron achieved gross profit margins of 8.5 percent, down from 8.7 percent in the fourth quarter.

Looking ahead, Solectron officials said the company expects to post sales of between $5.4 billion to $5.7 billion in the second quarter.

Networking sales represented 29 percent of its total sales this quarter with telecommunications equipment and mobile and wireless accounting for 22 percent and 12 percent, respectively.

Three customers generated more than 10 percent of Solectron's overall revenue: Ericsson (Nasdaq: ERICY), at 15 percent; Cisco Systems (Nasdaq: CSCO) at 13 percent; and Nortel Networks (NYSE: NT) with 12 percent of Solectron's sales.

Despite slowdowns in demand for cellular phones and personal computers, Solectron can keep up its growth rate, Wang said.

"The strength of our diversification allows us to pull in other business that we were unable to respond to (previously) because of capacity and because of component availability," Wang said.

Desktop and notebook PCs aren't expected to generate more than 11 percent of Solectron's sales, but the company could win more business in that market because as PC makers see their growth slow, they rely more on outsourcing, Wang said.

"If approached correctly, the PC market can still be a profitable and an attractive one," she said. "In fact, we do have opportunity to grow this business under current circumstances."

Solectron is seeing requests for contract bids increasing, and its contract win rate is improving, Wang said.

Last quarter, Solectron posted a profit of 27 cents a share on sales of $4.7 billion.

The stock moved as high as $52.63 in October before falling to a low of $26.06 earlier this month.

Twenty-six of the 27 analysts tracking the stock maintain either a “buy” or “strong buy” recommendation.