Solectron cuts jobs, reduces earnings outlook

3 min read

Solectron expects to miss analysts' third-quarter estimates possibly by more than half and plans to cut more than 8,000 jobs.

After market close Monday, the contract electronics manufacturer said it expects to earn 12 cents to 16 cents per share, excluding special charges, in its fiscal third-quarter ending in May. Analyst consensus predicted a May quarter profit of 31 cents per share, according to earnings tracking firm First Call.

"I am reinforcing what you have been hearing lately in rapid succession--that the market visibility for most of our OEM customers is poor," Koichi Nishimura, president and CEO, said during a conference call with analysts.

Shares of Solectron traded at $19.52 in after-hours activity on the Island ECN, immediately following the news. Solectron rose $1.39 to $21.49 in Monday's regular trading ahead of the report.

Solectron expects third-quarter revenue of $4.1 billion to $4.5 billion. With most technology companies lowering expectations because of a slowing U.S. economy, analysts generally expected Solectron to cut its forecast for the rest of the year, but not by the amount indicated on Monday.

"We clearly expected numbers to come down, but we were expecting something like $1 per share for the year," Robertson Stephens analyst Keith Dunne said. "We haven't run through all the numbers yet, but this feels more like a flat year, in the 85 to 90 cents range. It's worse than we thought."

First Call consensus had been predicting a profit of $1.22 per share for fiscal 2001. Solectron in fiscal 2001 earned 85 cents per share, before special charges.

The company plans to take a one-time charge of $300 million to $400 million in the third quarter, to pay for cost-cutting moves that include 8,200 job cuts, or almost 10.4 percent of Solectron's work force. "The suddenness of the recent change forces more focus on accelerated action," Nishimura told analysts.

Most workers targeted for cuts were notified on Friday, the company said. Earlier this month, Solectron said it would be making cuts in its work force.

"Unfortunately, with significantly lower customer demand we are unable to support our recent levels of employment, and we have been reducing our work force at many sites," Nishimura said in a statement today.

Company executives said their restructuring moves are being made with an eye toward future growth. But if the economy remains slow for a long time, Solectron will have more difficult decisions to make, analysts said.

"It would behoove them to have a lower-cost manufacturing profile," said Christopher Lippincott, analyst with McDonald Investments.

Solectron posted second-quarter earnings of 30 cents per share, excluding special charges, on revenue of $5.4 billion. The company earlier said it would meet second-quarter forecasts, but the market rapidly turned worse in the last few weeks of the quarter, Chief Financial Officer Susan Wang said.

"Most of the OEMs are not really clear as to what they believe is the situation, and when they will see a recovery," Wang told analysts. "We have not seen this pattern before. We do not really know just what the duration of this slow period might be."