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Solectron hits estimates, sees component shortages into 2001

    Solectron met analysts' reduced estimates in its third quarter Monday, earning $123 million, or 21 cents a share, on sales of $3.6 billion. The company said it sees component shortages through 2000 and into the first half of 2001.

    First Call Corp. consensus pegged the electronics manufacturing services company for a profit of 21 cents a share.

    Solectron (NYSE: SLR) shares closed up 1 11/16 to 37 1/8 ahead of the earnings report.

    On a conference call with analysts, the company said demand was growing, but reiterated component shortages would remain a problem. Solectron, which makes products for Hewlett-Packard (NYSE: HWP) and other tech giants, said there are component shortages for memory chips, circuit boards and a host of other parts.

    The outlook has broad ramifications for the tech sector, which has been hampered by component shortages. Contract manufacturers such as Solectron are among the first to be hit by shortages. Solectron competes with Jabil Circuit (NYSE: JBL), SCI Systems (NYSE: SCI), Flextronics (Nasdaq: FLEX) and Celestica (NYSE: CLS) among others.

    Solectron projected fourth quarter sales of $4.5 billion to $4.7 billion with fiscal year sales between $13.7 billion to $13.9 billion. Plant acquisitions from Nortel, IBM (NYSE: IBM) and Bluegum Group will boost sales in the quarter.

    Officials projected fourth quarter earnings of 26 cents a share, excluding charges, and 84 cents a share for the fiscal year. Those results are in line with consensus estimates. However, CFO Susan Wang said the company can execute -- and even deliver some upside -- as long as there are no delays of contracts and it can navigate component shortages.

    Earlier this quarter, Solectron warned investors that a delay in closing a deal with Nortel Networks (NYSE: NT) would result in slightly lower sales and earnings in the quarter.

    At the time, CFO Susan Wang told analysts to expect sales between $3.4 billion to $3.5 billion and earning of between 20 cents to 22 cents a share.

    Analysts originally expected Solectron to earn 22 cents a share in the quarter.

    The $3.6 billion in third quarter sales marks a 52 percent improvement from the year-ago quarter when it earned $90 million, or 16 cents a share, on sales of $2.36 billion.

    Solectron said the biggest chunk of its sales derived from networking equipment contracts from Nortel and Cisco (Nasdaq: CSCO). The company said wireless phones represented about 17 percent of sales, followed by notebook computers, telecommunications products other than wireless and servers.

    Solectron shares moved up to a 52-week high of 49 1/2 in April after falling to a low of 28 1/4 last June.

    The Milpitas, Calif. company topped analyst estimates in its second quarter, earning $117 million, or 38 cents a share, on sales of $2.9 billion.

    First Call Corp. consensus expects it to earn 84 cents a share in the fiscal year.

    Twenty-one of the 22 analysts covering the stock rate it either a "buy" or "strong buy."