Solectron Posts Loss, Sets Debt Issue

Solectron Corp., the world's largest contract electronics manufacturer, Tuesday reported a fiscal first-quarter loss, on sharp declines in its personal computer and telecommunications operations.

The Milpitas, California-based company, which has cut 25,000 jobs worldwide in the past year to combat the economic downturn, also said it plans to raise about $1.5 billion in new debt, and established a $500 million credit facility.

Shares of Solectron tumbled $2.61, or nearly 18 percent, to $12.20 in morning trade on the New York Stock Exchange.

Contract manufacturers, including Solectron and rival Flextronics International Ltd., have been suffering along with their customers from a slump in demand for electronics products over the past year.

In the first quarter that ended Nov. 30, Solectron lost $52.5 million, or 8 cents a share, on sales of $3.15 billion. A year ago, the company earned $190.6 million, or 29 cents a share, on sales of $5.70 billion.

Excluding charges for acquisitions, restructuring, and asset impairment, the company said it broke even for the first quarter. On a cash basis, Solectron said it earned 5 cents a share, in line with the consensus analyst estimate as measured by research firm Thomson Financial/First Call.

Solectron said sales could drop further in the second quarter, to a range of $2.7 billion to $3.2 billion. Before one-time items, the company forecast breaking even or losing as much as 3 cents a share in the second quarter.

On a cash basis, the company said it expects earnings of between 1 cent and 4 cents a share.

Analysts had expected earnings ranging between four cents and 10 cents per share for the period, with a mean of seven cents.

The company, which acquired Montreal-based C-MAC Industries Inc. for about $2.3 billion, also said it expects to take between $250 million and $350 million in restructuring and impairment charges in the second quarter.

"We continue taking actions to align our cost-structure with current revenue levels," Solectron Chief Executive Koichi Nichimura said. "These actions, which include reducing employment levels and production capacity, are painful but necessary to keep the company healthy."

Solectron's shares closed at $14.81 on the New York Stock Exchange on Monday. They have fallen from a high of $41.95 on January 19.


The company said it would offer $1 billion in adjustable conversion-rate equity security units, or ACES, and at least $500 million of unsecured fixed-rate debt.

The ACES consist of a contract to buy a variable number of Solectron common shares and a five-year note to be issued by Solectron. Under the contract, the company will issue common stock in three years.

Early Monday, Moody's Investors Service cut its ratings on Solectron's long-term senior unsecured debt to junk, or below investment grade, status. The rating change, Moody's said, is due to the company's weak operating performance, among other reasons.

The ACES offering was given a junk rating by international rating agency Fitch.

The company also said it had received a commitment for $500 million of revolving credit facilities and expects to close on it during the first quarter of calendar 2002.

Chief Financial Officer Kiran Patel said the debt and credit plans formed part of "a comprehensive plan that meets our near-term debt obligations and strengthens our capital structure."