Lucent in $2 bn manufacturing deal with Solectron

Siobhan Kennedy

NEW YORK: Telecommunications equipment company Lucent Technologies Inc. said

on Thursday it chose Solectron Corp. to manufacture optical gear used in moving

data over the Internet in a deal that could be worth $2 billion.

Under the anticipated deal, Lucent said it was selling equipment and

inventory at its manufacturing operations in North Andover, Massachusetts, to

Solectron, a leading contract manufacturer of electronic equipment, for $125

million.

Solectron shares gained more than 11 percent, or 80 cents, to close at $7.80.

Lucent closed up almost 9 percent, or 39 cents, at $4.73. Lucent was the most

actively traded stock and Solectron was among the most active in a light session

on the New York Stock Exchange.

"We believe the deal ... could add close to $150 million in incremental

revenue to Solectron's fourth-quarter," Bear Stearns said in a research

note to clients, adding that $125 million was half of what Solectron had

estimated it would pay for Lucent's equipment and inventory originally.

"This is no surprise at all, we've been expecting this for several

months now," said Gary Nilsson, a secretary for the Communication Workers

of America, the union representing Lucent's workers at its North Andover Plant.

Battered telecom equipment maker Lucent has been slashing its work force,

selling plants, discontinuing money-losing products and selling noncore

businesses in an effort to return to profitability by making itself into a

smaller, more nimble supplier focused on the largest telephone carriers.

Last month Lucent surprised Wall Street by cutting its quarterly revenue

forecast and said its return to profitability would be delayed until its 2003

fiscal year, which begins in October, as US phone companies continue to cut back

on spending.

As part of the agreement, expected to close in Lucent's fiscal third quarter,

ending in June, Solectron will supply Lucent with optical components used to

make Lucent's Lambda and WaveStar optical network products for the next 3 years.

Solectron will also take over repair of the products and manage Lucent's

dealings with its other optical equipment suppliers, it said. It added that it

plans to lease Lucent's factory facility until a full transfer to other

Solectron sites can take place.

The deal follows a similar manufacturing agreement Lucent struck with

contract manufacturer Celestica Inc. last September. At the time, it turned over

its data switching operations in Oklahoma and its wireless operations in

Columbus, Ohio.

Deal planned



About 1,600 employees are involved in manufacturing at Lucent's North Andover
plant, the company said on Thursday. Of those, about 400 are already due to

leave Lucent on March 31 under an early retirement plan and about 500 will be

moved to another Lucent systems integration facility, the company said.

In addition, 538 employees will transfer to A-Plus Manufacturing, a Solectron

company, Solectron said. It said, however, that 250 of those employees would be

employed on a temporary basis for the next couple of months only. Solectron also

said it was considering employing about 100 other engineering and supervisory

staff.

In February, union officials representing hourly workers at the Lucent plant

said they were in formal bargaining discussions with Solectron regarding a labor

contract. "This is the final hammer," Nilsson said, adding that the

deal with Solectron, plus the contracts signed with Celestica last September,

marked the end of Lucent's manufacturing days.

"It's really ironic because when it was established and spun off from

AT&T Corp., Lucent's sole purpose in life was to a be manufacturer of

telecommunications equipment," Nilsson said. "Now they're going to buy

all parts from someone else."

In addition to the 1,600 involved in manufacturing, about 1,200 people from

other Lucent units work at the North Andover plant, Lucent said. It said those

employees, as well as those who are part of its nearby systems integration

center, will remain at the facility until a final decision is made about the

building.

The deal is the third such agreement Milpitas, California-based Solectron has

signed this week. Earlier, the company announced a deal to provide repair

services for Microsoft Corp.'s Xbox video game console in Asia. It also said it

won a contract to manufacture cable modem systems for Juniper Networks Inc. in

the United States.