Lucent in $2 bn manufacturing deal with Solectron

By : |March 30, 2002 0

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

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

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

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.

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