Flextronics International Ltd. (FLEX) is expanding its reach in Europe and India through its business arm, Flextronics Global Services (FGS). The company chose Turkey and India to be their preferred destination for the second phase of expansion of their operations for providing post-manufacturing supply chain logistics services.
FGS already has a core facility centre in Bangalore, India and the new facility in Mumbai will support repair service requirements for a leading global original equipment manufacturer (OEM) of smart phones.
Flextronics also plans to leverage the growth potential in the Turkish economy to further its international expansion. Thus, the company has started an operation center in the country that will serve as the inbound operation hub for a global brand and leading computing OEM. The location of the operation center is key, since Turkey is positioned close to emerging markets in both Africa and Europe.
With Turkey joining the European Union (EU), Flextronics believes it would be better positioned to serve the growing demand in several emerging countries in the region. The specific markets that the company intends to target are in the nascent and relatively untapped zones of the Mediterranean Rim, Middle East and Africa.
With the global demand for supply chain and logistics services on the rise and particularly so in the emerging economies, the expansion for Flextronics is bound to positively impact the company in the long run.
We believe a robust product portfolio, new program wins, huge client base and increasing focus on emerging clean technology will likely act as positives going forward.
However, recently Flextronics has announced disappointing results and management expects lower revenues in the Mobile segment due to reductions in demand from Japanese-based mobile phone customers. However, market share gains at smartphone customers outside of Research In Motion Ltd. (RIMM) will drive revenues. Management expects the net impact to be about a 10% sequential decline.
Moreover, Flextronics continues to face tough competition from Celestica Inc. (CLS) and Jabil Circuit Inc. (JBL).
We have an Underperform recommendation on Flextronics International Ltd. over the long term (for the next 6 to 12 months). Currently, Flextronics has a Zacks #5 Rank, which implies a Strong Sell rating in the short term (1-3 months).
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