Flextronics International Ltd, the No. 2 maker of electronics products to customer designs, is in talks with a Japanese company to buy a plant that makes equipment for high-speed mobile-phone networks.
The Singapore-based company wants to acquire technology and know-how in the first market to introduce the services, which enable moving images to be transmitted over a mobile phone, Nick Kanamaru, vice president in charge of sales and marketing at Flextronics Japan KK in an interview.
Computer and mobile-phone makers in Japan are just starting to farm out manufacturing work, a move taken by US counterparts Hewlett-Packard Co and Motorola Inc years ago. Two of Japan's largest cellphone operators plan to spend as much as US$15 billion in the next four years on new networks.
"Japan is an important market in terms of opportunities and that's where manufacturers are going to go to expand," said Patrick Yau, an analyst at ABN Amro Asia Securities Pte in Singapore.
Opportunities in Japan would also come as business in the US and Europe shrinks, pushing Flextronics into a loss in the second-quarter. To cut costs, the company is firing 15 percent of its staff. At the end of September, Flextronics had US$400 million in cash and US$903.6 million in long-term debt.
With the likely plant purchase in Japan, Flextronics is expected to receive a guaranteed manufacturing contract, which analysts say is a typical arrangement between a customer and its manufacturer. The contract and potential revenue reduces the investment risks for Flextronics, analysts said.
Buying the plant and securing the technology in high-speed mobile equipment will also boost Flextronics' expertise in handheld devices such as cellular phones and personal digital assistants. Motorola, Ericsson AB and other cellphone makers account for about a third of Flextronics' sales, analysts said.
"We want to buy a plant with cutting-edge technology," Kanamaru said. He declined to identify the Japanese company.
NEC Corp, one of only three makers of base stations and communications equipment for high-speed phone services, plans to sell some plants this year. NEC spokeswoman Akiko Shikimori said she doesn't know if the company is in talks with Flextronics.
NEC is one of the few Japanese companies willing to sell local factories. Labor unions are opposed to such sales, concerned foreign owners would fire workers, a practice which is almost taboo in a country used to lifetime employment.
"NEC is really aggressive in cost-cutting," said Masashi Fujiwara at Daiwa Asset Management Co, which holds US$66 billion in securities, including NEC shares. "NEC would make a smart choice because the high-speed phone service may not go as well as it expected."
NTT DoCoMo Inc, which on Oct. 1 became the sole operator in the world to offer the new technology, expects subscribers of its 3G services to reach 150,000 in March next year, 0.4 percent of DoCoMo's 38 million subscribers as of Aug. 31.
NTT DoCoMo plans to spend about ?1.1 trillion to build its network by March 2005. J-Phone group, Japan's No. 3 mobile-phone operator, has allocated a budget of about ?700 billion over three years to develop its network for the high-speed service. J-Phone group will start the service next summer.
Analysts estimate an equipment plant would cost about ?30 billion (US$246 million.) Tokyo-based NEC already has a partnership with Solectron Corp, Flextronics' main rival. Solectron President Koichi Nishimura is a friend of NEC President Koji Nishigaki. NEC earlier this month sold equipment at a server-making plant in eastern Japan to Solectron, which will lease the plant from NEC.
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