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FLEXTRONICS INT'L: Revenue Growth Cues Moody's Stable Outlook

Troubled Company Reporter, Feb. 9, 2007

Moody's Investors Service revised the outlook of Flextronics International Ltd. to stable from negative, while affirming its corporate family rating at Ba1.

The outlook revision reflects Flextronics' solid revenue growth over the past twelve months, with fiscal 2007 revenue expected to rise 24% over 2006.

Although revenue from acquisitions including its recently acquired Nortel assets contributed to the growth, organic growth in areas such as handsets was strong.  The company's industry-leading growth rate reflects the nature of Flextronics' portfolio -- one of the most diversified in the EMS industry.  The outlook revision also reflects Moody's expectation that Flextronics' profitability measures and free cash flow generation will improve in the near term.

Other factors considered in the current rating action include Flextronics' size and scale with revenue nearly twice as large as the average of its North American peers, its aforementioned product diversity, solid credit metrics, and Moody's expectation that improving working capital will help generate free cash flow in fiscal 2008.

The rating also continues to reflect risks associated with the volatility of the EMS industry, exacerbated by high client concentration, and the challenges Flextronics will face in managing a business with revenue exceeding US$19 billion, or 35% larger than three years ago, and management's strategy to maintain high growth rates, which implies periodic high capital investments and negative cash flow.

Flextronics' rapid growth strategy, in Moody's view, presents both opportunities and potential risks.  On the one hand, significant growth will further enhance Flextronics' scale and business diversity.  On the other hand, it would also present further challenges in terms of business complexity, importance of quality execution and management bandwidth.  Moody's notes that Flextronics has been adding key management personnel recently, possibly mitigating concerns over the pace of the growth.  The expectation that Flextronics will generate free
cash flow over the next 12-18 months is an important consideration in stabilizing its outlook.

These ratings have been affirmed:

   -- Corporate family rating at Ba1;

   -- Probability of default rating at Ba1;

   -- US$400 million 6.25% Senior Subordinated Notes due 2014,
      Ba2, LGD5, 85%;

   -- US$400 million 6.5% Senior Subordinated Notes due 2013,
      Ba2, LGD5, 85%;

   -- US$7.7 million 9.875% senior subordinated notes, due 2010,
      Ba2, LGD5, 85%; and,

   -- Speculative grade liquidity rating, SGL-1.

Outlook revised from negative to stable

Flextronics International Ltd., headquartered in Singapore, has its main U.S. offices in San Jose, California.  The company is one of the largest providers of electronics manufacturing services to OEMs primarily in the handheld electronics devices, information technologies infrastructure, communications infrastructure, computer and office automation, and consumer devices industries.

For the latest twelve months ending December 2006, the company generated approximately US$17.5 billion in revenues. 

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