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Nortel gets out of gear manufacturing game

Mon, 06/28/2004 - 8:00pm
Karen Brown

Nortel Networks Corp. is still in the telecom technology hunt, but it won't be building the gear any more.

The Brampton, Ontario-based supplier of network switches and optical Ethernet systems to cable operators and telcos, has signed a four-year manufacturing deal with Flextronics Corp. to take over most of its systems integration, final assembly, testing and repair operations - a business with an estimated yearly revenue value of $2.5 billion. An optical design services agreement inked between the two companies also will also give Flextronics a stable of Nortel engineers working on edge, core switching and transport line products.

Pending final approval of the transaction, about 2,500 Nortel employees worldwide will move over to Singapore-based Flextronics starting in November. In exchange, Flextronics will pay Nortel about $75 million in the fourth quarter this year, with installment payments totaling approximately $600 million to $650 million made during the four quarters after that.

Nortel estimates it will see a $75 million to $100 million improvement in its annual bottom line as a result of the deal. The move also is part of Nortel's new business strategy to focus on design and product marketing, said Chahram Bolouri, president of the company's global operations.

"By leveraging the vertically integrated supply chain capabilities of Flextronics, we can focus our resources and efforts on those areas that offer us greater competitive differentiation," he said, in a release.

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