Flextronics Follows the Vertical Leader

"By forgoing margins in the near- to medium-term, FLEX will likely take meaningful market share from its U.S.-based competitors, while at the same time creating substantial barriers to entry down the road (more services = stickier customers)," Deutsche Bank analyst Carter Shoop said in a note following the company's most recent quarter.

He wrote that it is essential for high-volume EMS vendors to invest in value-added services such as design, component manufacturing and logistics, and in this way, Flextronics has a head start on its U.S. peers.

Shoop has a buy rating on the stock, and his firm has a banking relationship with the company.

Although it's not an entirely new strategy, "Customers are now embracing (vertical integration) and using it gradually more now than they have in the past," says Suva, who has a buy rating on the stock and a $14 price target. "A lot of it is driven by their need to get to time to market quickly."

For consumer electronics devices in particular, "time to market is critical," he says. Flextronics can theoretically make it less expensive and faster to get to market.

Flextronic's largest customers are Sony-Ericsson, Hewlett-Packard (HPQ Quote - Cramer on HPQ - Stock Picks) and Nortel Networks (NT Quote - Cramer on NT - Stock Picks), each accounting for more than 10% of sales during the quarter ended June 30.

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