shares got a slight boost Tuesday when toymaker
announced it would outsource the bulk of its production to the electronics manufacturing services firm.
Flextronics stock rose 27 cents, or 2.7%, to $10.40 in recent trading on Tuesday.
Lego announced that over the next three years Flextronics will take over the majority of its manufacturing. Lego will cut up to 900 of its 1,200 jobs at its factory in Billund, Denmark as the company moves its Lego system product line to Flextronics facilities in Eastern Europe.
Production of more technically demanding products like Lego's Technic and Bionicles will remain in Billund.
Lego's Enfield, Conn., facility will close in the first quarter of 2007 and relocate to Flextronics' Mexican factories. Up to 300 employees will be affected, Lego said.
Flextronics also will take over Lego's Czech Republic factory in Kladno on Aug. 1.
Over the past year, the electronics manufacturing services firm has been assembling Lego's Duplo product line in its Hungary plant.
"With the restructuring process, we want to improve our profitability while at the same time strengthening our competitive edge in an increasingly competitive market," Lego President and CEO Jorgen Vig Knudstorp said in a statement.
"We are excited to expand our partnership with the Lego Group as this allows Flextronics further market diversification and enhanced plastic moulding capabilities in low cost regions," Matt Ryan, executive vice president of worldwide operations for Flextronics, said in a statement.
The outsourcing plan will shear Lego's headcount to 3,000, compared with 8,300 employees in 2003, the last year before the company began its restructuring.
One analyst said the announcement is a new direction for EMS.
"It's not electronics, it's plastic molding," said Alexander Blanton, an analyst with Ingalls & Synder, who follows EMS companies. "This is the first major piece of business that I have seen of that nature."
EMS firms generally have plastic molding operations which are used to make plastic enclosures for consumer electronics products like
Xbox and cell phone handsets.
"If you have some excess capacity and you can't fill it up the operation with electronics, maybe you can fill it up with non-electronics business," he said "You can be less dependent on electronics business in your plastics operations."
Blanton owns shares of Flextronics. His firm does not do any banking with the company.