Updated from 8:00 a.m. EDT
( MOT) said Wednesday that it has struck a five-year, $30 billion strategic alliance with contract manufacturer
Motorola said the agreement includes a stake in San Jose, Calif.-based Flextronics.
Shares in Flextronics surged on the news. In midmorning trading, Flextronics was up 7 9/16, or 15%, to 57 5/8. (Flextronics International finished Wednesday regular trading up 4 3/8, or 9%, at 54 7/16.) Motorola also rose, climbing 3 3/16, or 3%, to 99 5/8. (Motorola closed Wednesday regular trading down 2 11/16, or 3%, at 99 3/4.)
Under the terms of the deal, Motorola will outsource more than $30 billion of consumer-electronics production to Flextronics. By the fifth year of the deal, in 2005, the companies expect Flextronics to produce $10 billion worth of cell phones, two-way pagers, wireless infrastructure portfolios and various other communications devices. Motorola said the agreement will streamline its supply chain across multiple product lines.
"By streamlining Motorola's
communications enterprise supply chain, we will be better able to anticipate our customers' evolving needs and help speed the time to market of our products around the world," said Merle Gilmore, who heads Motorola's communications enterprise unit, in a statement.
Motorola said the pact is similar to other programs throughout its business segments to outsource manufacturing and is part of its strategy to improve supply chain efficiencies and meet increasing product demand.
Schaumburg, Ill.-based Motorola said the deal will affect about 15% of the total manufacturing of its communications enterprise division over the five-year period.
As part of the deal, Motorola will purchase an equity instrument at a discount for an initial payment of $100 million. That instrument is convertible over time into 11 million shares of Flextronics stock.