Updated from 4:34 p.m. EST

Flextronics ( FLEX) pushed its third-quarter net income up by 28% and said its huge outsourcing deal with Nortel is starting to pay off.

Net sales for the third quarter were $4.3 billion, an increase of 3% over the year-ago quarter. Excluding items, the company posted a profit of $116.3 million, or 20 cents per diluted share.

Analysts polled by Thomson First Call were expecting a 19-cent profit on sales of $4.2 billion.

Including items, the contract manufacturing giant earned a profit of $98.7 million, or 17 cents a share, an increase of 361% over a quarter that was burdened by big writedowns as the company unloaded excess manufacturing capacity.

The company said that it expects to earn a fourth-quarter profit of 15 cents to 18 cents a share on revenue ranging from $3.8 billion to $4.2 billion. Analysts were expecting a profit of 16 cents per share on sales of $3.99 billion.

In its fiscal first quarter, the company expects to earn a profit of 17 cents to 20 cents a share with revenue ranging from $4.1 billion to $4.5 billion. Analysts were expecting a 17-cent profit on sales of $4.3 billion. The guidance was no surprise and was actually an affirmation of the company's earlier projections.

Even so, the overall report heartened investors, who have seen the stock lose 9% so far this month. In after-hours trading, Flextronics was gaining 63 cents, or 5%, to $13.05 a share; the stock lost 11 cents during the regular trading session.

CEO Michael Marks said outsourcing for Nortel ( NT) will contribute between $2 billion and $2.5 billion a year. In the March quarter Nortel sales will total $100 million, ramping to $300 million in June and $500 million in the September quarter.

He said the company's pipeline of potential business was strong even though overall growth in the sector will be modest -- about 3% to 5%, a number in line with remarks made by CEOs in storage and enterprise software.