Rough Quarters for Contract Manufacturers - TheStreet

Flat sales and heavy restructuring charges pushed

Flextronics

(FLEX) - Get Report

to a loss of 56 cents a share, the Singapore-based contract manufacturer reported after the close Thursday.

Net sales for the June quarter were $3.1 billion, essentially flat year over year and up 1.5% sequentially. Including charges of $310 million, the company lost $289.7 million, or 56 cents per diluted share. The charges included $230 million related to the closure of two facilities.

Pro forma earnings were 4 cents a share, a penny under the consensus of analysts polled by Thomson First Call. Revenue was slightly below expectations.

The company expects earnings in the September quarter to range from 6 cents to 8 cents a share (analysts were expecting 8 cents), on sales of $3.3 billion to $3.5 billion, compared to analyst expectations of $3.35 billion.

The stock closed off 21 cents, or 2%, to $11.20 a share in regular trading on Thursday.

Earlier Thursday, rival contract manufacturer

Celestica

(CLS) - Get Report

reported a second-quarter loss of $39.6 million, or 18 cents a share, on sales that dropped 29% year over year to $1.6 billion. During the corresponding quarter last year, the company made a GAAP profit of $40.4 million, or 15 cents a share, on sales of $2.2 billion.

The company said the loss included a $21.6 million charge related to restructuring activities.

The results were a disappointment to Wall Street, which was expecting a pro forma loss of 4 cents, compared to Celestica's pro forma loss of 7 cents, and $1.6 billion in revenue. The stock closed off 40 cents, or 2.7%, to $14.95.

Looking to the third quarter ending Sept. 30, Celestica said it expects revenues in the range of $1.55 billion to $1.7 billion, with pro forma earnings ranging from a 2-cent-profit to a 5-cent loss. The guidance was also below Wall Street's expectations of a 1-cent profit and revenue of $1. 68 billion.

Celestica expects to lay off approximately 2,000 to 3,000 jobs over the rest of 2003, which will result in an additional charge of about $50 million. That will bring the total number of jobs cut over two years to between 7,000 and 8,000, said Paul Nicoletti, the company's treasurer.

Although the entire contract manufacturing sector is hurting because of the worldwide drop in IT spending, Celestica has an additional burden of being more heavily concentrated in telecom and IT than other tier-one players, said Steven Gluckstein, who follows Celestica for Oppenheimer. Combined, those hard-hit sectors account for about 70% of the company's business, while comprising 50% of

Solectron's

( SLR). (Oppenheimer has no banking relationship with Celestica). Discounting handheld devices, IT and telecom make up just 20% of Flextronics' business. (With handhelds included, the total rises to 50%).