Solectron

» see solectron.com as it lived, on the wayback machine

~ the last words ~

Solectron was founded in Milpitas, California in 1977 by Roy Kusumoto, and the name is a portmanteau of solar and electron, because the intention had been to build a solar energy company. The plan was to fund the solar work by taking on overflow assembly jobs for Silicon Valley firms during their busy periods. The solar business never materialized. The overflow assembly work turned into one of the largest manufacturing companies in the United States, under a name that describes a product it never shipped.

Winston Chen, who had spent ten years at IBM and held two doctorates from Harvard, joined in 1978 as executive vice president, became president within about a year and chief executive in 1984. He is the person who actually built the thing. Koichi Nishimura came over from IBM in 1988 and became chief executive, adding the chairmanship in 1996. The company went public in 1989. By the fiscal year ending 31 August 2001 it was turning over $18.7 billion, up 32.2 percent in a single year, operating in more than twenty countries across five continents, and a year later it had about 73,000 people on the payroll.

From Turkey, none of it was visible at all. Contract manufacturing is invisible on purpose: the customer's logo goes on the outside and the manufacturer signs a contract promising not to be mentioned. Whatever sat on a desk in Ankara in 2001 carried the name of the firm that had designed and sold it, and which company had actually populated the board inside was not a question anybody thought to ask. That is the condition Solectron worked in for thirty years, and it is why a collapse on this scale made almost no noise outside the trade press.

~ the record ~

~ two baldrige awards ~

Solectron won the Malcolm Baldrige National Quality Award in the manufacturing category in 1991 and again in 1997. The Baldrige is the American federal quality prize, judged on process and management rather than on products, and contemporary trade coverage reported the second win as the first repeat in the program's ten-year history. That claim is worth a small amount of caution, because the official recipient list simply records both wins without ranking them, but the fact of winning twice is not in doubt.

There is something odd about being the most decorated quality organization in American manufacturing while having no product of your own to be good at. The award was for the system underneath: how work moved through a plant, and how a customer's drawing turned into a shipped unit without defects accumulating on the way. The company's own output was the competence, which is exactly the kind of asset that does not show up on a balance sheet when the business turns.

~ what the losses looked like ~

The turn arrived with the telecom bust, and the numbers in the annual reports are hard to read charitably. Solectron lost $123.5 million in the fiscal year to August 2001, then $3.11 billion in 2002, then $3.46 billion in 2003, then another $168.9 million in 2004. The 2003 figure alone carried $603.2 million of restructuring charges and $1.63 billion of goodwill written off. Revenue fell from $18.7 billion to $9.8 billion in two years and never again reached much more than half the peak.

The mechanism was the land grab that came before it. Through the late 1990s Solectron had bought its customers' own factories to win their business, heavily weighted toward wired telecom equipment, and paid for them in goodwill. When the orders stopped, that goodwill and that plant became write-offs. What remained underneath was a structurally thin business: by the fiscal year to August 2006 the company earned $547.6 million of gross profit on $10.56 billion of sales, a gross margin of about 5.2 percent, and its own annual report put the first risk factor plainly, that the business generates low operating margins.

Nishimura announced his retirement in September 2002 and left the chairmanship in January 2003, after ten consecutive quarters of losses. Michael Cannon came in from Maxtor to run the turnaround, cut costs while pushing the company toward design services, and then left for Dell in early 2007. It was the finance director, Paul Tufano, serving as interim chief executive, who signed the company away.

~ three dollars eighty-nine ~

Flextronics announced the deal on 4 June 2007, valuing Solectron's equity at roughly $3.6 billion. Shareholders had to choose rather than receive a blend: 0.3450 Flextronics shares or $3.89 in cash per Solectron share, subject to proration, with at least half the shares required to take stock. That was a premium of about 15 percent on the cash option against the $3.37 closing price on 1 June. Citigroup committed a $2.5 billion seven-year loan. The combined company was pitched at more than $30 billion of revenue and around 200,000 employees in 35 countries.

It closed on 1 October 2007 and Solectron's stock stopped trading at the end of that day. About 79 percent of holders took shares instead of cash, so the final consideration came to roughly $1.07 billion in cash plus about 221.8 million Flextronics shares. The delisting notices went in on 3 and 4 October and the deregistration followed on 18 October. Flex's own corporate history now renders all of it as one sentence: in 2007, Flextronics purchased long-time competitor Solectron for $3.6 billion.

The residue lasted longer than the company. solectron.com served a transition page explaining the acquisition, then settled into a plain redirect to its buyer, and it was still redirecting in October 2024, seventeen years after there was anything to redirect from. The last legal trace was a single subsidiary, Solectron France SAS, which appears in Flex's list of subsidiaries right through the annual report filed in May 2023 and is gone from the one filed a year later. A thirty-year-old company with 73,000 employees ended as one line item in France, retired in 2023 by somebody updating a schedule.

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