YOUR PROJECTED RETURN ON

INVESTMENT:

$116 MILLION REVENUE INCREASE

OVER 4 YEARS

Outline

• Project Overview & Background– Key Background Information– Project Charter

• Data Analysis• Operational Considerations• Conclusion and

Recommendations

Key Background Information• Flextronics International, Ltd., a Singapore-based corporation,

world’s second-largest provider of EMS• Growth in 1990s driven by OEMs increased propensity to outsource

– By 2005, 67.6% of cellular handset will be outsourced

• Margins declined in the CM business during the mid-1990s– In 2001 and 2002, Flextronics began to face a loss in net income– Lost Palm’s business to an ODM

• Venturing into ODM business with the design of Phone 4 , recognizable value, Flextronics can:– offer full exclusivity– offer exclusivity on an “all-or-nothing” basis by requiring the customer to

purchase a predetermined quantity– offer exclusivity only within a geographic region – deny the request

Project CharterBusiness Case Help Flextronics determine the financial

impact and risks related to committing to the ODM market. (Potential growth vs. risk)

Help Flextronics estimate the financial impact and risks related to exclusivity of Phone 4. (protect ROI on major project)

Project Scope We focus exclusively on the operational issues

related to incorporating more product design into Flextronics’ mix and those related to the Phone 4 exclusivity decision.

Goal Statement We determine whether Flextronics should

move into the ODM market. And if so we will present a plan for

Flextronics that includes a well-considered strategy for the ODM segment and the Phone 4 project .

Opportunity Statement Flextronics faces significant risks by entering the

ODM market strongly. Flextronics faces significant risks avoiding the

ODM market. The large investments of time and capital in

Phone 4 could be wasted if the exclusivity decision is mishandled.

Flextronics may have a better opportunity to reduce costs by moving to the ODM market.

Profit Margin ODM market vs Flextronics

1998 1999 2000 2001 20020.0%

10.0%

20.0%

30.0%

ODM Benchmark ComparisonGross Margin %

ODM Benchmark

Flextronics

Gros

s Mar

gin

Perc

enta

ge

Customer Value Proposition2001E 2002E 2003E 2004E 2005E

Cellular Handsets (million) 33 37 39 40 41Cellular Handset ASP 95$ 75$ 55$ 52$ 50$

Flextronics ODM Solution 78$ 64$ 48$ 47$ 46$ Customer Gross Margin/Handset 17$ 11$ 7$ 5$ 5$ Customer % Gross Profit Margin 18% 15% 12% 10% 9%

• Demonstrate impact of Flextronics ODM solution to on OEMs bottom-line

• Market is highly competitive and customer’s profit margin will decline

Revenue and Gross Profit Growth

2001E2002E

2003E2004E

2005E $-

$10

$20

$30

$40

$50

$60

$70

Flextronics Projected Financial Impact for Cellular ODM products

Cellular Phone Revenue$

Cellular Gross Profit Margin$

Reve

nue

& G

ross

Pro

fit M

argi

n, $

in m

illio

ns

Cost Control

• Critical to focus on supply chain and lean six sigma to achieve operational excellence

2001ECM CDM ODM 2002E 2003E 2004E 2005E

Revenue Per Unit 80$ 80$ 78$ 64$ 48$ 47$ 46$

Cost Per UnitComponents 66$ 62$ 59$ 48.51$ 37.25$ 36.42$ 35.79$ Materials Financing 1$ 1$ 1$ 0.82$ 0.63$ 0.62$ 0.61$ Design -$ 1$ 2$ 1.64$ 1.26$ 1.23$ 1.21$ Manufacturing 8$ 8$ 7$ 5.76$ 4.42$ 4.32$ 4.25$

Total Cost Per Unit 75$ 72$ 69$ 56.74$ 43.56$ 42.59$ 41.86$

Gross Profit per Unit 5$ 8$ 9$ 7.01$ 4.84$ 4.21$ 3.64$ Gross Profit Margin % 6% 10% 12% 11% 10% 9% 8%

Operational Considerations

• Efficient Production Lines• Market Knowledge and Technical Capabilities• Reverse Logistics and Support

Conclusion and Recommendations

• Invest $25 million in developing ODM capabilities over 4 years

• Create a compelling value proposition for OEMs• Improve Flextronics financial performance• Phone 4 Exclusivity