Flextronics Sees Accelerated Broad-based Deterioration in its Business

From JPMorgan Analyst Kevin Kessel
Flextronics International: Join Us for the Cocktail Recession, Oops . Reception; FLEX Joins Party and Lowers Guidance. FLEX lowered the low end of its guidance ranges for both revenue and EPS while making it clear it has seen accelerated broad-based deterioration over the past month. Not only is FLEX seeing weakness across end-market segments, but now it's also being reflected across geographies such as Brazil, which used to be "smoking" but have now begun to show signs of slowing. Joining the ranks of INTC, NOK, GLW, WFR, CY, BBY, and FCS, FLEX lowered its guidance just weeks after having given it. (Analyst: Kevin M. Kessel). Our views: We believe FLEX is a major assembler for SonyEricsson and this a negative indicator for SEMC especially after Nokia's warning for lower Q4 expectations and for '09 being down vs. '08 for industry handset shipments. Taking the lowest numbers on the Street down further, but valuation still compelling. Our previous estimates for FLEX were already the lowest on the Street. To reflect the deteriorating market conditions, we are trimming our numbers further. We are reducing our revenue estimate for the December quarter to $7.765B from $8.5B and lowering our EPS estimate to $0.17 from $0.25. Meanwhile our CY09 EPS and revenue estimates are being lowered to $29.3B and $0.61 from $31.3B and $0.65, respectively. In addition, we are cutting our Dec 2009 price target to $6 from $7, which is the average of our P/E and price/tangible book analysis. For P/E we use 10x our reduced CY09 EPS estimate of $0.61 (below the three-year average of 11.3x), and for price/tangible book we use 2.7x, which is below its three-year average price/tangible book of 2.8x.