Mobile Phones: Lower Anticipated Growth Bad For Flextronics

Bank of America’s Tim Long yesterday morning trimmed his global unit growth forecast for the mobile phone market to 1.11 billion, an increase of 8% from 2006; he previously had expected 15% growth.

For 2008, he reduced his forecast to 1.26 billion from 1.33 billion; that represents growth of 13% for next year (his old growth rate was 11%, but off of a higher base).

Long’s colleague Scott Craig notes that the lower anticipated growth has implications for Flextronics (FLEX), which has about 35% revenue exposure to the handset business, producing hardware for Sony-Ericsson, Motorola (MOT) and Kyocera.

“Motorola’s recent struggles and lower-than-expected June outlook are negative for FLEX, especially since we suspect that MOTOFONE sales are falling short of initial expectations and FLEX recently completed a significant build with that particular program,” Craig writes. He adds that there is “some risk” to second quarter guidance at Flextronics, due to the handset concerns generally and to the issues at Motorola in particular.

As it happens, Lehman’s Yuri Krapivin also raised issues yesterday about Flextronics and Motorola. He says there is “real risk” that Motorola could kill its MOTOFONE program, which targets the low end of the market; he says investors are aware of that possibility but that it has not been priced into Flextronics shares. He also thinks there is some risk Flextronics could lose some of its Sony Ericsson business to competitor Hon Hai.

Flextronics shares yesterday were down 9 cents at $11.01; Motorola was off 2 cents at $17.87.

FLEX vs. MOT 1-yr chart:

Comments

[Sr. Pessimist:]

Mobile phones are quickly becoming a commodity.

2007 Apr 25 10:57 AM