After today’s close, we got to see earnings from two key electronics manufacturing services firms.  Flextronics International Ltd. (NASDAQ: FLEX) and Celestica Inc. (NYSE: CLS) both look cautious on the surface as the economy is slowing down, but the valuations here are signaling some astronomical and historic readings which are almost unheard of.  That is the state of the market today, so calling for any bottom just on valuation would be an amateur’s game.  Traders are at least taking some notice after the reports.

FLEXTRONICS

Flextronics International Ltd. (NASDAQ: FLEX) reported adjusted net income up 57% over the year ago quarter to $230million, and EPS rose 17% to $0.28.  Net sales for the second quarterincreased 59% to $8.9 billion, which represents an increase of $3.3billion over the year ago quarter due to the merger boost. First Call were for $0.29 non-GAAP EPS and $8.73 billion inrevenue.  Adjusted operating profit rose 72% over the year ago quarterto $295 million and adjusted operating margin improved 20 basis pointsto 3.3%.

For the third quarter ending December 31, Flextronics seesrevenue of $8.0 billion to $9.0 billion and adjusted EPS of $0.21 to $0.27.  First Call estimates are $0.31 EPS and $9.34billion in revenue.

The company also repurchased 30 million shares, or about 4% of itsfloat.  Flextronics also recognized $129 million in charges primarilyfor provisions for doubtful accounts receivable and other items.

The selling of late has been almost unabated.  In fact, this has beenmore than cut in half in less than one month.  It appears that thevaluations here after an 11% drop to $3.74 today are giving investorssome appetite despite the guidance being well under estimates.  Sharesare trading up at $3.85 in after-hours trading and the 52-week tradingrange is $4.06 to $13.60.

CELESTICA

Celestica Inc. (NYSE: CLS) managed to do even better.  This EMSoperator posted GAAP earnings of $0.14 per share and $2.03 billion inrevenue, although adjusted earnings were $0.24.  First Callestimates were $0.19 for non-GAAP EPS and $1.97 billion in revenues.

The company also gave guidance for the current quarter of $0.16 to $0.24 EPSand $1.75 billion to $2.0 billion in revenue.  Consensus estimates are$0.20 EPS and $2.07 billion in revenue.

Celestica also said that operating margin was 3.2% compared with 2.3%last year and gross margin was 7.4% compared with 5.8% last year.

Celestica shares closed down over 4.5% at $3.66 in regular trading, andshares appear to be up about 15% at $4.21 in after-hours trading.  Itsprior 52-week trading range before today was $3.80 to $9.86.  Thisstock has also been cut in half over the last month.

Jon C. Ogg
October 23, 2008

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