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Flextronics to merge Hughes with Futuresoft
By siliconindia
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Tuesday, 07 September 2004, 19:30 IST
MUMBAI: Singapore-based global electronic manufacturing services (EMS) major Flextronics is considering consolidating its software business under Hughes Software (HSS). As a first step, HSS and the Chennai-based Futuresoft, acquired by Flextronics recently, are expected to be consolidated into a single entity.
This could be a prelude to bigger things. Around 4,000 engineers currently working on software solutions within Flextronics could be brought within the combined entity, sources said. Ultimately, the entire software solutions business is expected to be consolidated under the new entity.
Flextronics software units in Ukraine and San Jose employ around 450 and 250 persons respectively. These could also form part of the combined entity. After the consolidation, the revenues and manpower of the combined entity is expected to rise almost four-fold.
Arun Kumar, president & managing director of HSS, is expected to head the merged entity. When contacted, Kumar refused to comment on these plans. There are a lot of plans for the future, but nothing has been finalised yet, he told a business daily, Economic Times.
Taking into account the 800 people employed at Futuresoft, and more than 4,700 software engineers, the combined entity is expected to be the largest software company in telecom. Kumar could end up heading a workforce of close to 8,000 employees by the end of this year, once the consolidation plans of the parent company take effect. HSS is also expected to be renamed as the consolidation picks up.
Moreover, Flextronics wants to integrate HSS with itself in such a manner that it can sell software services to its customers directly. After being acquired by Flextronics, HSS had already raised its sales growth forecast for 05 to 30-35% from 25-30%. It has forecast that sales for the quarter ended September 30 will grow 5-6% over the previous quarter. Flextronics had earlier acquired Rupert Murdoch-controlled Hughes Network Systems 55% stake in HSS for $226m.
Flextronics 03-04 revenues were $14.5bn, the major contributors being hand-held devices (35% of revenues), computers and office automation (22%), communications infrastructure (17%) and others (26%). Telecom equipment and handset makers outsource their manufacturing to Flextronics.
Flextronics revenues have grown at a CAGR of 20% over the past five years. Flextronics customers include Cisco, Sony-Ericsson, Lucent, Nortel, IBM, Siemens and Philips. While Hughes also works with Cisco and Lucent, it is likely to get a head-up in large product development and outsourcing projects among telecom companies.
A substantial chunk of the cost in most telecom equipment is not hardware, but software. Most of the functionality is embedded as software. Flextronics is expected to use Hughes so that it offers design, development, software and manufacturing as an end-to-end solution.