Flextronics Announces Second Quarter Results

- Gross Margin up 30 Basis Points Year-Over-Year;

- Eighth Consecutive Quarter of Year-Over-Year Operating Margin Improvement;

- Cash Conversion Cycle Decreases to 16 days;

- Record High Cash Increases by $320 million; Debt Decreases by $197 million

SINGAPORE, Oct. 25 -- Flextronics today announced results for its second quarter ended September 30, 2005 as follows:

  (USD in millions,        Three Months Ended          Six Months Ended
   except EPS)               September 30,              September 30,
                          2005          2004           2005        2004

  Net sales             $3,884.2     $4,138.2     $7,781.8     $8,018.7
  GAAP net income (loss)  $(2.4)        $92.6        $56.3       $166.9
  Net income, excluding
   intangible amortization,
   restructuring and
   other charges (1)      $101.3        $98.5       $201.0       $176.8
  Diluted GAAP EPS           $--        $0.16        $0.09       $ 0.29
  Diluted EPS, excluding
   intangible amortization,
   restructuring and
   other charges (1)       $0.17        $0.17        $0.33       $ 0.31

   (1)  The non-GAAP financial measures disclosed in this press release
        exclude certain amounts that are included in the most directly
        comparable measures under Generally Accepted Accounting Principles
        ("GAAP").  Non-GAAP results exclude after-tax intangibles
        amortization, results from divestitures, restructuring and other
        charges.  The Company recorded intangible amortization expense of
        $14.6 million and $29.3 million during the three- and six-month
        periods ended September 30, 2005, respectively, and $8.7 million and
        $17.3 million during the three- and six-month periods ended
        September 30, 2004, respectively.  The Company also recorded pre-tax
        restructuring charges of $50.3 million and $83.0 million during the
        three- and six-month periods ended September 30, 2005, respectively,
        and $33.5 million and $57.1 million during the three- and six-month
        periods ended September 2004, respectively, which were primarily
        related to the closures and consolidations of various manufacturing
        facilities.  The Company also recorded a $15.0 million bad debt
        reserve in the quarter ended September 30, 2005 associated with
        accounts receivable from Delphi, who recently filed for bankruptcy.
        The divestiture of the Semiconductor and Network Services operations
        resulted in a pre-tax gain of $70.7 million in the quarter ended
        September 30, 2005.   The tax impacts related to all of these items
        and other non-operational tax adjustments amounted to $94.5 million
        and $88.1 million of tax expense during the three- and six-month
        periods ended September 30, 2005, respectively, and a tax benefit of
        $36.3 million and $64.6 million during the three- and six-month
        periods ended September 30, 2004, respectively.  The reconciliation
        of non-GAAP results to GAAP results is illustrated in Schedules I
        and II attached to this press release.

  Second Quarter 2006 Results

Net sales for the second quarter ended September 30, 2005 were $3.9 billion compared to $4.1 billion in the year ago quarter.

Excluding intangibles amortization, restructuring and other charges, net income for the second quarter ended September 30, 2005 increased 3% to $101.3 million, or $0.17 per diluted share, compared with $98.5 million, or $0.17 per diluted share in the year ago quarter. After-tax amortization, restructuring and other charges amounted to $103.8 million in the second quarter ended September 30, 2005 compared to $5.9 million in the year ago quarter, resulting in a GAAP net loss of $2.4 million, or nil earnings per diluted share in the second quarter ended September 30, 2005, as compared to net income of $92.6 million, or $0.16 per diluted share in the year ago quarter.

Return on Invested Tangible Capital ("ROITC") increased to 27% in the second quarter ended September 30, 2005 from 24% in the year ago quarter. The Company's cash conversion cycle decreased to 16 days in the second quarter ended September 30, 2005 from 20 days in the previous sequential quarter. Excluding intangibles amortization, restructuring and other charges, operating margin increased 20 basis points to 3.4% in the second quarter ended September 30, 2005 from 3.2% in the year ago quarter, representing the 8th consecutive quarter of year-over-year operating margin improvement.

The Company ended the quarter with a record high $1.2 billion in cash, up from $830 million at the end of the previous sequential quarter. Total debt has decreased by $197 million since the end of the previous sequential quarter. Net debt amounted to $439 million at the end of the September 2005 quarter and has been reduced by $517 million since the end of the previous sequential quarter. Free cash flow, which is cash flow from operations less capital expenditures, generated $327 million in the second quarter ended September 30, 2005, which closely approximated the $339 million used to fund acquisitions during the quarter. The previously announced divestitures of the Network Services and Semiconductor divisions generated $519 million, which closely approximated the $197 million reduction in debt and the $320 million increase in cash in the second quarter ended September 30, 2005.

With regard to the September quarter operating results, Michael E. Marks, Chief Executive of Flextronics stated, "We are extremely pleased with our working capital management and cash flows for the quarter. To this end, we are pleased that we were able to reduce our cash conversion cycle to 16 days from 20 days in the previous quarter. Our cash also increased by $320 million and our debt decreased by $197 million from the end of the previous quarter while our cash flow from operations of $381 million was sufficient to fund our capital expansion and acquisition activity during the quarter. We were also able to increase operating margins for the eighth consecutive quarter on a year-over-year basis."

As previously announced, Flextronics merged its Network Services division with Telavie, a company wholly-owned by Altor 2003 Fund, a Nordic private equity firm. Flextronics received an upfront cash payment along with deferred and contingent payments, and has retained a 30% ownership stake in the merged company. Flextronics has also sold its semiconductor division to AMIS Holdings, the parent company of AMI Semiconductor. Both divestitures closed during the September 2005 quarter. Flextronics received cash payments of $519 million in the quarter for these divestitures, which resulted in a pretax gain of $71 million. In connection with these divestitures, the Company recognized a non-cash tax expense of $99 million associated with the utilization of deferred tax assets, resulting in an after-tax non-cash loss of $28 million.

Marks concluded by saying, "Our year-over-year revenue comparisons are adversely impacted by the divestitures of our Network Services and Semiconductor divisions along with the impact from two European OEM customers divesting their cell phone businesses during the past year. We expect the December 2005 quarter revenue comparison to be the last quarter adversely impacted by these customer actions."

Guidance

Management provided guidance for quarterly earnings per diluted share (excluding amortization, restructuring and other charges) of $0.18 to $0.20 on revenues of $4.0 billion to $4.2 billion for the December 2005 quarter. The Company also provided guidance for its March 2006 quarter of earnings per diluted share (excluding amortization, restructuring and other items) of $0.16 to $0.18 on revenues of $3.6 billion to $3.8 billion. Quarterly GAAP earnings per diluted share are expected to be lower than the guidance provided herein by approximately $0.03 per diluted share reflecting quarterly amortization expense. The timing and amount of restructuring and other charges cannot be estimated.

Conference Call and Web Cast

A conference call hosted by Flextronics' management will be held today at 1:30 p.m. PDT to discuss the Company's financial results and its outlook. This call will be broadcast via the Internet and may be accessed by logging on to the Company's website at www.flextronics.com. Additional information in the form of a slide presentation that summarizes the quarterly results may also be found on the Company's site. A replay of the broadcast will remain available on the Company's website after the call.

Minimum requirements to listen to the broadcast are Microsoft Windows Media Player software (free download at http://www.microsoft.com/windows/windowsmedia/download/default.asp ) and at least a 28.8 Kbps bandwidth connection to the Internet.

About Flextronics

Headquartered in Singapore (Singapore Reg. No. 199002645H), Flextronics is a leading Electronics Manufacturing Services (EMS) provider focused on delivering innovative design and manufacturing services to automotive, industrial, medical, and technology companies. With fiscal year 2005 revenues of USD$15.9 billion, Flextronics helps customers design, build, ship, and service electronics products through a network of facilities in over 30 countries on five continents. This global presence provides customers with complete design, engineering, and manufacturing resources that are vertically integrated with components to optimize their operations by lowering their costs and reducing their time to market. For more information, please visit www.flextronics.com.

This press release contains forward-looking statements within the meaning of federal securities laws. These forward-looking statements include statements relating to success of long-term initiatives, new customer opportunities, revenue contribution from new customers, margin expansion, growth rate, profitability, anticipated use of available cash, and cash flow and cash reserves. These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from those anticipated by these forward-looking statements. These risks include our ability to respond to changes in economic trends and to fluctuations in demand for customers' products and changes in customers' orders; the challenges of effectively managing our operations; not obtaining anticipated new customer programs, or if we do obtain them, their delay or inability to contribute to our revenue or profitability as expected or at all; the challenges of integrating acquired companies and assets, particularly the assets we have agreed to acquire from Nortel Networks; our inability to generate or support increased ODM and design activity; our need to take reserves for doubtful accounts of customers and the effects of customer bankruptcies; our dependence on a small number of large customers; competition in our industry; supply shortages of required electronic components; the challenges of international operations; the possible need for future restructurings and impairments of assets, and the other risks described under "Business - Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our most recent Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, filed with the U.S. Securities and Exchange Commission. The forward-looking statements in this press release are based on current expectations and Flextronics assumes no obligation to update these forward-looking statements.

                                                                  SCHEDULE I

             FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share amounts)
                               (Unaudited)

                                       Three Months Ended September 30, 2005
                                         Non-GAAP (1) Required      GAAP
                                                     Adjustments

  Net sales                               $3,884,231             $3,884,231

  Cost of sales                            3,622,025              3,622,025

  Restructuring and other charges                 --     38,463      38,463

        Gross profit                         262,206    (38,463)    223,743

  Selling, general and administrative
   expenses                                  131,975                131,975

  Restructuring and other charges                 --     26,883      26,883

        Operating income                     130,231    (65,346)     64,885

  Intangibles amortization                        --     14,629      14,629

  Interest and other expense, net             23,018                 23,018

  Gain on divestiture of operations               --    (70,695)    (70,695)

        Income before income taxes           107,213     (9,280)      97,933

  Provision for (benefit from) income taxes    5,896     94,484     100,380

        Net income (loss)                   $101,317  ($103,764)    ($2,447)

  Earnings (loss) per share:
        Basic                                  $0.18                  $0.00

        Diluted                                $0.17                  $0.00

  Shares used in computing per share amounts:
        Basic                                572,376                572,376

        Diluted                              602,147                572,376

                                     Three Months Ended September 30, 2004
                                       Non-GAAP (1)  Required     GAAP
                                                   Adjustments

  Net sales                              $4,138,249             $4,138,249

  Cost of sales                           3,867,385              3,867,385

  Restructuring and other charges                --    25,704       25,704

        Gross profit                        270,864   (25,704)     245,160

  Selling, general and administrative
   expenses                                 139,022                139,022

  Restructuring and other charges                --     7,798        7,798

        Operating income                    131,842   (33,502)      98,340

  Intangibles amortization                       --     8,683        8,683

  Interest and other expense, net            22,429                 22,429

  Gain on divestiture of operations              --                     --

        Income before income taxes          109,413   (42,185)      67,228

  Provision for (benefit from) income taxes  10,941   (36,335)     (25,394)

        Net income (loss)                   $98,472   ($5,850)     $92,622

  Earnings (loss) per share:
        Basic                                 $0.18                  $0.17

        Diluted                               $0.17                  $0.16

  Shares used in computing per share amounts:
        Basic                               551,875                551,875

        Diluted                             582,206                582,206

  (1)   The non-GAAP financial measures disclosed in this release exclude
        certain amounts that are included in the most directly comparable
        GAAP measures. Non-GAAP results exclude after-tax intangibles
        amortization, results from divestitures, restructuring and other
        charges.  The Company recorded intangible amortization expense of
        $14.6 million and $8.7 million during the quarters ended September
        30, 2005 and September 30, 2004, respectively.  The Company recorded
        restructuring charges of $50.3 million and $33.5 million during the
        quarters ended September 30, 2005 and September 30, 2004,
        respectively, which were primarily related to the closures and
        consolidations of various manufacturing facilities. The Company also
        recorded a $15.0 million bad debt reserve in the quarter ended
        September 30, 2005 associated with accounts receivable with Delphi,
        who recently filed for bankruptcy.  The divestiture of the
        Semiconductor and Network Services divisions resulted in pre-tax
        income of $70.7 million for the quarter ended September 30, 2005.
        The tax impacts related to all of these items and other non-
        operational tax adjustments amounted to $94.5 million of tax expense
        in the quarter ended September 30, 2005 and a tax benefit of $36.3
        million during the quarter ended September 30, 2004.

                                                                 SCHEDULE II

             FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share amounts)
                               (Unaudited)

                                         Six Months Ended September 30, 2005
                                         Non-GAAP (2) Required      GAAP
                                                     Adjustments

  Net sales                               $7,781,762             $7,781,762

  Cost of sales                            7,240,342              7,240,342

  Restructuring and other charges                 --     66,035      66,035

        Gross profit                         541,420    (66,035)    475,385

  Selling, general and administrative
   expenses                                  279,766                279,766

  Restructuring and other charges                 --     32,000      32,000

        Operating income                     261,654    (98,035)    163,619

  Intangibles amortization                        --     29,250      29,250

  Interest and other expense, net             49,035                 49,035

  Gain on divestiture of operations               --    (70,695)    (70,695)

        Income before income taxes           212,619    (56,590)    156,029

  Provision for (benefit from) income taxes   11,655     88,114      99,769

        Net income                          $200,964  ($144,704)    $56,260

  Earnings per share:
        Basic                                  $0.35                  $0.10

        Diluted                                $0.33                  $0.09

  Shares used in computing per share amounts:
        Basic                                570,851                570,851

        Diluted                              600,222                600,222

                                       Six Months Ended September 30, 2004
                                       Non-GAAP (2)  Required     GAAP
                                                   Adjustments

  Net sales                              $8,018,697             $8,018,697

  Cost of sales                           7,500,901              7,500,901

  Restructuring and other charges                --    46,695       46,695

        Gross profit                        517,796   (46,695)     471,101

  Selling, general and administrative
   expenses                                 280,618                280,618

  Restructuring and other charges                --    10,395       10,395

        Operating income                    237,178   (57,090)     180,088

  Intangibles amortization                       --    17,344       17,344

  Interest and other expense, net            40,715                 40,715

  Gain on divestiture of operations              --                     --

        Income before income taxes          196,463   (74,434)     122,029

  Provision for (benefit from) income
   taxes                                     19,646   (64,561)     (44,915)

        Net income                         $176,817   ($9,873)    $166,944

  Earnings per share:
        Basic                                 $0.33                  $0.31

        Diluted                               $0.31                  $0.29

  Shares used in computing per share amounts:
        Basic                               541,250                541,250

        Diluted                             575,110                575,110

   (2)  The non-GAAP financial measures disclosed in this release exclude
        certain amounts that are included in the most directly comparable
        GAAP measures. Non-GAAP results exclude after-tax intangibles
        amortization, results from divestitures, restructuring and other
        charges. The Company recorded intangible amortization expense of
        $29.3 million and $17.3 million during the six months ended
        September 30, 2005 and September 30, 2004, respectively. The Company
        also recorded restructuring charges of $83.0 million and $57.1
        million during the six months ended September 30, 2005 and September
        30, 2004, respectively, which were primarily related to the closures
        and consolidations of various manufacturing facilities.  The Company
        also recorded a $15.0 million bad debt reserve during the six months
        ended September 30, 2005 associated with accounts receivable with
        Delphi, who recently filed for bankruptcy.  The divestiture of the
        Semiconductor and Network Services divisions resulted in pre-tax
        income of $70.7 million for the six months ended September 30, 2005.
        The tax impacts related to all of these items and other non-
        operational tax adjustments amounted to $88.1 million of tax expense
        in the six months ended September 30, 2005 and a tax benefit of
        $64.6 million during the six months ended September 30, 2004.

                                                                SCHEDULE III

             FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (In thousands)
                               (Unaudited)

  ASSETS                                     September 30,         March 31,
                                                2005                 2005
  Current Assets:
              Cash and cash equivalents       $1,150,454           $869,258
              Accounts receivable, net         1,726,896          1,842,010
              Inventories                      1,721,887          1,518,866
              Deferred income taxes                9,649             12,117
              Other current assets               630,555            544,914
                    Total current assets       5,239,441          4,787,165
                                               1,622,965          1,704,516
  Property and equipment, net
  Deferred income taxes                          590,095            684,952
  Goodwill and other intangibles, net          3,227,069          3,502,189
  Other assets                                   422,984            328,750
                    Total assets             $11,102,554        $11,007,572

  LIABILITIES AND SHAREHOLDERS' EQUITY

  Current Liabilities:
              Bank borrowings and current portion
               of long-term debt                 $23,091            $17,448
              Current portion of capital lease
               obligations                           620              8,718
              Accounts payable                 2,948,934          2,523,269
              Other current liabilities        1,164,035          1,330,759
                                               4,136,680          3,880,194
  Long-term debt, net of current portion:
              Capital lease obligations            1,984              9,141
              Zero Coupon Convertible Junior
               Subordinated Notes due 2008       195,000            200,000
              1 % Convertible Subordinated
               Notes due 2010                    500,000            500,000
              6 1/2 % Senior Subordinated Notes
               due 2013                          399,650            399,650
              6 1/4 % Senior Subordinated Notes
               due 2014                          461,748            490,270
              Other                                7,659            110,509
  Other liabilities                              150,146            193,760

  Total shareholders' equity                   5,249,687          5,224,048
                    Total liabilities and
                     shareholders' equity    $11,102,554        $11,007,572