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Stock Analyst Update

Tech Sector Pain Means Manufacturing Stocks Gain

As big tech companies struggle, their outsourcing partners soar.

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As the technology sector continues to decelerate, more and more struggling firms, like wireless-phone giant Ericcson (ERICY), are choosing to outsource their manufacturing operations. Although that move hasn't resurrected Ericcson's battered shares yet, decisions like these have been a boon to Flextronics International (FLEX), the electronic manufacturing service (EMS) firm that landed Ericcson's $800 million manufacturing contract this January. Indeed, while Ericcson's shares are down 56% over the trailing one-year period, Flextronics was up 34% for the same period.

Ericcson isn't the only battered tech outfit that is trying to save money by offloading its inefficient manufacturing operations and focusing more on core competencies. Troubled Motorola (MOT), for example, signed two separate contracts worth a combined $31 billion with Flextronics and Celestica (CLS) last year, while the hapless Lucent (LU) continues to shift its manufacturing operations to EMS firms like Sanmina (SANM) and Jabil Circuit (JBL). When it comes to EMS firms, the gloomy thunderclouds hovering over the tech industry have a noticeable silver lining. 

Frank Stanton does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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