10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 26, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 1-11098

SOLECTRON CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-2447045
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

847 Gibraltar Drive
Milpitas, California 95035
(Address of principal executive offices including zip code)

(408) 957-8500
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.

     YES þ NO o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

     YES þ NO o

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     At December 23, 2004, 971,062,296 shares of Common Stock of the Registrant were outstanding (including approximately 26 million shares of Solectron Global Services Canada, Inc., which are exchangeable on a one-to-one basis for the Registrant’s common stock)

SOLECTRON CORPORATION

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at November 30, 2004 and August 31, 2004	3
Condensed Consolidated Statements of Operations for the three months ended November 30, 2004 and 2003	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended November 30, 2004 and 2003	5
Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2004 and 2003	6
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	38
Item 4. Controls and Procedures	38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	40
Item 6. Exhibits	40
Signatures	42
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)

	November 30			August 31
	2004			2004
ASSETS
Current assets:
Cash and cash equivalents	$	1,680.2		$	1,430.0
Accounts receivable, net		1,429.5			1,549.9
Inventories		1,405.3			1,457.2
Prepaid expenses and other current assets		184.9			192.9
Current assets of discontinued operations		—			36.4
Total current assets		4,699.9			4,666.4
Property and equipment, net		711.8			726.6
Goodwill		134.6			134.6
Other assets		259.0			277.5
Long-term assets of discontinued operations		—			11.9
Total assets	$	5,805.3		$	5,817.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	21.2		$	25.1
Accounts payable		1,343.1			1,417.3
Accrued employee compensation		173.3			175.2
Accrued expenses and other current liabilities		465.9			495.1
Current liabilities of discontinued operations		—			46.4
Total current liabilities		2,003.5			2,159.1
Long-term debt		1,215.4			1,221.4
Other long-term liabilities		77.0			55.9
Long-term liabilities of discontinued operations		—			1.8
Total liabilities	$	3,295.9		$	3,438.2
Commitments and contingencies
Stockholders’ equity:
Common stock		1.0			1.0
Additional paid-in capital		7,842.4			7,775.9
Accumulated deficit		(5,153.6	)		(5,209.5	)
Accumulated other comprehensive loss		(180.4	)		(188.6	)
Total stockholders’ equity		2,509.4			2,378.8
Total liabilities and stockholders’ equity	$	5,805.3		$	5,817.0

See accompanying notes to condensed consolidated financial statements

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SOLECTRON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)

	Three Months Ended November 30
	2004			2003
Net sales	$	2,690.6		$	2,696.8
Cost of sales		2,534.4			2,569.3
Gross profit		156.2			127.5
Operating expenses:
Selling, general and administrative		95.5			114.7
Restructuring and impairment costs		1.6			27.0
Operating income (loss)		59.1			(14.2	)
Interest income		5.8			2.4
Interest expense		(16.3	)		(43.9	)
Other income — net		3.0			6.0
Operating income (loss) from continuing operations before income taxes		51.6			(49.7	)
Income tax expense		4.7			2.5
Income (loss) from continuing operations	$	46.9		$	(52.2	)
Discontinued operations:
Income (loss) from discontinued operations	$	10.7		$	(67.3	)
Income tax expense		1.7			0.3
Income (loss) from discontinued operations		9.0			(67.6	)
Net income (loss)	$	55.9		$	(119.8	)
Basic net income (loss) per share
Continuing operations	$	0.05		$	(0.06	)
Discontinued operations		0.01			(0.08	)
Basic net income (loss) per share	$	0.06		$	(0.14	)
Diluted net income (loss) per share
Continuing operations	$	0.05		$	(0.06	)
Discontinued operations		0.01			(0.08	)
Diluted net income (loss) per share	$	0.06		$	(0.14	)
Shares used to compute basic net income (loss) per share		963.2			833.6
Shares used to compute diluted net income (loss) per share		967.4			833.6

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)

	Three Months Ended November 30
	2004		2003
Net income (loss)	$	55.9	$	(119.8	)
Other comprehensive income (loss):
Foreign currency translation adjustments		8.2		48.7
Unrealized gain on investments		—		8.7
Comprehensive income (loss)	$	64.1	$	(62.4	)

Accumulated unrealized foreign currency translation losses were $180.4 million at November 30, 2004 and $188.6 million at August 31, 2004. Foreign currency translation adjustments consist of adjustments to consolidate subsidiaries that use the local currency as their functional currency and transaction gains and losses related to intercompany dollar-denominated debt that is not expected to be repaid in the foreseeable future.

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

	Three Months Ended November 30
	2004			2003
Cash flows from operating activities of continuing operations:
Net income (loss) from continuing operations	$	46.9		$	(52.2	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		48.5			59.3
Amortization of debt issuance costs and accretion of discount on notes payable		1.5			16.1
Change in the carrying value of property and equipment, goodwill and other long-term assets		0.5			0.8
Changes in operating assets and liabilities:
Accounts receivable, net		120.4			(202.2	)
Inventories		52.1			(145.1	)
Prepaid expenses and other current assets		17.4			17.9
Accounts payable		(74.2	)		234.1
Accrued expenses and other current liabilities		(17.9	)		(43.0	)
Net cash provided by (used in) operating activities of continuing operations		195.2			(114.3	)
Cash flows from investing activities of continuing operations:
Change in restricted cash and cash equivalents		—			27.0
Sales and maturities of short-term investments		—			11.2
Proceeds from disposition of business		30.0			—
Capital expenditures		(32.0	)		(37.0	)
Proceeds from sale of property and equipment		3.8			25.6
Proceeds from sale of investment		16.0			—
Advances to discontinued operations		(22.9	)		(12.1	)
Net cash (used in ) provided by investing activities of continuing operations		(5.1	)		14.7

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

	Three Months Ended November 30
	2004			2003
Cash flows from financing activities of continuing operations:
Net repayment of bank lines of credit and other debt arrangements		(15.1	)		(24.4	)
Net proceeds from issuance of common stock		64.3			—
Net proceeds from stock issued under option and employee purchase plans		1.2			12.6
Net cash provided by (used in) financing activities of continuing operations		50.4			(11.8	)
Effect of exchange rate changes on cash and cash equivalents		9.7			6.3
Net increase (decrease) in cash and cash equivalents		250.2			(105.1	)
Cash and cash equivalents at beginning of period — continuing operations		1,412.5			1,421.9
Cash and cash equivalents at end of period — continuing operations	$	1,662.7		$	1,316.8
Cash and cash equivalents at beginning of period — discontinued operations	$	—		$	36.4
Cash provided by discontinued operations		—			11.1
Cash and cash equivalents at end of period — discontinued operations	$	—		$	47.5

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

NOTE 1 — Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The accompanying financial data as of November 30, 2004 and for the three months ended November 30, 2004 and 2003 has been prepared by Solectron, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The August 31, 2004 condensed consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. However, Solectron believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Solectron’s Annual Report on Form 10-K for the fiscal year ended August 31, 2004.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair consolidated statement of financial position as of November 30, 2004, the results of operations, comprehensive income (loss) and cash flows for the three months ended November 30, 2004 and 2003 have been made. The consolidated results of operations for the three months ended November 30, 2004 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Solectron’s first quarters of fiscal 2005 and 2004 ended on November 26, 2004 and November 28, 2003, respectively. Solectron’s fiscal year ended on August 27, 2004. For clarity of presentation, Solectron has indicated its first quarters as having ended on November 30 and its fiscal year as having ended on August 31.

Selling, general and administrative expense includes $6.8 million and $4.8 million of research and development expenses for the first quarters of fiscal 2005 and 2004, respectively.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In September 2004, the EITF reached a consensus on Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” EITF 04-8 requires that all issued securities that have embedded conversion features that are contingently exercisable upon the occurrence of a market-price condition should be in the calculation of diluted earnings per share, regardless of whether the market price trigger has been met. EITF 04-8 is effective for reporting periods ending after December 15, 2004. The adoption of EITF 04-8 will add 46.6 million shares to the diluted EPS calculation.

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS 151, amends ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) should be recognized as current period charges. In addition, SFAS 151 requires that allocation of fixed production overhead to the cost of conversion be based on the normal capacity of the production facilities. The provision of SFAS 151 shall be effective for Solectron beginning on September 1, 2005. Solectron is currently evaluating whether this statement will have a material effect on its consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, “Share Based Payment: An Amendment of FASB Statements No. 123 and 95.” This statement requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial

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statements. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. Solectron is currently evaluating the impact of this statement on its consolidated financial statements.

NOTE 2 — Stock-Based Compensation

As it is permitted by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” Solectron accounts for its employee stock plans, which generally consist of fixed stock option plans and an employee stock purchase plan, using the intrinsic value method under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. In general, where the exercise price of options granted under these plans is equal to the market price of the underlying common stock on the grant date, no stock-based employee compensation expense is recognized. In certain situations, under these plans, options to purchase shares of common stock may be granted at less than fair market value, which results in compensation expense equal to the difference between the market value on the date of grant and the purchase price. This expense is recognized over the vesting period of the options and included in operations. The table below sets out the pro forma amounts of net income (loss) and net income (loss) per share that would have resulted for all fiscal periods presented, if Solectron accounted for its employee stock plans under the fair value recognition provisions of SFAS No. 123.

	Three Months Ended November 30
	2004			2003
	(in millions, except per share data)
Net income (loss), as reported	$	55.9		$	(119.8	)
Less: Stock-based employee compensation expense determined under fair value method, net of related tax effects		(9.2	)		(16.3	)
Pro forma net income (loss)	$	46.7		$	(136.1	)
Basic earnings (loss) per share:
As reported	$	0.06		$	(0.14	)
Pro forma	$	0.05		$	(0.16	)
Diluted earnings (loss) per share:
As reported	$	0.06		$	(0.14	)
Pro forma	$	0.05		$	(0.16	)
Weighted average number of shares:
Basic		963.2			833.6
Diluted		967.4			833.6

Stock-based employee compensation expense determined under the fair value method, net of related tax effects, included $0 and $2.9 million of expense relating to discontinued operations during the three months ended November 30, 2004 and November 30, 2003, respectively.

For purposes of computing pro forma net loss, the fair value of each option grant and Employee Stock Purchase Plan purchase right is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used to value the option grants and purchase rights are stated below.

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	Three Months Ended November 30
Stock Options	2004			2003
Expected life of options	3.9 years			3.9 years
Volatility		70	%		78	%
Risk-free interest rate		3.31	%		2.31	%
Dividend yield	zero			zero

	Three Months Ended November 30
Employee Stock Purchase Plan	2004			2003
Expected life of purchase right	6 months			6 months
Volatility		41	%		78	%
Risk-free interest rate		2.32	%		1.03	%
Dividend yield	zero			zero

During fiscal 2003, Solectron provided restricted stock awards to certain eligible executives. These restricted shares are not transferable until fully vested and are subject to the Company Repurchase Option for all unvested shares upon certain early termination events and also subject to accelerated vesting in certain circumstances. During the three months ended November 30, 2004 and 2003, compensation expense related to the restricted stock awards amounted to approximately $0.6 million for each period.

During fiscal 2004 and the first quarter of fiscal 2005, Solectron issued stock options to certain executives at a price below the market value on the day of the stock option grant. Compensation expense resulting from the difference between the market value on the date of the discounted stock option grant and the purchase price is being amortized over the vesting period. The compensation expense associated with all discounted stock options issued by Solectron is not significant.

NOTE 3 — Inventories

Inventories related to continuing operations as of November 30, 2004 and August 31, 2004, consisted of (in millions):

	November 30		August 31
	2004		2004
Raw materials	$	988.1	$	994.4
Work-in-process		202.9		224.0
Finished goods		214.3		238.8
Total	$	1,405.3	$	1,457.2

NOTE 4 — Accounts Receivable, Net

Accounts receivable, net related to continuing operations as of November 30, 2004 and August 31, 2004 consisted of the following (in millions):

	November 30		August 31
	2004		2004
Accounts Receivable	$	1,460.9	$	1,585.6
Less: Allowance for doubtful accounts		31.4		35.7
Accounts Receivable, net	$	1,429.5	$	1,549.9

NOTE 5 — Property and Equipment, Net

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Property and equipment, net related to continuing operations as of November 30, 2004 and August 31, 2004 consisted of the following (in millions):

	November 30		August 31
	2004		2004
Original Cost	$	1,681.4	$	1,663.7
Less: Accumulated depreciation		969.6		937.1
Total	$	711.8	$	726.6

NOTE 6 — Commitments and Contingencies

Synthetic Leases

Solectron has synthetic lease agreements relating to four manufacturing sites in continuing operations. The synthetic leases have expiration dates in August 2007. At the end of the lease terms, Solectron has an option, subject to certain conditions, to purchase or to cause a third party to purchase the facilities subject to the synthetic leases for the “Termination Value,” which approximates the lessor’s original cost for each facility, or may market the property to a third party at a different price. Solectron is entitled to any proceeds from a sale of the properties to third parties in excess of the Termination Value and is liable to the lessor for any shortfall not to exceed 85% of the Termination Value. Solectron has provided loans to the lessor equaling approximately 85% of the Termination Value for each synthetic lease. These loans are repayable solely from the sale of the properties to third parties in the future, are subordinated to the amounts payable to the lessor at the end of the synthetic leases, and may be credited against the Termination Values payable if Solectron purchases the properties. The approximate aggregate Termination Values and loan amounts were $101.3 million and $86.1 million, respectively, as of November 30, 2004.

In addition, cash collateral of $15.2 million is pledged for the difference between the aggregate Termination Values and the loan amounts. Each lease agreement contains various affirmative and financial covenants. A default under a lease, including violation of these covenants, may accelerate the termination date of the arrangement. Solectron was in compliance with all applicable covenants as of November 30, 2004. Monthly lease payments are generally based on the Termination Value and 30-day LIBOR index (1.99% as of November 30, 2004) plus an interest-rate margin, which may vary depending upon Solectron’s Moody’s Investors’ Services and Standard and Poor’s ratings and are allocated between the lessor and Solectron based on the proportion of the loan amount to the Termination Value for each synthetic lease.

During fiscal 2004, Solectron determined that it is probable that the expected fair value of the properties under the synthetic lease agreements will be less than the Termination Value at the end of the lease term. The accretion expense for the quarter was approximately $1.1 million.

Solectron accounts for these synthetic lease arrangements as operating leases in accordance with SFAS No. 13, “Accounting for Leases,” as amended. Solectron’s loans to the lessor and cash collateral were included in other long-term assets and restricted cash and restricted cash equivalents, respectively, in the consolidated balance sheets.

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Future Minimum Lease Obligations

     Future minimum payments for operating lease obligations (excluding restructured leases) related to continuing operations, including the synthetic leases discussed above, are as follows (in millions):

			FY05		FY06
	Total		Q2-Q4		Q1		Q2-Q4		FY07		FY08		FY09		FY10		Thereafter
Operating lease	$	180.2	$	44.4	$	11.6	$	25.0	$	27.2	$	16.5	$	12.9	$	11.4	$	31.2

Legal Proceedings

Solectron is from time to time involved in various litigation and legal matters, including the one described below. By describing the particular matter set forth below, Solectron does not intend to imply that it or its legal advisors have concluded or believe that the outcome of this particular matter is or is not likely to have a material adverse impact upon Solectron’s business or consolidated financial condition and results of operations.

Solectron has settled the previously reported shareholder derivative lawsuit entitled Lifshitz v. Cannon et al., Case No. CV815693, filed in the Santa Clara County, California Superior Court, on terms not considered to be material to Solectron. Court approval of the settlement terms was obtained on December 16, 2004.

On March 6, 2003, a putative shareholder class action lawsuit was filed against Solectron and certain of its officers in the United States District Court for the Northern District of California alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The case is entitled Abrams v. Solectron Corporation et al., Case No. C-03-0986 CRB. The complaint alleged that the defendants issued false and misleading statements in certain press releases and SEC filings issued between September 17, 2001 and September 26, 2002. In particular, plaintiff alleged that the defendants failed to disclose and to properly account for excess and obsolete inventory in the former Technology Solutions business unit during the relevant time period. Additional complaints making similar allegations were subsequently filed in the same court, and pursuant to an order entered June 2, 2003, the Court appointed lead counsel and plaintiffs to represent the putative class in a single consolidated action. The Consolidated Amended Complaint, filed September 8, 2003, alleges an expanded class period of June 18, 2001 through September 26, 2002, and purports to add a claim for violation of Section 11 of the Securities Act of 1933, as amended (the “Securities Act”), on behalf of a putative class of former shareholders of C-MAC Industries, Inc., who acquired Solectron stock pursuant to the October 19, 2001 Registration Statement filed in connection with Solectron’s acquisition of C-MAC Industries, Inc. In addition, while the initial complaints focused on alleged inventory issues at the former Technology Solutions business unit, the Consolidated Amended Complaint adds allegations of inadequate disclosure and failure to properly account for excess and obsolete inventory at Solectron’s other business units. The complaint seeks an unspecified amount of damages on behalf of the putative class. Solectron believes it has valid defenses to the plaintiffs’ claims. There can be no assurance, however, that the outcome of the lawsuit will be favorable to Solectron or will not have a material adverse effect on Solectron’s business, consolidated financial condition and results of operations. In addition, Solectron may be forced to incur substantial litigation expenses in defending this litigation.

NOTE 7 — Segment Information and Geographic Information

SFAS No. 131 “Disclosure about Segments of an Enterprise and Related Information” established standards for reporting information about operating segments in annual consolidated financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, geographic areas and major customers. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Solectron’s chief operating decision maker is the Chief Executive Officer. The Chief Executive Officer evaluates financial information on a company-wide basis for purposes of making decisions and assessing financial performance. Accordingly, Solectron has one operating segment.

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Geographic information for continuing operations as of and for the periods presented is as follows (in millions):

	Three Months Ended November 30
	2004		2003
Geographic net sales:
United States	$	786.4	$	763.4
Other North and Latin America		473.7		382.5
Europe		434.1		435.3
Malaysia		436.5		395.1
China		340.1		368.9
Other Asia Pacific		219.8		351.6
	$	2,690.6	$	2,696.8

Geographic net sales are attributable to the country in which the product is manufactured.

	November 30		August 31
	2004		2004
Long-lived assets:
United States	$	295.3	$	277.8
Other North and Latin America		175.6		182.8
Europe		143.4		145.6
Asia Pacific		315.6		330.1
	$	929.9	$	936.3

Certain customers accounted for 10% or more of our net sales. The following table includes these customers and the percentage of net sales attributed to them:

	Three Months Ended November 30
	2004			2003
Cisco Systems		14.1	%		11.4	%
Nortel Networks		10.4	%		10.6	%

Solectron has concentrations of credit risk due to sales to the customers listed above as well as to Solectron’s other significant customers. In particular, Nortel Networks accounted for approximately 11.3% of total accounts receivable related to continuing operations as of November 30, 2004.

NOTE 8 — Long-Term Debt

9.625% Senior Notes

On February 6, 2002, Solectron issued an aggregate principal amount of $500 million of 9.625% senior notes due 2009. Solectron is required to pay interest on the notes in cash on February 15 and August 15 of each year. The indenture governing the terms of these notes contains restrictive provisions, which limit Solectron and its subsidiaries from making distributions on their capital stock, investments, incurring debt, issuing preferred stock and engaging in assets sales, among other provisions. As of November 30, 2004, the carrying amount of the notes was $498.1 million and the $16.8 million fair market value of the interest rate swap (See Note 9, “Financial Instruments”) were classified as long-term debt. Additionally, Solectron was in compliance with the restrictive provisions of the indenture at November 30, 2004.

0.5% Convertible Senior Notes due 2034

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On February 17, 2004, Solectron issued $450 million of convertible senior notes, or 450,000 notes in $1,000 denomination, to qualified buyers in reliance on Rule 144A under the Securities Act. The notes are unsecured and unsubordinated indebtedness of Solectron and will mature on February 15, 2034. The notes are convertible into shares of common stock of Solectron at any time prior to maturity, subject to the terms of the notes.

Interest on the notes will be paid on February 15 and on August 15 of each year. On or after February 20, 2011, Solectron will have the option to redeem all or a portion of the notes that have not been previously purchased, repurchased or converted, at 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest and liquidated damages owed, if any, up to, but excluding, the date of the purchase. Holders of the notes may require Solectron to purchase all or a portion of the notes for cash on each of February 15, 2011, 2014, 2019, 2024, and 2029 at a price equal to 100% of the principal amount of the notes to be repurchased plus accrued and unpaid interest, and liquidated damages owed, if any, up to, but excluding, the date of repurchase. Holders will have the option, subject to certain conditions, to require Solectron to repurchase any notes held by such holder in the event of a “change in control”, as defined, at a price of 100% of the principal amount of the notes plus accrued and unpaid interest and liquidated damages owed, if any, up to, but excluding, the date of repurchase.

As of November 30, 2004, the carrying amount of the notes of $450.0 million was classified as long-term debt.

7.375% Senior Notes

In February 1996, Solectron issued $150 million aggregate principal amount of senior notes. These notes are in denominations and have a maturity value of $1,000 each and are due on March 1, 2006. Interest is payable semiannually at a rate of 7.375% per annum. The notes may not be redeemed prior to maturity. As of November 30, 2004, the carrying amount of the notes of $150.0 million was classified as long-term debt.

Adjustable Conversion-Rate Equity Securities (ACES)

At August 31, 2004, there were 2.6 million ACES units remaining. Each ACES unit has a stated amount of $25.00 and consisted of (a) a contract requiring the holder to purchase, for $25.00, a number of shares of Solectron common stock to be determined on November 15, 2004, based on the average trading price of Solectron’s common stock at that time and certain specified settlement rates ranging from 2.1597 shares of Solectron’s common stock per purchase contract to 2.5484 shares of Solectron’s common stock per purchase contract (subject to certain anti-dilution adjustments); and (b) a $25 principal amount of 7.97% subordinated debenture due 2006.

On November 15, 2004, Solectron issued 6.6 million shares of its common stock at a settlement rate of 2.5484 shares per ACES unit as defined above. Solectron received cash proceeds of $64.3 million which resulted in a corresponding increase in additional paid in capital. The equity component of the ACES has been settled. Accordingly, the remaining obligation of the original ACES is the 7.97% debentures.

As of November 30, 2004, there was $63.1 million outstanding of the 7.97% subordinate debentures due November 2006 which were classified as long-term debt.

Liquid Yield Option Notes (LYONs)

At November 30, 2004, Solectron has $9.3  million aggregate accreted value of LYONs outstanding with an interest rate of 2.75%. These notes are unsecured and unsubordinated indebtedness of Solectron. Solectron will pay no interest prior to maturity. Each note has a yield of 2.75% with a maturity value of $1,000 on May 8, 2020. Each note is convertible at any time by the holder to common shares at a conversion rate of 12.3309 shares per note. Holders will be able to require Solectron to purchase all or a portion of their notes on May 8, 2010, at a price of $761.00 per note. Solectron, at its option, may redeem all or a portion of the notes at any time on or after May 8, 2003. As of November 30, 2004, the accreted value of the 2.75% LYONs is classified as long-term debt on the condensed consolidated balance sheet.

NOTE 9 — Derivative Instruments

Fair Value of Financial Instruments

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The fair value of Solectron’s cash, cash equivalents, accounts receivable, accounts payable and borrowings under lines of credit approximates the carrying amount due to the relatively short maturity of these items.

Derivatives

Solectron enters into foreign exchange forward contracts intended to reduce the short-term impact of foreign currency fluctuations on foreign currency receivables, investments and payables. The gains and losses on the foreign exchange forward contracts are intended to largely offset the transaction gains and losses on the foreign currency receivables, investments, payables, and indebtedness recognized in operating results. Solectron does not enter into foreign exchange forward contracts for speculative purposes. Solectron’s foreign exchange forward contracts related to current assets and liabilities are generally three months or less in original maturity.

As of November 30, 2004, Solectron had outstanding foreign exchange forward contracts with a total notional amount of approximately $471.7 million related to continuing operations.

Solectron uses interest rate swaps to hedge its mix of short-term and long-term interest rate exposures resulting from Solectron’s debt obligations. As of November 30, 2004, Solectron had an interest rate swap outstanding under which it pays variable rates and receives fixed rates. The interest rate swap has a total notional amount of $500 million, relating to the 9.625% $500 million senior notes expiring on February 15, 2009. Under the swap transaction, Solectron pays an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange, Solectron receives a fixed interest rate of 9.625% on the $500 million. The swap effectively replaces the fixed interest rate on all the 9.625% senior notes with a variable interest rate. The swap is designated as a fair value hedge under SFAS No. 133.

The fair value of the outstanding derivative referred to above was not significant.

For all derivative transactions, Solectron is exposed to counterparty credit risk to the extent that the counterparties may not be able to meet their obligations towards Solectron. To manage the counterparty risk, Solectron limits its derivative transactions to those with major financial institutions. Solectron does not expect to experience any material adverse financial consequences as a result of default by Solectron’s counterparties.

Financial instruments that potentially subject Solectron to concentrations of credit risk consist of cash, cash equivalents and trade accounts receivable. Concentrations of credit risk in accounts receivable resulting from sales to major customers are discussed in Note 7, “Segment Information and Geographic Information”. Solectron generally does not require collateral for sales on credit. However, for customers that have limited financial resources, Solectron may require coverage for this risk including standby letters of credit, prepayments and consignment of inventories. Solectron also monitors extensions of credit and the financial condition of its major customers.

NOTE 10 — Intangible Assets

Solectron’s intangible assets, which are classified in other assets in the condensed consolidated balance sheets, are categorized into three main classes: supply agreements, intellectual property agreements and other. The intellectual property agreements resulted from Solectron’s acquisitions of various IBM facilities. The other intangible assets consist of miscellaneous acquisition related intangibles from Solectron’s various asset purchases.

The following tables summarize the gross amounts and accumulated amortization for each main class as of November 30, 2004 and August 31, 2004 (in millions):

November 30, 2004:

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	Supply			Intellectual Property
	Agreements			Agreements			Other			Total
Gross amount	$	87.7		$	61.0		$	94.8		$	243.5
Accumulated amortization		(86.2	)		(54.9	)		(79.2	)		(220.3	)
Carrying value	$	1.5		$	6.1		$	15.6		$	23.2

August 31, 2004:

	Supply			Intellectual Property
	Agreements			Agreements			Other			Total
Gross amount	$	87.7		$	108.5		$	94.8		$	291.0
Accumulated amortization		(86.1	)		(54.5	)		(77.5	)		(218.1	)
Impairment		—			(47.5	)		—			(47.5	)
Carrying value	$	1.6		$	6.5		$	17.3		$	25.4

Amortization expense for the three months ended November 30, 2004 was approximately $2.2 million. Annual amortization expense for these intangibles over the next five years would be approximately $5.7 million, $3.8 million, $3.6 million, $3.2 million and $2.3 million.

NOTE 11 — Discontinued Operations

In the fourth quarter of fiscal 2003 and the first quarter of fiscal 2004, Solectron designated the following businesses as discontinued operations: Dy 4 Systems Inc., Kavlico Corporation, the Solectron MicroTechnology division, SMART Modular Technologies Inc., Stream International Inc., Solectron’s 63% interest in US Robotics Corporation, and Force Computers, Inc. In fiscal 2004, all of the businesses were sold except Solectron’s MicroTechnology division.

The results from discontinued operations were as follows (in millions):

	Three Months Ended November 30
	2004			2003
Net sales	$	15.2		$	535.7
Cost of sales		14.1			470.6
Gross profit		1.1			65.1
Operating (income) expenses — net		(8.7	)		128.3
Operating income (loss)		9.8			(63.2	)
Interest income — net		—			0.2
Other income (expense) — net		0.9			(4.3	)
Income (loss) before income taxes		10.7			(67.3	)
Income tax expense		1.7			0.3
Income (loss) from discontinued operations, net of tax	$	9.0		$	(67.6	)

During the first quarter of fiscal 2005, Solectron completed the sale of its MicroTechnology division, for cash proceeds of $30.0 million resulting in a $10.1 million pre-tax gain which is included in operating (income) expenses – net for the quarter ended November 30, 2004 as disclosed above. As a result of this disposition, Solectron transferred approximately $28.3 million from

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accumulated foreign currency translation gains, included in accumulated other comprehensive losses within Stockholder’s Equity and recognized that amount as part of the pre-tax gain. The sales agreement for this divesture provides for a possible adjustment to the proceeds and gain based upon final settlement of each divesture’s working capital at closing. Resolution of this possible working capital adjustment and other reconciling items pursuant to the sales agreement, if any, are expected to be included in our fiscal 2005 second quarter results.

During fiscal 2004, Solectron completed the sale of the previous six discontinued operations. During the first quarter of fiscal 2005, Solectron increased the net loss on disposal of those discontinued operations by approximately $0.5 million resulting from a few insignificant adjustments pursuant to the terms of the disposal transaction. For the three months ended November 30, 2004, the adjustment to the net loss on these discontinued operations is recorded in operating (income) expenses – net as disclosed above.

The sales agreements for all seven divestitures contain certain indemnification provisions under which Solectron may be required to indemnify the buyer of the divested business for liabilities, losses, or expenses arising out of breaches of covenants and certain breaches of representations and warranties relating to the condition of the business prior to and at the time of sale. In aggregate, Solectron is contingently liable for up to $94.8 million for a period of 12 to 24 months subsequent to the completion of the sale. As of November 30, 2004, there were no liabilities recorded under these indemnification obligations. Additionally, Solectron may be required to indemnify a buyer for environmental remediation costs for a period up to 10 years and not to exceed $13 million. Solectron maintains an insurance policy to cover environmental remediation liabilities in excess of reserves previously established upon the acquisition of these properties. Solectron did not record any environmental charges upon disposition of these properties.

Solectron is in the process of terminating a synthetic lease agreement associated with a discontinued operation that has been sold. Any resulting gain or loss from the absolution of the synthetic lease agreement will be recognized in discontinued operations.

The current and non-current assets and liabilities of discontinued operations as of November 30, 2004 and August 31, 2004, were as follows (in millions):

	November 30		August 31
	2004		2004
Accounts receivable, net	$	—	$	18.3
Inventories		—		18.1
Total current assets of discontinued operations	$	—	$	36.4
Net property and equipment	$	—	$	10.1
Other assets		—		1.8
Total non-current assets of discontinued operations	$	—	$	11.9
Short-term debt	$	—	$	8.9
Accounts payable		—		26.0
Accrued employee compensation		—		7.2
Accrued expenses		—		4.3
Total current liabilities of discontinued operations	$	—	$	46.4
Total non-current liabilities of discontinued operations	$	—	$	1.8

NOTE 12 — Restructuring and Impairment

Over the past few years, Solectron has recorded restructuring and impairment costs as it rationalized operations in light of customer demand declines and the economic downturn. The measures, which included reducing the workforce, consolidating facilities and changing the strategic focus of a number of sites, was largely intended to align Solectron’s capacity and infrastructure to anticipated

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customer demand and transition our operations to lower cost regions. The restructuring and impairment costs include employee severance and benefit costs, costs related to leased facilities abandoned and subleased, impairment of owned facilities no longer used by Solectron which will be disposed, costs related to leased equipment that has been abandoned, and impairment of owned equipment that will be disposed. For owned facilities and equipment, the impairment loss recognized was based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Severance and benefit costs and other costs associated with restructuring activities initiated prior to January 1, 2003 were recorded in compliance with EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” Severance and benefit costs associated with restructuring activities initiated on or after January 1, 2003 are recorded in accordance with SFAS No. 112, “Employer’s Accounting for Postemployment Benefits,” as Solectron concluded that it had a substantive severance plan. In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, the estimated lease loss accrued for leased facilities abandoned and subleased after December 31, 2002 represents the fair value of the lease liability as measured by the present value of future lease payments subsequent to abandonment less the present value of any estimated sublease income. For those facilities abandoned and subleased before January 1, 2003, as part of restructuring activities under EITF Issue No. 94-3, the estimated lease loss represents payments subsequent to abandonment less any estimated sublease income. In order to estimate future sublease income, Solectron works with a real estate broker to estimate the length of time until it can sublease a facility and the amount of rent it can expect to receive. Estimates of expected sublease income could change based on factors that affect Solectron’s ability to sublease those facilities such as general economic conditions and the real estate market, among others.

See also Note 10, “Intangible Assets,” for discussion of intangible asset impairment charges.

Three months ended November 30, 2004 and 2003

Solectron continued to incur expected restructuring charges in the first quarter of fiscal 2005 as a result of revisions of previous estimates along with idle facility common area maintenance costs. Total restructuring and impairment costs of $1.6 million were charged against continuing operations.

During the three months ended November 30, 2004, Solectron incurred $1.2 million in impairments of equipment and facilities resulting from changes in market conditions.

The following table summarizes restructuring charges included in the accompanying condensed consolidated statements of operations (in millions):

	Three Months Ended November 30
	2004			2003			Nature
Loss (gain) on disposal of and impairment of equipment and facilities	$	1.2		$	(2.5	)	non-cash
Severance and benefit costs		0.4			10.1		cash
Net adjustment to equipment lease loss accrual		0.1			0.3		cash
Net adjustment to facility lease loss accrual		(0.1	)		4.5		cash
Other exit costs		—			14.6		cash
Total	$	1.6		$	27.0

The employee severance and benefit costs included in the restructuring charges recorded in the first quarter of fiscal 2005 related to approximately 200 full-time positions worldwide, all of which have been eliminated. The positions eliminated were primarily in the Americas and European regions. Solectron has one restructuring plan of approximately $20.0 million to complete as of November 30, 2004. Cumulative restructuring costs recorded under this plan as of November 30, 2004 was approximately $19.0 million.

Fiscal 2004 and 2003

The following table summarizes restructuring charges relating to continuing operations recorded in fiscal 2004 and 2003 (in millions):

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	Years Ended August 31
	2004			2003		Nature
Loss on disposal of and impairment of equipment and facilities	$	35.8		$	152.4	non-cash
Severance and benefit costs		27.0			220.7	cash
Net adjustment to equipment lease loss accrual		(3.0	)		2.2	cash
Net adjustment to facility lease loss accrual		43.8			23.6	cash
Other exit costs		25.7			32.6	cash
Total	$	129.3		$	431.5

2004
During fiscal 2004, Solectron recorded restructuring and impairment charges (excluding intangible asset impairment charges) of $129.3 million related to continuing operations.

In the fourth quarter of fiscal 2004, Solectron committed to a plan to incur approximately $20.0 million in new restructuring charges. At the end of fiscal 2004, Solectron recorded approximately $19.0 million of restructuring charges related to this plan. These restructuring actions are to further consolidate facilities, reduce the workforce in Europe and North America and impair certain long-lived assets. These new restructuring actions will result in future savings in salaries and benefits and depreciation expense, and will result in cash expenditures of approximately $14.4 million. Solectron expects to complete this new plan by the end of fiscal 2005.

The employee severance and benefit costs included in the 2004 restructuring charges previous to the above-mentioned plan relate to the elimination of approximately 2,100 full-time positions worldwide and all such positions have been eliminated under this plan. The positions eliminated were primarily in the Americas and European regions.

Under both restructuring activities mentioned above, facilities and equipment subject to restructuring were primarily located in the Americas and Europe. For leased facilities that will be abandoned and subleased, the lease costs represent the present value of future lease payments subsequent to abandonment less estimated sublease income. For owned facilities and equipment, the impairment loss recognized was based on the fair value less costs to sell, with fair value based on estimates of existing market prices for similar assets.

The other exit costs mainly represent program transfer activity between global operation sites, which are recorded as the charges are incurred.

2003
The employee severance and benefit costs included in the restructuring charges recorded in fiscal 2003 relate to the elimination of approximately 9,500 full-time positions worldwide and all such positions have now been eliminated under this plan. Approximately 57% of the positions eliminated were in the Americas region, 31% were in Europe and 12% were in Asia/Pacific. Facilities and equipment subject to restructuring were primarily located in the Americas and Europe.

For leased facilities that will be abandoned and subleased, the lease costs represent future lease payments subsequent to abandonment less estimated sublease income. For owned facilities and equipment, the impairment loss recognized was based on the fair value less costs to sell, with fair value based on estimates of existing market prices for similar assets.

The other exit costs mainly represent program transfer activity between global operation sites, which are recorded as the charges are incurred.

Restructuring Accrual
The following table summarizes the restructuring accrual balance for continuing operations as of November 30, 2004 (in millions):

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	Severance			Lease Accrual			Lease Accrual			Other Exit
	and Benefits			on Facilities			on Equipment			Costs			Total
Balance of accrual at August 31, 2004	$	28.9		$	58.8		$	4.9		$	1.3		$	93.9
Q1-FY05 Provision		0.4			(0.1	)		0.1			—			0.4
Q1-FY05 Cash payments		(9.8	)		(9.9	)		(1.7	)		(0.3	)		(21.7	)
Balance of accrual at November 30, 2004		19.5			48.8			3.3			1.0			72.6

Accruals related to restructuring activities were recorded in accrued expenses and other current liabilities in the accompanying consolidated balance sheet. Solectron expects to pay approximately $45.0 million in the next year related to severance and benefits, lease commitment costs and other exit costs. The remaining balance, primarily consisting of lease commitment costs on facilities is expected to be paid out through 2012.

NOTE 13 — Income (Loss) Per Share Calculation

Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period.

The computation of diluted earnings per share calculates the effect of dilutive securities on weighted average shares. Dilutive securities would include options to purchase common stock and shares issuable upon conversion of Solectron’s LYONs and ACES. If certain conversion events occur, dilutive securities would also include shares issuable upon conversion of Solectron’s 0.5% senior notes.

Earnings per share data for continuing operations were computed as follows (in millions, except per share amounts):

	Three Months Ended November 30,
	2004		2003
Basic earnings (net loss) per share:
Net income (loss)	$	46.9	$	(52.2	)
Shares used in computation:
Weighted average ordinary shares outstanding		963.2		833.6
Basic earnings (net loss) per share	$	0.05	$	(0.06	)
Diluted earnings per share:
Net income (loss)	$	46.9	$	(52.2	)
Shares used in computation:
Weighted average ordinary shares outstanding		963.2		833.6
Employee stock options		4.2		—
Shares issuable upon conversion of LYONs		—		—
Shares issuable upon conversion of ACES		—		—
Weighted average number of shares		967.4		833.6
Diluted earnings (net loss) per share	$	0.05	$	(0.06	)

The following table summarizes the weighted average dilutive securities that were excluded from the above computation of diluted earnings per share because their inclusion would have an anti-dilutive effect (in millions):

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	Three Months Ended November 30,
	2004		2003
Dilutive securities:
Employee stock options		28.5		44.7
Shares issuable upon conversion of LYONs		0.3		19.3
Shares issuable upon conversion of ACES		5.8		112.1
Total dilutive potential common shares		34.6		176.1

In addition, there were 46.6 million shares related to the 0.5% convertible senior notes that were excluded from the diluted earnings per share calculation for the first quarter of fiscal 2005 as they are issuable only if certain conversion events occur. The 0.5% convertible senior notes did not exist in the first quarter of fiscal 2004.

NOTE 14 — Income Taxes

SFAS No. 109, “Accounting for Income Taxes,” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, the utilization of past tax credits, length of carryback and carryforward periods, and existing contracts or sales backlog that will result in future profits, among other factors. It further states that forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years in the jurisdictions to which the deferred tax assets relate. Therefore, cumulative losses weigh heavily in the overall assessment. As a result of the review undertaken after the end of the third quarter of fiscal 2003, Solectron concluded that it was appropriate to establish a full valuation allowance for most of the net deferred tax assets arising from its operations in the jurisdictions to which the deferred tax assets relate. The total valuation allowance is approximately $1.6 billion as of November 30, 2004. In addition, Solectron expects to continue to provide a full valuation allowance on future tax benefits until it can demonstrate a sustained level of profitability that establishes its ability to utilize the assets in the jurisdictions to which the assets relate. Solectron incurs tax expense in certain countries which are not subject to the aforementioned valuation allowance during the three months ended November 30, 2004.

Certain of Solectron’s offshore operations are beginning to report taxable profits, mostly arising in low-cost locations. Accordingly, Solectron anticipates some tax expense in future quarters related to those operations. Solectron will not be able to offset this tax expense with unrecognized deferred tax assets described above, because, for the most part, those assets did not arise in the jurisdictions where Solectron is realizing taxable profits.

In addition, Solectron has established contingency reserves for income taxes in various jurisdictions. The estimate of appropriate tax reserves is based upon the amount of prior tax benefit that might be at risk upon audit and upon the reasonable estimate of the amount at risk. Solectron periodically reassess the amount of such reserves and adjust reserve balances as necessary.

Income taxes payable of $161.7 million and $162.4 million is included in other current liabilities as of November 30, 2004 and August 31, 2004, respectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

With the exception of historical facts, the statements contained in this quarterly report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions set forth in the Exchange Act. These forward-looking statements relate to matters including, but not limited to:

• future sales and operating results;

• our anticipation of the timing and amounts of our future obligations and commitments;

• our belief that our cash and cash equivalents, lines of credit and cash to be generated form continuing operations will be sufficient for us to meet our obligations for the next twelve months;

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• the capabilities and capacities of our business operations;

• the anticipated financial impact of recent and future acquisitions and divestitures and the adequacy of our provisions for indemnification obligations pursuant to such transactions;

• our belief that our current environmental liability exposure related to our facilities will not be material to our business, financial condition or results of operations; and

• various other forward-looking statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We intend that our forward-looking statements be subject to the safe harbors created by the Exchange Act. The forward-looking statements are generally accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “expect” and other similar words and statements and variations or negatives of these words. Our forward-looking statements are based on current expectations, forecasts and assumptions and are subject to risks, uncertainties and changes in condition, significance, value and effect, including those discussed under the heading “Risk Factors” in this report and in our reports filed with the Securities and Exchange Commission on Forms 10-K,10-Q, 8-K and S-3. Such risks, uncertainties and changes in condition, significance, value and effect could cause our actual results to differ materially from our anticipated outcomes. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate. Therefore, we can give no assurance that the results implied by these forward-looking statements will be realized. The inclusion of forward-looking information should not be regarded as a representation by our company or any other person that the future events, plans or expectations contemplated by Solectron will be achieved. Furthermore, past performance in operations and share price is not necessarily indicative of future performance. We disclaim any intention or obligation to update or revise any forward-looking statements contained in the documents incorporated by reference herein, whether as a result of new information, future events or otherwise

Overview

We provide a range of worldwide manufacturing and integrated supply chain services to companies who design and market electronic products. Our revenue is generated from sales of our services primarily to customers in the Computing & Storage, Networking, Communications, Consumer, Industrial, and Automotive markets.

Summary of Results

The following table sets forth, for the three-month periods indicated certain key operating results and other financial information (in millions):

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	Three Months Ended November 30
	2004		2003
Net sales	$	2,690.6	$	2,696.8
Gross profit		156.2		127.5
Selling, general and administrative expense		95.5		114.7
Income (loss) from continuing operations		46.9		(52.2	)

Net sales for the first quarter of fiscal 2005 remained the same at approximately $2.7 billion relative to the same period of fiscal 2004. Our sales levels during the first quarter of fiscal 2005 were softer than anticipated.

Gross profit improved to 5.8% for the first quarter of fiscal 2005 compared to 4.7% for the same period of fiscal 2004. The gross profit improvement was the result of effectively implementing the Lean Initiative in our manufacturing sites around the world and increasing discipline in our quote process for new business.

Selling, general and administrative (SG&A) expense continued to decline in the first quarter of fiscal 2005. SG&A expense was $95.5 million during the first quarter of fiscal 2005 compared to $114.7 million for the same period of fiscal 2004. The reduction in SG&A expense is a result of our continued discipline in spending.

Key Performance Indicators

Management regularly reviews financial and non-financial performance indicators to assess the Company’s operating results. The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators.

	Three Months Ended
	November 30, 2004		August 31, 2004		May 31, 2004		February 28, 2004		November 30, 2003
Inventory turns	7.1 turns		7.5 turns		7.5 turns		7.4 turns		7.4 turns
Days sales outstanding (DSO)	50 days		47 days		47 days		49 days		50 days
Days payable outstanding (DPO)	49 days		47 days		46 days		48 days		48 days
Cash-to-cash cycle (C2C)	51 days		49 days		49 days		50 days		50 days
Capital expenditures (in millions)	$	32.0	$	48.3	$	32.8	$	31.5	$	37.0

Inventory turns are calculated as the ratio of cost of sales compared to the average inventory for the quarter. During the first quarter of fiscal 2005, inventory turns declined due to a decrease in revenue resulting from lower demand than anticipated. DSO is calculated as the ratio of average accounts receivable for the quarter compared to daily revenue for the quarter. DSO has increased from the prior quarter due the higher mix of customers with longer payment terms in the quarter. DPO is calculated as the ratio of average accounts payable during the quarter compared to daily cost of sales for the quarter. DPO has increased from the prior quarter due to higher payable balances resulting from increasing inventory in anticipation of higher sales. The C2C cycle is determined by taking the ratio of 360 days compared to inventory turns plus DSO minus DPO. The C2C cycle has increased from the prior quarter primarily as a result of higher DSO and lower inventory turns, partially offset by improvements in DPO.

Critical Accounting Policies

Management is required to make judgments, assumptions and estimates that affect the amounts reported when we prepare consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States. Note 1, “Summary of Significant Accounting Policies,” to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended August 31, 2004 describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Estimates are used for, but not limited to, our accounting for contingencies, allowance for doubtful accounts, inventory valuation, goodwill and intangible asset impairments, restructuring costs, and income taxes. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.

Inventory Valuation

Our inventories are stated at the lower of weighted average cost or market. Our industry is characterized by rapid technological change, short-term customer commitments and rapid changes in demand, as well as any other lower of cost or market considerations. We make provisions for estimated excess and obsolete inventory based on our regular reviews of inventory quantities on hand and the latest forecasts of product demand and production requirements from our customers. Our provisions for excess and obsolete inventory

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are also impacted by our contractual arrangements with our customers including our ability or inability to re-sell such inventory to them. If actual market conditions or our customers’ product demands are less favorable than those projected or if our customers are unwilling or unable to comply with any contractual arrangements related to excess and obsolete inventory, additional provisions may be required.

Allowance for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on a combination of factors. Where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations to us, we record a specific allowance against amounts due to us and thereby reduce the net receivable to the amount we reasonably believe is likely to be collected. For all other customers, we recognize allowances for doubtful accounts based on the length of time the receivables are outstanding, industry and geographic concentrations, the current business environment and our historical experience. If the financial condition of our customers deteriorates or if economic conditions worsen, additional allowances may be required.

Goodwill

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, we review the carrying amount of goodwill for impairment on an annual basis during the fourth quarter (as of June 1). Additionally, we perform an impairment assessment of goodwill whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Significant changes in circumstances can be both internal to our strategic and financial direction, as well as changes to the competitive and economic landscape. With the change in operating segments as of Sept 1, 2003, we determined that there was a single reporting unit for the purpose of goodwill impairment tests under SFAS No. 142. For purposes of assessing the impairment of our goodwill, we estimate the value of the reporting unit using our market capitalization as the best evidence of fair value. This fair value is then compared to the carrying value of the reporting unit. If the fair value of the reporting unit is less than its carrying value, we then allocate the fair value of the unit to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit’s fair value was the purchase price to acquire the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The process of evaluating the potential impairment of goodwill is subjective and requires judgment at many points during the test including future revenue forecasts, discount rates and various reporting unit allocations.

Intangible Assets

Our intangible assets consist primarily of intellectual property agreements and other intangible assets obtained from asset acquisitions. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment is measured by comparing the intangible assets carrying amounts to the fair values as determined using discounted cash flow models. There is significant judgment involved in determining these cash flows.

Restructuring and Related Impairment Costs

Over the past few years, we have recorded restructuring and impairment costs as we rationalized our operations in light of customer demand declines and the economic downturn. These restructuring and impairment charges include employee severance and benefit costs, costs related to leased facilities that have been abandoned and subleased, owned facilities no longer used by us which will be disposed of, costs related to leased equipment that has been abandoned or returned to the lessor, and impairment of owned equipment that will be disposed of. For owned facilities and equipment, the impairment loss recognized was based on the fair value less costs to sell, with fair value estimated based on existing market prices for similar assets. Severance and benefit costs and other costs associated with restructuring activities initiated prior to January 1, 2003 were recorded in compliance with EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” Severance and benefit costs associated with restructuring activities initiated on or after January 1, 2003 are recorded in accordance with SFAS No. 112, “Employer’s Accounting for Postemployment Benefits,” as we concluded that we had a substantive severance plan. In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, the estimated lease loss accrued for leased facilities that have been abandoned and subleased after January 1, 2003 represents the fair value of the lease liability as measured by the present value of future lease payments subsequent to abandonment less the present value of any estimated sublease income. For those facilities abandoned and subleased as part of restructuring activities under EITF Issue No. 94-3, the estimated lease loss represents payments subsequent to abandonment less any estimated sublease income. In order to estimate future sublease income, we work with a real estate broker to estimate the length of time until we can sublease a facility and the amount of rent we can expect to receive. Our

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estimates of expected sublease income could change based on factors that affect our ability to sublease those facilities such as general economic conditions and the real estate market, among others.

Income Taxes

We currently have significant deferred tax assets in certain jurisdictions resulting from tax credit carry-forwards, net operating losses and other deductible temporary differences, which will reduce taxable income in such jurisdictions in future periods. We have provided valuation allowances for future tax benefits resulting from foreign net operating loss carry-forwards and for certain other U.S. and foreign deductible temporary differences where we believe future realizability is in doubt. SFAS No. 109 requires a valuation allowance to be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized, and further provides that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence in the form of cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment. We established a valuation allowance in the third quarter of fiscal 2003 for most of our deferred tax assets because prior losses and an uncertain future outlook did not support projections of profitability sufficient to establish our ability to use those deferred tax assets in future periods. We have not yet established sustained profitability since that time which would support recognition of deferred tax assets generated in prior and current periods.

We have established contingency reserves for income taxes in various jurisdictions in accordance with SFAS No. 5 “Accounting for Contingencies”. The estimate of appropriate tax reserves is based upon the amount of prior tax benefit which might be at risk upon audit and upon the reasonable estimate of the amount at risk. We periodically reassess the amount of such reserves and adjusts reserve balances as necessary.

Loss Contingencies

We are subject to the possibility of various loss contingencies arising in the ordinary course of business (for example, environmental and legal matters). We consider the likelihood and our ability to reasonably estimate the amount of loss in determining the necessity for, and amount of, any loss contingencies. Estimated loss contingencies are accrued when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate information available to us to determine whether any such accruals should be adjusted. Such revisions in the estimates of the potential loss contingencies could have a material impact in our consolidated results of operations and financial position.

Results of Operations

The following table summarizes certain items in the condensed consolidated statements of operations as a percentage of net sales. The financial information and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto. The discussion following the table is provided separately for continuing and discontinued operations. For all periods presented, our condensed consolidated statements of operations exclude the results from certain operations we plan to divest which have been classified as discontinued operations. Information related to the discontinued operations results is provided separately; following the continuing operations discussion below.

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	Three Months Ended November 30
	2004			2003
Net sales		100.0	%		100.0	%
Cost of sales		94.2			95.3
Gross profit		5.8			4.7
Operating expenses:
Selling, general and administrative		3.5			4.2
Restructuring and impairment costs		0.1			1.0
Operating income (loss)		2.2			(0.5	)
Interest income		0.3			0.1
Interest expense		(0.6	)		(1.6	)
Other income — net		0.1			0.2
Operating income (loss) from continuing operations before income taxes		2.0			(1.8	)
Income tax expense		0.2			0.1
Income (loss) from continuing operations		1.8	%		(1.9	)%
Discontinued operations:
Income (loss) from discontinued operations		0.4			(2.5	)
Income tax expense		0.1			—
Income (loss) from discontinued operations		0.3	%		(2.5	)%
Net income (loss)		2.1	%		(4.4	)%

Net Sales – Continuing Operations

For the first quarter of fiscal 2005, net sales remained flat at $2.7 billion as compared to the same period of fiscal 2004. The sales mix between end-markets changed between reporting periods. We have seen a decline in the computing and storage end-markets since the first quarter of fiscal 2004. Revenue dollars in all other end-markets have increased between periods. The decline in the computing and storage end markets is due primarily to the disengagement of certain low-margin programs.

The following table depicts, for the periods indicated, revenue by market expressed as a percentage of net sales. The distribution of revenue across our markets has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not limited to: increased business from new and existing customers; fluctuations in customer demand; seasonality; and growth in outsourcing.

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	Three Months Ended November 30
	2004			2003
Computing & Storage		28.7	%		36.6	%
Consumer		17.4	%		16.0	%
Communications		20.5	%		17.9	%
Networking		23.1	%		20.9	%
Industrial		5.3	%		4.0	%
Automotive		3.3	%		3.2	%
Other		1.7	%		1.4	%
Total		100.0	%		100.0	%

International Sales – Continuing Operations

In the three months ended November 30, 2004, our international locations contributed approximately 70.8% of net sales compared to approximately 71.7% for the corresponding period of fiscal 2004.

Major Customers – Continuing Operations

Certain customers accounted for 10% or more of our net sales. The following table includes these customers and the percentage of net sales attributed to them:

	Three Months Ended November 30
	2004			2003
Cisco Systems		14.1	%		11.4	%
Nortel Networks		10.4	%		10.6	%

Our top ten customers accounted for approximately 60.7% of net sales for the three months ended November 30, 2004, compared to approximately 58.1% in the corresponding period of fiscal 2004.

We believe that our ability to grow depends on increasing sales to existing customers and on successfully attracting new customers. Customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of delayed, canceled or reduced orders with new business cannot be ensured. In addition, we cannot assume that any of our current customers will continue to utilize our services. Consequently, our results of operations may be materially adversely affected.

Gross profit – Continuing Operations

Gross profit varies from period to period and is affected by a number of factors, including product mix, production efficiencies, component costs and delivery linearity, product life cycles, unit volumes, expansion and consolidation of manufacturing facilities, utilization of manufacturing capacity, pricing, competition, and unanticipated restructuring or inventory charges.

Our gross profit percentage increased to 5.8% for the three months ended November 30, 2004 compared to 4.7% for the corresponding period in fiscal 2004, respectively. The gross profit improvement was the result of effectively implementing the Lean Initiative in our manufacturing sites around the world and increasing discipline in our quote process for new business.

Sales of inventory previously written down or written off have not been significant and have not had any material impact on our gross profits for the three months ended November 30, 2004.

Selling, General and Administrative (SG&A) Expenses – Continuing Operations

SG&A expenses decreased $19.2 million, or 16.7%, for the three months ended November 30, 2004 compared to the corresponding period in fiscal 2004. As a percentage of net sales, SG&A expenses decreased to 3.5% for the three months ended November 30, 2004 compared to 4.2% in the corresponding periods in fiscal 2004. The decrease was primarily due to headcount and other SG&A expense reductions resulting from our restructuring initiatives.

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Restructuring and Impairment – Continuing Operations

During the first quarter of fiscal 2005, restructuring and impairment costs of $1.6 million were charged against operations which mainly related to the impairment charges on property and equipment held for sale due to changes in market condition. The decrease quarter over quarter was due to a reduction in restructuring activities.

Interest Income – Continuing Operations

Interest income increased $3.4 million to $5.8 million for the three months ended November 30, 2004 from $2.4 million in the corresponding period in fiscal 2004. The increase was due to increased average cash and cash equivalent balances.

Interest Expense – Continuing Operations

Interest expense decreased $27.6 million to $16.3 million for the three months ended November 30, 2004 from $43.9 million in the corresponding period in fiscal 2004. The decrease was primarily due to the retirement of approximately $1.6 billion aggregate principal amount of our LYONs and the settlement of approximately 94% of our ACES debentures during fiscal 2004.

Other Income — net – Continuing Operations

Other income — net decreased $3.0 million to $3.0 million for the three months ended November 30, 2004 from $6.0 million in the corresponding period in fiscal 2004. The fluctuation is primarily due to foreign currency gains and losses.

Income Taxes – Continuing Operations

Our income tax expense was $4.7 million and $2.5 million for the three months ended November 30, 2004 and 2003, respectively. We incurred net tax expense in certain countries in which we had profitable operations during the periods ended November 30, 2004 and November 30, 2003.

In prior quarters, the effective income tax rate had been largely a function of the balance between income and losses from domestic and international operations. Our international operations, taken as a whole, have been subject to tax at a lower rate than operations in the United States, primarily due to tax holidays granted to several of our overseas sites in Malaysia, Singapore and China. The Malaysian tax holiday is effective through January 2012, subject to certain conditions, including maintaining certain levels of research and development expenditures. The Singapore tax holiday is effective through March 2011, subject to certain conditions. Several of our China sites have separate tax holiday agreements.

Certain of our offshore operations are reporting taxable profits, mostly arising in low-cost locations. Accordingly, we are recognizing some tax expense related to those operations. We will not be able to offset this tax expense with unrecognized deferred tax assets described above, because, for the most part, those assets did not arise in the jurisdictions where we are realizing taxable profits.

In addition, Solectron has established contingency reserves for income taxes in various jurisdictions. The estimate of appropriate tax reserves is based upon the amount of prior tax benefit which might be at risk upon audit and upon the reasonable estimate of the amount at risk. Solectron periodically reassess the amount of such reserves and adjust reserve balances as necessary.

On October 22, 2004, the American Jobs Creation Act (“the AJCA”) was signed into law. The AJCA includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. The Company may elect to apply this provision to qualifying earnings repatriations in either the balance of Fiscal 2005 or in Fiscal 2006. The Company has started an evaluation of the effects of the repatriation provision; however, the Company does not expect to be able to complete this evaluation until after Congress or the Treasury Department provide additional clarifying language on key elements of the provision.

Liquidity and Capital Resources – Continuing Operations

Cash and cash equivalents increased to approximately $1.7 billion at November 30, 2004 from approximately $1.4 billion at August 31, 2004. The table below, for the periods indicated, provides selected condensed consolidated cash flow information (in millions):

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	Three Months Ended November 30
	2004			2003
Net cash provided by (used in) operating activities of continuing operations		195.2			(114.3	)
Net cash (used in) provided by investing activities of continuing operations		(5.1	)		14.7
Net cash provided by (used in) financing activities of continuing operations		50.4			(11.8	)

Net cash provided by operating activities was $195.2 million during the three months ended November 30, 2004. This cash was generated by a $46.9 million income from continuing operations, a $120.4 million decrease in accounts receivable a $52.1 million decrease in inventories, a $17.4 million decrease in prepaids and other current assets, non-cash depreciation and amortization charges of $48.5 million. These were offset by a $74.2 million decrease in accounts payable, and a $17.9 million decrease in accrued expenses and other current liabilities. The decrease in inventory levels and accounts payable is due to lower levels of material purchases resulting from lower first quarter revenue. Accounts receivable has decreased in conjunction with lower revenues in the quarter.

Net cash used in investing activities of $5.1 million during the three months ended November 30, 2004 primarily consisted of net proceeds of $30.0 million received from the disposition of one of our discontinued operations, $16.0 million received from sale of investment in ECS Holdings, and $3.8 million in proceeds from sale of property and equipment. These were offset by $32.0 million in capital expenditures and $22.9 million in advances to discontinued operations.

Net cash provided by financing activities of $50.4 million during the three months ended November 30, 2004 primarily consisted of the proceeds from issuance of common stock of $64.3 million related to the retirement of ACES securities offset by $15.1 million of repayment of debt related to various debt facilities.

As of November 30, 2004, we had available a $500 million revolving credit facility that expires on August 20, 2007. Our revolving credit facility is guaranteed by certain of our domestic subsidiaries and secured by the pledge of domestic accounts receivable, inventory and equipment, the pledge of equity interests in certain of our subsidiaries and notes evidencing intercompany debt. Borrowings under the credit facility bear interest, at our option, at the London Interbank offering rate (LIBOR) plus a margin of 2.25% based on our current senior secured debt ratings, or the higher of the Federal Funds Rate plus 1/2 of 1% or Bank of America N.A.’s publicly announced prime rate. As of November 30, 2004, there were no borrowings outstanding under this facility. We are subject to compliance with certain financial covenants set forth in these facilities including, but not limited to, capital expenditures, cash interest coverage and leverage. We were in compliance with all applicable covenants as of November 30, 2004.

In addition, we had $15.2 million in committed and $176.7 million in uncommitted foreign lines of credit and other bank facilities as of November 30, 2004 relating to continuing operations. A committed line of credit obligates a lender to loan us amounts under the credit facility as long as we adhere to the terms of the credit agreement. An uncommitted line of credit is extended to us at the sole discretion of a lender. The interest rates range from the bank’s prime lending rate to the bank’s prime rate plus 1.0%. As of November 30, 2004, borrowings and guaranteed amounts were $5.8 million under committed and $0 under uncommitted foreign lines of credit. Borrowings are payable on demand. The weighted-average interest rate was 4.0% for committed foreign lines of credit as of November 30, 2004.

During the first quarter of fiscal 2005, we issued 6.6 million shares of common stock for total net proceeds of $64.3 million in connection with the settlement and retirement of the equity component of the remaining ACES units, as defined in the ACES agreement.

$150.0 million aggregate principal amount of 7.375% senior notes is due on March 1, 2006, our $500.0 million aggregate principal amount of 9.625% senior notes is due on February 15, 2009, and our $450.0 million aggregate principal amount of 0.5% convertible senior notes is callable by the holders on February 15, 2011.

We have synthetic lease agreements relating to four manufacturing sites for continuing operations. The synthetic leases have expiration dates in 2007. At the end of the lease term, we have an option, subject to certain conditions, to purchase or to cause a first party to purchase the facilities subject to the synthetic leases for the “Termination Value,” which approximates the lessor’s original cost for each facility, or we may market the property to a first party at a different price. We are entitled to any proceeds from a sale of the properties to first parties in excess of the Termination Value and liable to the lessor for any shortfall. We provided loans to the lessor equaling approximately 85% of the Termination Value for each synthetic lease. These loans are repayable solely from the sale of the properties to first parties in the future, are subordinated to the amounts payable to the lessor at the end of the synthetic leases, and may be credited against the Termination Value payable if we purchase the properties. The approximate aggregate Termination

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Values and loan amounts are $101.3 million and $86.1 million, respectively, as of November 30, 2004.

In addition, cash collateral of $15.2 million is pledged for the difference between the aggregate Termination Values and the loan amounts. Each synthetic lease agreement contains various affirmative and financial covenants. A default under a lease, including violation of these covenants, may accelerate the termination date of the arrangement. We were in compliance with all applicable covenants as of November 30, 2004. Monthly lease payments are generally based on the Termination Value and 30-day LIBOR index (1.99% as of November 30, 2004) plus an interest-rate margin, which may vary depending upon our Moody’s Investors’ Services and Standard and Poor’s ratings, and are allocated between the lessor and us based on the proportion of the loan amount to the Termination Value for each synthetic lease.

We have determined that it is probable that the expected fair value of the properties at the end of each of the various synthetic lease terms will be less than the applicable Termination Value. Accretion expense during the quarter ending November 30, 2004 was $1.1 million.

We account for these synthetic lease arrangements as operating leases in accordance with SFAS No. 13, “Accounting for Leases,” as amended. Our loans to the lessor and cash collateral were included in other long-term assets and cash and cash equivalents, respectively, in the condensed consolidated balance sheets.

We believe that our current cash, cash equivalents, lines of credit and cash anticipated to be generated from continuing operations and divestitures of our discontinued operation will satisfy our expected working capital, capital expenditures, debt service and investment requirements through at least the next 12 months.

The following is a summary of certain obligations and commitments as of November 30, 2004 for continuing operations:

Payments Due by Period
(in millions)

			FY05		FY06
	Total		Q2-Q4		Q1		Q2-Q4		FY07		FY08		FY09		FY10		Thereafter
Long term debt		1,208.1		—		—		168.0		72.6		0.3		501.4		15.4		450.4
Operating lease		180.2		44.4		11.6		25.0		27.2		16.5		12.9		11.4		31.2
Operating leases for restructured facilities and equipment		55.8		18.9		3.4		10.2		11.3		6.0		3.0		2.0		1.0
Other (1)		225.3		225.3		—		—		—		—		—		—		—
	$	1,669.4	$	288.6	$	15.0	$	203.2	$	111.1	$	22.8	$	517.3	$	28.8	$	482.6

(1) We have guaranteed various purchase commitments for materials, supplies and services incurred during the normal course of business.

Other long-term liabilities of $77.0 million disclosed on the consolidated financial statements includes deferred tax liabilities related to timing differences, which due to their nature are not projected.

Off-Balance Sheet Arrangements and Contractual Obligations

Our off-balance sheet arrangements and contractual obligations consist of our synthetic and operating leases, our interest rate swap instrument related to our long-term debt (described in the “We are exposed to interest rate fluctuations” Risk Factor), our foreign exchange contracts (described in the “We are exposed to fluctuations in foreign currency exchange rates” Risk Factor), and certain indemnification provisions related to our seven divestures (described in the “Discontinued Operations” portion below).

A tabular presentation of our contractual obligations is provided in the “Liquidity and Capital Resources” portion of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Discontinued Operations

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In the fourth quarter of fiscal 2003 and the first quarter of fiscal 2004, we designated the following businesses as discontinued operations: Dy 4 Systems Inc., Kavlico Corporation, our MicroTechnology division, SMART Modular Technologies Inc., Stream International Inc., our 63% interest in US Robotics Corporation, and Force Computers, Inc. In fiscal 2004, all of the businesses were sold except the MicroTechnology division.

The collective results from all discontinued operations for all periods presented were as follows (in millions):

	Three Months Ended November 30
	2004			2003
Net sales	$	15.2		$	535.7
Cost of sales		14.1			470.6
Gross profit		1.1			65.1
Operating (income) expenses — net		(8.7	)		128.3
Operating income (loss)		9.8			(63.2	)
Interest income — net		—			0.2
Other income (expense) — net		0.9			(4.3	)
Income (loss) before income taxes		10.7			(67.3	)
Income tax expense		1.7			0.3
Income (loss) from discontinued operations, net of tax	$	9.0		$	(67.6	)

Net sales, gross profit, operating expenses (income) – net, interest income — net, other income (expense) net, and income tax expense from discontinued operations decreased for the three months ended November 30, 2004 as compared to the same period in fiscal 2004 primarily due to the fact that the activity during fiscal 2005 only represents the operations and sale of the final discontinued operation as the remaining discontinued operations were previously sold in fiscal 2004. In addition, there was a $10.1 million pre-tax gain from the sale of the discontinued operations recorded in operating (income) expenses — net for the three month period ended November 30, 2004. As a result of this disposition, we transferred approximately $28.3 million from accumulated foreign currency translation gains, included in accumulated other comprehensive losses within Stockholders Equity and recognized that amount as part of the pre-tax gain.

During fiscal 2004, we completed the sale of the other discontinued operations. During the first quarter of fiscal 2005, we increased the net loss on disposal of these discontinued operations by approximately $0.5 million resulting from a few insignificant adjustments pursuant to the terms of the disposal transaction. For the three months ended November 30, 2004, the adjustment to the net loss on these discontinued operations is recorded in operating (income) expenses – net as disclosed above.

The sales agreements for all seven divestitures contain certain indemnification provisions under which we may be required to indemnify the buyer of the divested business for liabilities, losses, or expenses arising out of breaches of covenants and certain breaches of representations and warranties relating to the condition of the business prior to and at the time of sale. In aggregate, we are contingently liable for up to $94.8 million for a period of 12 to 24 months subsequent to the completion of the sale. As of November 30, 2004 there were no liabilities recorded under these indemnification obligations. Additionally, we may be required to indemnify a buyer for environmental remediation costs for a period up to 10 years and not to exceed $13 million. We maintain an insurance policy to cover environmental remediation liabilities in excess of reserves previously established upon the acquisition of these properties. We did not record any environmental charges upon disposition of these properties.

We are in the process of terminating a synthetic lease agreement associated with a discontinued operation that has been sold. Any resulting gain or loss from the absolution of the synthetic lease agreement will be recognized in discontinued operations.

The sales agreements of the discontinued operations generally include terms which may result in adjustments to the gain or loss in fiscal quarters subsequent to the closing of the sale.

RISK FACTORS

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Most of our net sales come from a small number of customers; if we lose any of these customers, our net sales could decline significantly.

Most of our annual net sales come from a small number of our customers. Our ten largest customers accounted for approximately 60.7% and 58.1% of net sales from continuing operations in the first quarter of fiscal 2005 and 2004, respectively. During the first quarter of fiscal 2005, two of these customers individually account for more than ten percent of our annual net sales. Any material delay, cancellation or reduction of orders from these or other major customers could cause our net sales to decline significantly, and we may not be able to reduce the accompanying expenses at the same time. We cannot guarantee that we will be able to retain any of our largest customers or any other accounts, or that we will be able to realize the expected revenues under existing or anticipated supply agreements with these customers. Our business, market share, consolidated financial condition and results of operations will continue to depend significantly on our ability to obtain orders from new customers, retain existing customers, realize expected revenues under existing and anticipated supply agreements, as well as on the consolidated financial condition and success of our customers and their customers.

Net sales may not improve, and could decline, in future periods if there is continued or resumed weakness in customer demand, particularly in the telecommunications and computing sectors, resulting from worldwide economic conditions. In addition, in connection with our efforts to improve our gross profits, we have engaged in pricing discussions with certain customers on specific programs where we felt we were under-compensated for the services and value that were providing. Where we have not been able to reach mutual agreement with a customer on price adjustments, we have mutually agreed with the customer to transition the business in question to a new supplier. While we believe our disengagement from specific programs with certain customers will ultimately advance our efforts to return to sustained profitability, there can be no assurance that such disengagements will not result in unanticipated or adverse financial effects.

Our customers may cancel their orders, change production quantities or locations, or delay production.

To remain competitive, EMS companies must provide increasingly rapid product turnaround, at increasingly competitive prices, for their customers. We generally do not have long-term contractual commitments from our top customers. As a result, we cannot guarantee that we will continue to receive any net sales from our customers. Customers may cancel their orders, change production quantities or delay production for a number of reasons outside of our control. Many of our customers’ industries have recently experienced a significant decrease in demand for their products and services, as well as substantial price competition. The generally uncertain economic condition of several of our customers’ industries has resulted, and may continue to result, in some of our customers delaying purchases on some of the products we manufacture for them, and placing purchase orders for lower volumes of products than previously anticipated. Cancellations, reductions or delays by a significant customer or by a group of customers would seriously harm our results of operations by reducing the volumes of products manufactured by us for the customers and delivered in that period. Furthermore, delays in the repayment of our expenditures for inventory in preparation for customer orders and lower asset utilization in those periods would result in lower gross profits. In addition, customers may require that manufacturing of their products be transitioned from one facility to another to achieve cost and other objectives. Such transfers, if unanticipated or not properly executed, could result in various inefficiencies and costs, including excess capacity and overhead at one facility and capacity constraints and related strains on our resources at the other, disruption and delays in product deliveries and sales, deterioration in product quality and customer satisfaction, and increased manufacturing and scrap costs.

We may not be able to sell excess or obsolete inventory to customers or third parties, which could have a material adverse impact on our consolidated financial condition.

The majority of our inventory purchases and commitments are based upon demand forecasts that our customers provide to us. The customers’ forecasts, and any changes to the forecasts, including cancellations, may lead to on-hand inventory quantities and on-order purchase commitments that are in excess of the customers’ revised needs, or that become obsolete.

We generally enter into supply agreements with our significant customers. Under these supply agreements, the extent of our customer’s responsibility for excess or obsolete inventory related to raw materials that were previously purchased or ordered to meet that customer’s demand forecast is defined. If our customers do not comply with their contractual obligations to purchase excess or obsolete inventory back from us and we are unable to use or sell such inventory, our consolidated financial condition could be materially harmed. Some of our customers are in the telecommunications industry, an industry that in recent years has experienced declining revenue, large losses, negative cash flows, and several bankruptcies or defaults on borrowing arrangements. In the past, some of our customers have defaulted on their obligations to purchase inventory back from us. There is a risk that, in the future, these

32

or other customers may not purchase inventory back from us despite contractual obligations, which could harm our consolidated financial condition if we are unable to sell the inventory at carrying value. In addition, enforcement of these supply agreements may result in material expenses, delays in payment for inventory and/or disruptions in our customer relationships.

We are responsible for excess and obsolete inventory resulting from inventory purchases in excess of inventory needed to meet customer demand forecasts at the time the purchase commitments were made, as well as any inventory purchases not made pursuant to the customer’s responsibility under our supply agreements. For inventory which is not the customer’s responsibility, provisions are made when required to reduce any such excess or obsolete inventory to its estimated net realizable value, based on the quantity of such inventory on hand, our customers’ latest forecasts of production requirements, and our assessment of available disposition alternatives such as use of components on other programs, the ability and cost to return components to the vendor, and our estimates of resale values and opportunities. These assessments are necessarily based upon various assumptions and market conditions which are subject to rapid change, and/or which may ultimately prove to be inaccurate. Any material changes in our assumptions or market conditions could have a significant effect on our estimates of net realizable value, could necessitate material changes in our provisions for excess and obsolete inventory, and could have a material adverse impact on our consolidated financial condition. In addition, in the normal course of business, bona fide disagreements may arise over the amount and/or timing of such claims, and in order to avoid litigation expenses, collection risks, or disruption of customer relationships, we may elect to settle such disputes for lesser amounts than we believe we should be entitled to recover. In these instances, we must bear the economic loss of any such excess or obsolete inventory, which could have a material adverse impact on our consolidated financial condition.

Our non-U.S. locations represent a significant portion of our net sales; we are exposed to risks associated with operating internationally.

Approximately 70.8% and 71.7% of our net sales from continuing operations are the result of services and products manufactured in countries outside the United States during the first quarter of fiscal 2005 and 2004, respectively. As a result of our foreign sales and facilities, our operations are subject to a variety of risks and costs that are unique to international operations, including the following:

• adverse movement of foreign currencies against the U.S. dollar in which our results are reported;

• import and export duties, and value added taxes;

• import and export regulation changes that could erode our profit margins or restrict exports and/or imports;

• potential restrictions on the transfer of funds;

• government and license requirements governing the transfer of technology and products abroad;

• disruption of local labor supply and/or transportation services;

• inflexible employee contracts in the event of business downturns;

• the burden and cost of compliance with import and export regulations and foreign laws;

• economic and political risks in emerging or developing economies; and

• risks of conflict and terrorism that could disrupt our or our customers’ and suppliers’ businesses.

We have been granted tax holidays, which are effective through 2012 subject to some conditions, for our Malaysian and Singapore sites. We have also been granted various tax holidays in China. These tax holidays are effective for various terms and are subject to some conditions. It is possible that the current tax holidays will be terminated or modified or that future tax holidays that we may seek will not be granted. If the current tax holidays are terminated or modified, or if additional tax holidays are not granted in the future or when our current tax holidays expire, our future effective income tax rate could increase.

We are exposed to general economic conditions, which could have a material adverse impact on our business, operating results and consolidated financial condition.

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As a result of the recent economic conditions in the U.S. and internationally, and reduced capital spending as well as uncertain end-market demand, our customers’ and therefore our sales have been difficult to forecast with accuracy. If there were to be continued or resumed weakness in these industries which we serve, or any further deterioration in the business or financial condition of our customers, it could have a material adverse impact on our business, operating results and consolidated financial condition. In addition, if the economic conditions in the United States and the other markets we serve worsen, we may experience a material adverse impact on our business, operating results and consolidated financial condition.

Possible fluctuation of operating results from quarter to quarter and factors out of our control could affect the market price of our securities.

Our quarterly earnings and/or stock price may fluctuate in the future due to a number of factors including the following:

• differences in the profitability of the types of manufacturing services we provide. For example, high velocity and low complexity printed circuit boards and systems assembly services have lower gross profit than low volume/complex printed circuit boards and systems assembly services;

• our ability to maximize the hours of use of our equipment and facilities is dependent on the duration of the production run time for each job and customer;

• the amount of automation that we can use in the manufacturing process for cost reduction varies, depending upon the complexity of the product being made;

• our customers’ demand for our products and their ability to take delivery of our products and to make timely payments for delivered products;

• our ability to optimize the ordering of inventory as to timing and amount to avoid holding inventory in excess of immediate production needs;

• our ability to offer technologically advanced, cost-effective, quick response, manufacturing services;

• fluctuations in the availability and pricing of components;

• timing of expenditures in anticipation of increased sales;

• cyclicality in our target markets;

• fluctuations in our market share;

• expenses and disruptions associated with acquisitions and divestitures;

• announcements of operating results and business conditions by our customers;

• announcements by our competitors relating to new customers or technological innovation or new services;

• economic developments in the electronics industry as a whole;

• credit rating and stock analyst downgrades;

• political and economic developments in countries in which we have operations; and

• general market conditions.

If our operating results in the future are below the expectations of securities analysts and investors, the market price of our outstanding securities could be harmed.

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If we incur more restructuring-related charges than currently anticipated, our consolidated financial condition and results of operations may suffer.

We incurred approximately $1.6 million of restructuring and impairment costs relating to continuing operations in the first quarter of fiscal 2005 and approximately $27.0 million during the first quarter of fiscal 2004. If our estimates about previous restructuring charges prove to be inadequate, our consolidated financial condition and results of operations may suffer. While we believe our capacity is appropriate for current revenue levels, we continue to evaluate our cost structure relative to future financial results and customer demand. If our estimates about future financial results and customer demand prove to be inadequate, our consolidated financial condition and consolidated results of operations may suffer.

We depend on limited or sole source suppliers for critical components, the inability to obtain sufficient components as required, and under favorable purchase terms, would cause harm to our business.

We are dependent on certain suppliers, including limited and sole source suppliers, to provide key components used in our products. We have experienced, and may continue to experience, delays in component deliveries, which in turn could cause delays in product shipments and require the redesign of certain products. In addition, if we are unable to procure necessary components under favorable purchase terms, including at favorable prices and with the order lead-times needed for the efficient and profitable operation of our factories, our results of operations could suffer. The electronics industry has experienced in the past, and may experience in the future, shortages in semiconductor devices, including application-specific integrated circuits, DRAM, SRAM, flash memory, certain passive devices such as tantalum capacitors, and other commodities that may be caused by such conditions as overall market demand surges or supplier production capacity constraints. The inability to continue to obtain sufficient components as and when required, or to develop alternative sources as and when required, could cause delays, disruptions or reductions in product shipments or require product redesigns which could damage relationships with current or prospective customers, and increase inventory levels and costs, thereby causing harm to our business.

We potentially bear the risk of price increases associated with shortages in electronics components.

At various times, there have been shortages of components in the electronics industry leading to increased component prices. One of the services that we perform for many customers is purchasing electronics components used in the manufacturing of the customers’ products. As a result of this service, we potentially bear the risk of price increases for these components if we are unable to purchase components at the pricing level anticipated to support the margins assumed in our agreements with our customers.

Our net sales could decline if our competitors provide comparable manufacturing services and improved products at a lower cost.

We compete with different contract manufacturers, depending on the type of service we provide or the geographic locale of our operations, in an industry which is intensely competitive. These competitors may have greater manufacturing, financial, R&D and/or marketing resources than we have. In addition, we may not be able to offer prices as low as some of our competitors because those competitors may have lower cost structures as a result of their geographic location or the services they provide, or because such competitors are willing to accept business at lower margins in order to utilize more of their excess capacity. In that event, our net sales could decline. We also expect our competitors to continue to improve the performance of their current products or services, to reduce their current products or service sales prices and to introduce new products or services that may offer greater value-added performance and improved pricing. Any of these could cause a decline in sales, loss of market acceptance of our products or services and corresponding loss of market share, or profit margin compression. We have experienced instances in which customers have transferred certain portions of their business to competitors in response to more attractive pricing quotations than we have been willing to offer, and there can be no assurance that we will not lose business in the future in response to such competitive pricing or other inducements which may be offered by our competitors.

We depend on the continuing trend of OEMs to outsource.

A substantial factor in our past revenue growth was attributable to the transfer of manufacturing and supply-based management activities from our OEM customers. Future growth is partially dependent on new outsourcing opportunities. To the extent that these opportunities are not available, our future growth would be unfavorably impacted.

Our strategic relationships with major customers create risks.

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In the past several years, we completed several strategic transactions with OEM customers. Under these arrangements, we generally acquired inventory, equipment and other assets from the OEM, and leased (or in some cases acquired) their manufacturing facilities, while simultaneously entering into multi-year supply agreements for the production of their products. There has been strong competition among EMS companies for these transactions, and this competition may continue to be a factor in customers’ selection of their EMS providers. These transactions contributed to a significant portion of our past revenue growth, as well as to a significant portion of our more recent restructuring charges and goodwill and intangible asset impairments. While we do not anticipate our acquisitions of OEM plants and equipment in the near future to return to the levels at which they occurred in the recent past, there may be occasions on which we determine it to be advantageous to complete acquisitions in selected geographic and/or industry markets. As part of such arrangements, we would typically enter into supply agreements with the divesting OEMs, but such agreements generally do not require any minimum volumes of purchases by the OEM and the actual volume of purchases may be less than anticipated. Arrangements which may be entered into with divesting OEMs typically would involve many risks, including the following:

• we may pay a purchase price to the divesting OEMs that exceeds the value we are ultimately able to realize from the future business of the OEM;

• the integration into our business of the acquired assets and facilities may be time-consuming and costly;

• we, rather than the divesting OEM, would bear the risk of excess capacity;

• we may not achieve anticipated cost reductions and efficiencies;

• we may be unable to meet the expectations of the OEM as to volume, product quality, timeliness and cost reductions; and

• if demand for the OEM’s products declines, the OEM may reduce its volume of purchases, and we may not be able to sufficiently reduce the expenses of operating the facility or use the facility to provide services to other OEMs, and we might find it appropriate to close, rather than continue to operate, the facility, and any such actions would require us to incur significant restructuring and/or impairment charges.

As a result of these and other risks, we may be unable to achieve anticipated levels of profitability under such arrangements and they may not result in material revenues or contribute positively to our earnings. Additionally, other OEMs may not wish to obtain logistics or operations management services from us.

If we are unable to manage future acquisitions, and cost-effectively run our operations, our profitability could be adversely affected.

Our ability to manage and integrate future acquisitions will require successful integration of such acquisitions into our manufacturing and logistics infrastructure, and may require enhancements or upgrades of accounting and other internal management systems and the implementation of a variety of procedures and controls. We cannot guarantee that significant problems in these areas will not occur. Any failure to enhance or expand these systems and implement such procedures and controls in an efficient manner and at a pace consistent with our business activities could harm our consolidated financial condition and results of operations. In addition, we may experience inefficiencies from the management of geographically dispersed facilities and incur substantial infrastructure and working capital costs.

Notwithstanding our divestiture of certain businesses, we will remain subject to certain indemnification obligations for a period of time after completion of the divestitures.

The sale agreement for each of our divested businesses contains indemnification provisions under which we may be required to indemnify the buyer of the divested business for liabilities, losses, or expenses arising out of breaches of covenants and certain breaches of representations and warranties relating to the condition of the business prior to and at the time of sale. While we believe, based upon the facts presently known to us, that we have made adequate provision for any such potential indemnification obligations, it is possible that other facts may become known in the future which may subject us to claims for additional liabilities or expenses beyond those presently anticipated and provided for. Should any such unexpected liabilities or expenses be of a material amount, our finances could be adversely affected.

We may not be able to adequately satisfy regulatory requirements relating to internal controls over financial reporting or may encounter difficulties in implementing any new or improved internal controls.

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Section 404 of the Sarbanes Oxley Act of 2002 (“S404”) requires that we evaluate and report on the effectiveness of Solectron’s internal controls over financial reporting beginning with the annual report filed on Form 10-K for the reporting period ending August 31, 2005. In addition, our independent auditors must report on management’s evaluation of Solectron’s internal controls. We are currently in the process of documenting and testing internal controls that will be used as the basis for the management report to be included in the Form 10-K. Our evaluation of internal controls may conclude that enhancements or changes to internal controls are necessary to satisfy the requirements of Section 404. Any failure to implement required new or improved controls, or difficulties encountered in the implementation of such new or improved controls, could have implications on our consolidated operating results or could result in a material weakness that would be required to be reported in the Form 10-K.

We are exposed to fluctuations in foreign currency exchange rates.

We have currency exposure arising from both sales and purchases denominated in currencies other than the functional currency of our sites. Fluctuations in the rate of exchange between the currency of the exposure and the functional currency of our sites could seriously harm our business, operating results and consolidated financial condition.

We enter into foreign exchange forward contracts intended to reduce the short-term impact of foreign currency fluctuations on foreign currency cash, receivables, investments, payables and indebtedness. The gains and losses on the foreign exchange forward contracts are intended to offset the transaction gains and losses on the foreign currency cash, receivables, investments, and payables recognized in earnings. We do not enter into foreign exchange forward contracts for speculative purposes. Our foreign exchange forward contracts related to current assets and liabilities are generally three months or less in original maturity.

As of November 30, 2004, we had outstanding foreign exchange forward contracts with a total notional amount of approximately $471.7 million related to continuing operations. The change in value of the foreign exchange forward contracts resulting from a hypothetical 10% change in foreign exchange rates would be offset by the remeasurement of the related balance sheet items, the result of which would not be significant.

As of November 30, 2004, the majority of our foreign currency hedging contracts were scheduled to mature in approximately three months and there were no material deferred gains or losses. In addition, our international operations in some instances act as a natural hedge because both operating expenses and a portion of sales are denominated in local currency. In these instances, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar will result in lower sales when translated to U.S. dollars, operating expenses will also be lower in these circumstances. Although approximately 26.0% of our net sales from continuing operations in the first quarter of fiscal 2005 were denominated in currencies other than the U.S. dollar, we do not believe our total exposure to be significant because of natural hedges.

We are exposed to interest rate fluctuations.

The primary objective of our investment activities is to preserve principal, while at the same time maximize yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash equivalents in a variety of securities, including government and corporate obligations, certificates of deposit and money market funds. As of November 30, 2004, substantially our entire total portfolio was scheduled to mature in less than three months. A hypothetical 10% change in interest rates would not have a material effect on the fair value of our investment portfolios.

As of November 30, 2004, we had no cash equivalents that were subject to interest rate risk (defined as risk of loss of investment fair value due to interest rate movements). The fair value of our cash equivalents approximated the carrying value as of November 30, 2004.

Interest on long-term debt instruments is payable at fixed rates. In addition, the amount of principal to be repaid at maturity is also fixed. On November 15, 2002, we entered into an interest rate swap transaction under which we pay variable rates and we receive fixed rate. The interest swap effectively converted $500 million of our long-term debt with fixed interest rate into debt with variable rates of interest. Our interest rate swap, which expires on February 15, 2009, has a total notional amount of $500 million and relates to our 9.625% $500 million senior notes. Under this swap transaction we pay an interest rate equal to the 3-month LIBOR rate plus a fixed spread. In exchange, we receive fixed interest rates of 9.625%. Our interest rate swap creates interest rate risk for us. A hypothetical 50 basis point change in interest rates would not have a material effect on our consolidated financial position, results of operations and cash flows over the next fiscal year.

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Failure to attract and retain key personnel and skilled associates could hurt our operations.

Our continued success depends to a large extent upon the efforts and abilities of key managerial and technical associates. Losing the services of key personnel could harm us. Our business also depends upon our ability to continue to attract key executives and retain senior managers and skilled associates. Failure to do so could harm our business.

Failure to comply with environmental regulations could harm our business.

As a company in the electronics manufacturing services industry, we are subject to a variety of environmental regulations, including those relating to the use, storage, discharge and disposal of hazardous chemicals used during our manufacturing process as well as air quality and water quality regulations, restrictions on water use, and storm water regulations. Although we have never sustained any significant loss as a result of non-compliance with such regulations, any failure by us to comply with environmental laws and regulations could result in liabilities or the suspension of production. In addition, these laws and regulations could restrict our ability to expand our facilities or require us to acquire costly equipment or incur other significant costs to comply with regulations.

We own and lease some contaminated sites (for some of which we have been indemnified by third parties for required remediation), sites for which there is a risk of the presence of contamination, and sites with some levels of contamination for which we may be liable and which may or may not ultimately require any remediation. We have obtained environmental insurance to reduce potential environmental liability exposures posed by some of our operations and facilities. We believe, based on our current knowledge, that the cost of any groundwater or soil clean up that may be required at our facilities would not materially harm our business, consolidated financial condition and results of operations. Nevertheless, the process of remediating contamination in soil and groundwater at facilities is costly and cannot be estimated with high levels of confidence, and there can be no assurance that the costs of such activities would not harm our business, consolidated financial condition and results of operations in the future.

We may not be able to adequately protect or enforce our intellectual property rights and could become involved in intellectual property disputes.

Our ability to effectively compete may be affected by our ability to protect our proprietary information. We hold a number of patents, patent applications, and various other trade secrets and license rights. These patents, trade secrets, and license rights may not provide meaningful protection for our manufacturing processes and equipment innovations, or we might find it necessary to initiate litigation proceedings to protect our intellectual property rights. Any such litigation could be lengthy and costly and could harm our consolidated financial condition.

In the past we have been and may from time to time continue to be, notified of claims that we may be infringing patents, copyrights or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative, to obtain licenses, and/or to defend against the claim. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. Any litigation, even where an infringement claim is without merit, could result in substantial costs and diversion of resources. Accordingly, the resolution or adjudication of intellectual property disputes could have a material adverse effect on our business, consolidated financial condition and results of operations.

Our rating downgrades make it more expensive for us to borrow money.

On October 28, 2003 Standard and Poor’s downgraded our senior unsecured debt rating to “B+” with a stable outlook. On October 31, 2003 Moody’s downgraded our senior unsecured debt rating to “B1” with a stable outlook. These rating downgrades increase our cost of capital should we borrow under our revolving lines of credit, and may make it more expensive for us to raise additional capital in the future. Such capital raising activities may be on terms that may not be acceptable to us or otherwise not available. On June 22, 2004, Standard and Poor’s affirmed our senior unsecured rating and revised our outlook to positive from stable.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

See Management’s Discussion and Analysis of Financial Condition and Results of Operations for factors related to fluctuations in the exchange rates of foreign currency and fluctuations in interest rates under “Risk Factors -We are exposed to fluctuations in foreign currency exchange rates,” and “We are exposed to interest rate fluctuations.”

Item 4. Controls and Procedures

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Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this Report, Solectron’s principal executive officer and principal financial officer have concluded that Solectron’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by Solectron in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Controls. There were no changes in Solectron’s internal controls over financial reporting during the first quarter of fiscal 2005 or in other factors that could have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Solectron is from time to time involved in various litigation and legal matters, including the one described below. By describing the particular matter set forth below, Solectron does not intend to imply that it or its legal advisors have concluded or believe that the outcome of this particular matter is or is not likely to have a material adverse impact upon Solectron’s business or consolidated financial condition and results of operations.

Solectron has settled the previously reported shareholder derivative lawsuit entitled Lifshitz v. Cannon et al., Case No. CV815693, filed in the Santa Clara County, California Superior Court, on terms not considered to be material to Solectron. Court approval of the settlement terms was obtained on December 16, 2004.

On March 6, 2003, a putative shareholder class action lawsuit was filed against Solectron and certain of its officers in the United States District Court for the Northern District of California alleging claims under Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The case is entitled Abrams v. Solectron Corporation et al., Case No. C-03-0986 CRB. The complaint alleged that the defendants issued false and misleading statements in certain press releases and SEC filings issued between September 17, 2001 and September 26, 2002. In particular, plaintiff alleged that the defendants failed to disclose and to properly account for excess and obsolete inventory in the former Technology Solutions business unit during the relevant time period. Additional complaints making similar allegations were subsequently filed in the same court, and pursuant to an order entered June 2, 2003, the Court appointed lead counsel and plaintiffs to represent the putative class in a single consolidated action. The Consolidated Amended Complaint, filed September 8, 2003, alleges an expanded class period of June 18, 2001 through September 26, 2002, and purports to add a claim for violation of Section 11 of the Securities Act of 1933, as amended (the “Securities Act”), on behalf of a putative class of former shareholders of C-MAC Industries, Inc., who acquired Solectron stock pursuant to the October 19, 2001 Registration Statement filed in connection with Solectron’s acquisition of C-MAC Industries, Inc. In addition, while the initial complaints focused on alleged inventory issues at the former Technology Solutions business unit, the Consolidated Amended Complaint adds allegations of inadequate disclosure and failure to properly account for excess and obsolete inventory at Solectron’s other business units. The complaint seeks an unspecified amount of damages on behalf of the putative class. Solectron believes it has valid defenses to the plaintiffs’ claims. There can be no assurance, however, that the outcome of the lawsuit will be favorable to Solectron or will not have a material adverse effect on Solectron’s business, consolidated financial condition and results of operations. In addition, Solectron may be forced to incur substantial litigation expenses in defending this litigation.

Item 6. Exhibits

(a) Exhibits:

Exhibit No.	Exhibit Description
3.1*	Certificate of Incorporation of the Company, as amended
3.2**	Amended and Restated Bylaws of the Company
3.3***	Certificate of Designation Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company
10.1	Form of Change of Control Severance Agreement for executive officers Craig London, Kevin O’Connor and Kiran Patel
10.2	Form of Employment Agreement for executive officers Kevin O’Connor and Kiran Patel
10.3	Employment Agreement for executive officer Dave Purvis
10.4	Employment Agreement for executive officer Marty Neese
31.1	Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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*	Incorporated by reference from Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 28, 2001, Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 25, 2000, and Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 26, 1999.
**	Incorporated by reference for Exhibit 3.2 filed with Solectron’s Form 10-Q for the quarter ended November 28, 2003.
***	Incorporated by reference from Exhibit 3.3 filed with Solectron’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001.

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SOLECTRON CORPORATION

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SOLECTRON CORPORATION
(Registrant)
 

Date: January 3, 2005

By /S/ Kiran Patel Kiran Patel
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
 

By /S/ Warren Ligan Warren Ligan
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
 

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INDEX TO EXHIBITS

Exhibit No.	Exhibit Description
3.1*	Certificate of Incorporation of the Company, as amended
3.2**	Amended and Restated Bylaws of the Company
3.3***	Certificate of Designation Rights, Preferences and Privileges of Series A Participating Preferred Stock of the Company
10.1	Form of Change of Control Severance Agreement for executive officers Craig London, Kevin O’Connor and Kiran Patel
10.2	Form of Employment Agreement for executive officers Kevin O’Connor and Kiran Patel
10.3	Employment Agreement for executive officer Dave Purvis
10.4	Employment Agreement for executive officer Marty Neese
31.1	Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Incorporated by reference from Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 28, 2001, Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 25, 2000, and Exhibit 3.1 filed with Solectron’s Form 10-Q for the quarter ended February 26, 1999.
**	Incorporated by reference for Exhibit 3.2 filed with Solectron’s Form 10-Q for the quarter ended November 28, 2003.
***	Incorporated by reference from Exhibit 3.3 filed with Solectron’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001.

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EX-10.1

                                                                    EXHIBIT 10.1

                              SOLECTRON CORPORATION

                      CHANGE OF CONTROL SEVERANCE AGREEMENT

      This Change of Control Severance Agreement (the "AGREEMENT") is made and
entered into by and between [_________________] (the "EXECUTIVE") and Solectron
Corporation, a Delaware Corporation (the "COMPANY"), effective as of
[_____________], 2002 (the "EFFECTIVE DATE").

                                    RECITALS

      1.    It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control. The
Board of Directors of the Company (the "BOARD") recognizes that such
consideration can be a distraction to Executive and can cause Executive to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control of
the Company.

      2.    The Board believes that it is in the best interests of the Company
and its stockholders to provide Executive with an incentive to continue his or
her employment and to motivate Executive to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.

      3.    The Board believes that it is imperative to provide Executive with
certain severance benefits upon Executive's termination of employment following
a Change of Control. These benefits will provide Executive with enhanced
financial security and incentive and encouragement to remain with the Company
notwithstanding the possibility of a Change of Control.

      4.    Certain capitalized terms used in the Agreement are defined in
Section 6 below.

                                    AGREEMENT

      NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:

      1.    Term of Agreement. This Agreement shall terminate upon the date that
all of the obligations of the parties hereto with respect to this Agreement have
been satisfied.

      2.    At-Will Employment. The Company and Executive acknowledge that
Executive's employment is and shall continue to be at-will, as defined under
applicable law, except as may otherwise be specifically provided under the terms
of any written formal employment agreement or offer letter between the Company
and Executive (an "EMPLOYMENT AGREEMENT"). If Executive's employment terminates
for any reason, including (without limitation) any termination prior to a Change
of Control, Executive shall not be entitled to any payments, benefits, damages,
awards or compensation other than as provided by this Agreement or under his or
her Employment Agreement.



      3.    Severance Benefits.

            (a)   Involuntary Termination Following a Change of Control. If
within twelve (12) months following a Change of Control (i) Executive terminates
his or her employment with the Company (or any parent or subsidiary of the
Company) for Good Reason or (ii) the Company (or any parent or subsidiary of the
Company) terminates Executive's employment for other than Cause, and Executive
signs and does not revoke a standard release of claims with the Company in a
form acceptable to the Company, then Executive shall receive the following
severance from the Company:

                  (i)   Severance Payment. For a period of twenty-four (24)
months following Executive's termination of employment, Executive shall be paid
Executive's average annual base salary and target bonus for the two years prior
to such termination payable in accordance with the Company's normal payroll
practices; provided, however, that if Executive has been employed for less than
two years prior to such termination, for a period of twenty-four (24) months
following such termination, Executive will be paid Executive's average annual
base salary and target bonus for the period Executive was actually employed with
the Company; provided, further, that in the event Executive engages in
Competition during the twenty-four month period following such termination, all
payments pursuant to this subsection shall immediately cease.

                  (ii)  Options. Executive shall be entitled to continue vesting
for twelve (12) months following the date of such termination with respect to
any Company stock options (whether granted to Executive on, before or after the
date of this Agreement); provided, however, that all Company stock options will
immediately cease vesting if Executive engages in Competition during such
12-month period. Additionally, Executive shall have a period of one year and
ninety (90) days following such termination of employment (the "POST-TERMINATION
EXERCISE PERIOD") to exercise Executive's vested Company stock options (whether
granted on, before or after the date of this Agreement), but in no event beyond
the original maximum term of the option; provided, however, that all Company
stock options shall immediately terminate and Executive shall have no further
rights with respect to such options in the event Executive engages in
Competition during such Post-Termination Exercise Period.

                  (iii) Continued Employee Benefits. Executive shall receive
Company-paid coverage for a period of thirty-six (36) months for Executive and
Executive's eligible dependents under the Company's Benefit Plans; provided,
however, that in the event Executive engages in Competition during the
thirty-six month period following such termination, all Company-paid coverage
pursuant to this subsection shall immediately cease.

                  (iv)  Payments or Benefits Required by Law. Executive shall
receive such other compensation or benefits from the Company as may be required
by law (for example, under Section 4980B of the Code).

            (b)   Voluntary Resignation; Termination for Cause. If Executive's
employment with the Company terminates (i) voluntarily by Executive (other than
for Good Reason) or (ii) for Cause by the Company, then Executive shall not be
entitled to receive severance or other benefits except for those (if any)
provided for in the Employment Agreement or as may then be established under the
Company's then existing severance and benefits plans and practices or pursuant
to other written agreements with the Company.

                                                                             -2-


            (c)   Disability; Death. If the Company terminates Executive's
employment as a result of Executive's Disability, or Executive's employment
terminates due to his or her death, then Executive shall not be entitled to
receive severance or other benefits except for those (if any) provided for in
the Employment Agreement or as may then be established under the Company's then
existing written severance and benefits plans and practices or pursuant to other
written agreements with the Company.

            (d) Termination Apart from Change of Control. In the event
Executive's employment is terminated for any reason, either prior to the
occurrence of a Change of Control or after the twelve (12) month period
following a Change of Control, then Executive shall be entitled to receive
severance and any other benefits only as provided for in the Employment
Agreement or as may then be established under the Company's existing written
severance and benefits plans and practices or pursuant to other written
agreements with the Company.

            (e)   Exclusive Remedy. In the event of a termination of Executive's
employment within twelve (12) months following a Change of Control, the
provisions of this Section 3 are intended to be and are exclusive and in lieu of
any other rights or remedies to which Executive or the Company may otherwise be
entitled (including any contrary provisions in the Employment Agreement),
whether at law, tort or contract, in equity, or under this Agreement. Executive
shall be entitled to no benefits, compensation or other payments or rights upon
termination of employment within twelve (12) months following a Change in
Control other than those benefits expressly set forth in this Section 3.

      4.    Golden Parachute Excise Tax.

            (a)   In the event it shall be determined that any payment or
distribution by the Company or other amount with respect to the Company to or
for the benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4 (a "PAYMENT"), is (or will be) subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "CODE") or any
interest or penalties are (or will be) incurred by Executive with respect to the
excise tax imposed by Section 4999 of the Code with respect to the Company (the
excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "EXCISE TAX"), Executive shall be entitled to
receive an additional cash payment (a "GROSS-UP PAYMENT") from the Company in an
amount equal to the sum of the Excise Tax and an amount sufficient to pay the
cumulative Excise Tax and all cumulative income taxes (including any interest
and penalties imposed with respect to such taxes) relating to the Gross-Up
Payment so that the net amount retained by Executive is equal to all payments to
which Employee is entitled pursuant to the terms of this Agreement (excluding
the Gross-Up Payment) or otherwise less income taxes (but not reduced by the
Excise Tax or by income taxes attributable to the Gross-Up Payment).

            (b)   Subject to the provisions of Section 4(c), all determinations
required to be made under this Section 4, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at the determination, shall be made by a nationally
recognized certified public accounting firm selected by the Company with the
consent of Executive, which should not unreasonably be withheld (the

                                                                             -3-


"ACCOUNTING FIRM") which shall provide detailed supporting calculations both to
the Company and Executive within 30 days after the receipt of notice from
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. The Company, as determined in accordance with this Section 4,
shall pay any Gross-Up Payment to Executive within five days after the receipt
of the Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by Executive, it shall so indicate to Executive in
writing. Any determination by the Accounting Firm shall be binding upon the
Company and Executive. As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm, it is possible that Gross-Up Payments that the Company should have made
will not have been made (an "UNDERPAYMENT"), consistent with the calculations
required to be made hereunder. In the event the Company exhausts its remedies in
accordance with Section 4(c) and Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of
Underpayment that has occurred and the Underpayment shall be promptly paid by
the Company to or for the benefit of Executive.

            (c)   Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require a Gross-Up
Payment (that has not already been paid by the Company). The notification shall
be given as soon as practicable but no later than ten business days after
Executive is informed in writing of the claim and shall apprise the Company of
the nature of the claim and the date on which the claim is requested to be paid.
Executive shall not pay the claim prior to the expiration of the 30-day period
following the date on which Executive gives notice to the Company or any shorter
period ending on the date that any payment of taxes with respect to the claim is
due. If the Company notifies Executive in writing prior to the expiration of the
30-day period that it desires to contest the claim, Executive shall:

                  (i)   give the Company any information reasonably requested by
the Company relating to the claim;

                  (ii)  take any action in connection with contesting the claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to the claim by
an attorney reasonably selected by the Company;

                  (iii) cooperate with the Company in good faith in order
effectively to contest the claim; and

                  (iv)  permit the Company to participate in any proceedings
relating to the claim.

            (d)   The Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with the
contest and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of the representation and payment of costs and
expenses. Without limitation of the forgoing provisions of this Section 4, the
Company shall control all proceedings taken in connection with the contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in

                                                                             -4-


respect of the claim and may, at its sole option, either direct Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and Executive agrees to prosecute the contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine. If the Company directs
Executive to pay the claim and sue for a refund, the Company shall advance the
amount of the payment to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to the advance or with respect to any imputed income with respect
to the advance; and any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which the
contested amount is claimed to be due shall be limited solely to the contested
amount. The Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

            If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 4(d), Executive becomes entitled to receive any
refund with respect to the claim, Executive shall, subject to the Company's
compliance with the requirements of Section 4(d), promptly pay to the Company
the amount of the refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 4(d), a determination is made
that Executive shall not be entitled to any refund with respect to the claim and
the Company does not notify Executive in writing of its intent to contest the
denial of refund prior to the expiration of 30 days after the determination,
then the advance shall be forgiven and shall not be required to be repaid and
the amount of the advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.

      5.    Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:

            (a)   Benefit Plans. "BENEFIT PLANS" means plans, policies or
arrangements that the Company sponsors (or participates in) and that immediately
prior to Executive's termination of employment provide Executive and/or
Executive's eligible dependents with medical, dental, vision and/or financial
counseling benefits. Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or
retirement benefits). A requirement that the Company provide Executive and
Executive's eligible dependents with coverage under the Benefit Plans will not
be satisfied unless the coverage is no less favorable than that provided to
Executive and Executive's eligible dependents immediately prior to Executive's
termination of employment. Notwithstanding any contrary provision of this
Section 5, but subject to the immediately preceding sentence, the Company may,
at its option, satisfy any requirement that the Company provide coverage under
any Benefit Plan by instead providing coverage under a separate plan or plans
providing coverage that is no less favorable or by paying Executive a lump sum
payment sufficient to provide Executive and Executive's eligible dependents with
equivalent coverage under a third party plan that is reasonably available to
Executive and Executive's eligible dependents.

            (b)   Cause. "CAUSE" means (i) a willful failure by Executive to
substantially perform Executive's duties as an employee, other than a failure
resulting from the Executive's

                                                                             -5-


complete or partial incapacity due to physical or mental illness or impairment,
(ii) a willful act by Executive that constitutes gross misconduct and that is
injurious to the Company, (iii) circumstances where Executive willfully imparts
material confidential information relating to the Company or its business to
competitors or to other third parties other than in the course of carrying out
Executive's duties, (iv) a material and willful violation by Executive of a
federal or state law or regulation applicable to the business of the Company or
(v) Executive's conviction or plea of guilty or no contest to a felony. No act
or failure to act by Executive shall be considered "WILLFUL" unless committed
without good faith and without a reasonable belief that the act or omission was
in the Company's best interest.

            (c)   Change of Control. "CHANGE OF CONTROL" means the occurrence of
any of the following:

                  (i)   the sale, lease, conveyance or other disposition of all
or substantially all of the Company's assets to any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended),
entity or group of persons acting in concert;

                  (ii)  any person or group of persons becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 30% or more of the total voting power
represented by the Company's then outstanding voting securities;

                  (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; or

                  (iv)  a contest for the election or removal of members of the
Board that results in the removal from the Board of at least 33% of the
incumbent members of the Board.

            (d)   Competition. "COMPETITION" shall mean Executive's direct or
indirect engagement in (whether as an employee, consultant, agent, proprietor,
principal, partner, stockholder, corporate officer, director or otherwise), or
ownership interest in or participation in the financing, operation, management
or control of, any person, firm, corporation or business that competes with
Company or is a customer of the Company.

            (e)   Disability. "DISABILITY" shall mean that Executive has been
unable to perform the principal functions of Executive's duties due to a
physical or mental impairment, but only if such inability has lasted or is
reasonably expected to last for at least six months. Whether Executive has a
Disability shall be determined by the Board based on evidence provided by one or
more physicians selected by the Board.

            (f)   Good Reason. "GOOD REASON" means (without Executive's consent)
(i) a material reduction in Executive's title, authority, status, or
responsibilities, (ii) a material breach by the Company of its obligations as an
employee, or (iii) a relocation of Executive's principal place of employment by
more than twenty five (25) miles. With respect to a termination of employment
that

                                                                             -6-


occurs during the six (6) month period immediately following a Change of
Control, clause (i) of the preceding sentence shall be applied by replacing the
word "reduction" with the word "change."

      6.    Successors.

            (a)   The Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"COMPANY" shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
6(a) or which becomes bound by the terms of this Agreement by operation of law.

            (b)   The Executive's Successors. The terms of this Agreement and
all rights of Executive hereunder shall inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

      7.    Notice.

            (a)   General. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of Executive, mailed
notices shall be addressed to him or her at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its President.

            (b)   Notice of Termination. Any termination by the Company for
Cause or by Executive for Good Reason or as a result of a voluntary resignation
shall be communicated by a notice of termination to the other party hereto given
in accordance with Section 7(a) of this Agreement. Such notice shall indicate
the specific termination provision in this Agreement relied upon, shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination under the provision so indicated, and shall specify the
termination date (which shall be not more than thirty (30) days after the giving
of such notice). The failure by Executive to include in the notice any fact or
circumstance which contributes to a showing of Good Reason shall not waive any
right of Executive hereunder or preclude Executive from asserting such fact or
circumstance in enforcing his or her rights hereunder.

      8.    Miscellaneous Provisions.

            (a)   No Duty to Mitigate. Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement, nor shall any
such payment be reduced by any earnings that Executive may receive from any
other source.

            (b)   Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by

                                                                             -7-


Executive and by an authorized officer of the Company (other than Executive). No
waiver by either party of any breach of, or of compliance with, any condition or
provision of this Agreement by the other party shall be considered a waiver of
any other condition or provision or of the same condition or provision at
another time.

            (c)   Headings. All captions and section headings used in this
Agreement are for convenient reference only and do not form a part of this
Agreement.

            (d)   Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto and supersedes in their entirety all prior
representations, understandings, undertakings or agreements (whether oral or
written and whether expressed or implied) of the parties with respect to the
subject matter hereof, including (without limitation) the Employment Agreement).
No future agreements between the Company and Executive may supersede this
Agreement, unless they are in writing and specifically mention this Section
8(d).

            (e)   Choice of Law. The laws of the State of California (without
reference to its choice of laws provisions) shall govern the validity,
interpretation, construction and performance of this Agreement.

            (f)   Severability. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

            (g)   Withholding. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment taxes.

            (h)   Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                                                             -8-


      IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
set forth below.

COMPANY                            SOLECTRON CORPORATION

                                   By: _________________________________________

                                   Title: Chief Executive Officer  Date: _______

EXECUTIVE                          By: _________________________________________

                                   Title: _____________________Date: ___________

                                                                             -9-

EX-10.2

                                                                    EXHIBIT 10.2

[SOLECTRON LOGO]

                              SOLECTRON CORPORATION

                              EMPLOYMENT AGREEMENT

      This Agreement is made by and between Solectron Corporation (the
"COMPANY"), and [_________] ("EXECUTIVE") as of November 12, 2002 (the
"EFFECTIVE DATE").

      1. Duties and Scope of Employment.

            (a) Positions and Duties. Executive will continue to serve as the
Company's [___________________________________________]. Executive will render
such business and professional services in the performance of Executive's
duties, consistent with Executive's position within the Company, as shall
reasonably be assigned to Executive by the Company's Chief Executive Officer
(the "CEO") or the CEO's delegate. The period of Executive's employment under
this Agreement is referred to herein as the Employment Term.

            (b) Obligations. During the Employment Term, Executive will devote
Executive's full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board of Directors of the Company
(the "BOARD") (which approval will not be unreasonably withheld); provided,
however, that Executive may, without the approval of the Board, serve in any
capacity with any civic, educational or charitable organization, provided such
services do not interfere with Executive's obligations to Company.

      2. Employee Benefits. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans, policies and arrangements that are applicable to other senior
executives of the Company, as such plans, policies and arrangements and terms
may exist from time to time.

      3. At-Will Employment. Executive and the Company agree that Executive's
employment with the Company constitutes "at-will" employment. Executive and the
Company acknowledge that this employment relationship may be terminated at any
time, upon written notice to the other party, with or without good cause or for
any or no cause, at the option either of the Company or Executive. However, as
described in this Agreement, Executive may be entitled to severance benefits
depending upon the circumstances of Executive's termination of employment.

      4. Compensation.

            (a) Base Salary. During the Employment Term, the Company will
continue to pay Executive as compensation for Executive's services Executive's
annualized base salary as in effect as of the Effective Date (the "BASE
SALARY"). The Base Salary will be paid through payroll periods that are
consistent with the Company's normal payroll practices, but in all events will
not be



less frequent than once per month. Executive's salary will be subject to review
and adjustments will be made based upon the Company's normal performance review
practices.

            (b) Bonuses. Executive may participate in any bonus plan or similar
arrangement the Company may have in place that are applicable to other senior
executives of the Company, on such terms and conditions as the Compensation
Committee of the Board (the "COMMITTEE") may determine from time to time in its
discretion.

            (c) Stock Options. Executive shall be eligible to receive options to
purchase the Company's common stock pursuant to any plans or arrangements it may
have in effect from time to time. The Committee will determine in its discretion
whether Executive will be granted any such option or options and the terms of
any such option or options in accordance with the terms of any applicable plan
or arrangement that may be in effect from time to time.

      5. Severance.

            (a) Involuntary Termination other than for Cause, Death or
Disability. Subject to Section 5(b), if the Company terminates Executive's
employment with the Company without Executive's consent and for a reason other
than "Cause" (as defined below), Executive becoming "Disabled" (as defined
below) or Executive's death, and Executive signs and delivers to the Company a
separation agreement in a form satisfactory to the Company, then promptly
following such termination of employment or, if later, the effective date of the
separation agreement, Executive will (i) receive all accrued vacation, expense
reimbursements and any other benefits due to Executive through the date of
termination of employment in accordance with the Company's then existing
employee benefit plans, policies and arrangements, (ii) be paid continuing
payments of severance pay at a rate equal to Executive's Base Salary rate, as
then in effect, and Executive's target bonus for the year of termination, for a
period of twelve (12) months plus one additional month for every full year
Executive has been employed with the Company as of the date of such termination,
not to exceed twenty-four (24) months (the "SEVERANCE PAYMENT PERIOD"), from the
date of such termination, to be paid periodically in accordance with the
Company's normal payroll policies; provided, however, that if during the
Severance Payment Period Executive engages in "Competition" (as defined below)
or breaches the covenants in Section 11 or in the separation agreement, all
payments pursuant to this subsection shall immediately cease, (iii) receive
Company-paid coverage during the Severance Payment Period for Executive and
Executive's eligible dependents under the Company's "Benefit Plans" (as defined
below); provided, however, that if during the Severance Payment Period Executive
engages in Competition or breaches the covenants in Section 11 or in the
separation agreement, all Company-paid coverage pursuant to this subsection
shall immediately cease, and (iv) receive such other compensation or benefits
from the Company as may be required by law (for example, under Section 4980B of
the Code).

            (b) Other Agreements. If Executive has executed any other agreements
with the Company that provide for severance or similar payments or benefits in
the event of Executive's termination of employment with the Company, then in the
event Executive would be entitled to receive payments and/ or benefits under
both this Agreement and any other such agreement, Executive shall only be
entitled to receive benefits under one such agreement. In such an event,
Executive shall be permitted to choose under which agreement Executive will
receive payments or benefits.

                                                                             -2-


            (c) Other Terminations. If Executive voluntarily terminates
Executive's employment with the Company or if the Company terminates Executive
employment with the Company for Cause, then Executive will (i) receive the Base
Salary through the date of termination of employment, (ii) receive all accrued
vacation, expense reimbursements and any other benefits due to Executive through
the date of termination of employment in accordance with established Company
plans, policies and arrangements, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting of
stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
"COBRA" coverage under Section 4980B of the Internal Revenue Code of 1986, as
amended (the "CODE").

            (d) Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to Executive's death or
Executive's becoming Disabled, then Executive or Executive's estate (as the case
may be) will (i) receive the Base Salary through the date of termination of
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment in
accordance with Company-provided or paid plans, policies and arrangements, and
(iii) not be entitled to any other compensation or benefits from the Company
except to the extent required by law (for example, under Section 4980B of the
Code).

      6. Definitions.

            (a) Cause. For purposes of this Agreement, "CAUSE" means (i) a
willful failure by Executive to substantially perform Executive's duties under
this Agreement, other than a failure resulting from the Executive's complete or
partial incapacity due to physical or mental illness or impairment, (ii) a
willful act by Executive that constitutes gross misconduct and that is injurious
to the Company, (iii) a willful breach by Executive of a material provision of
this Agreement, (iv) a material and willful violation by Executive of a federal
or state law or regulation applicable to the business of the Company or (v)
Executive's conviction or plea of guilty or no contest to a felony. No act or
failure to act by Executive shall be considered "willful" unless committed
without good faith and without a reasonable belief that the act or omission was
in the Company's best interest.

            (b) Competition. For purposes of this Agreement, Executive shall be
deemed to have engaged in "COMPETITION" if he directly or indirectly engages in
(whether as an employee, consultant, agent, proprietor, principal, partner,
stockholder, corporate officer, director or otherwise), or has any ownership
interest in or participates in the financing, operation, management or control
of, any person, firm, corporation or business that competes with Company or is a
customer of the Company.

            (c) Disabled. For purposes of this Agreement, "DISABLED" means
Executive being unable to perform the principal functions of Executive's duties
due to a physical or mental impairment, but only if such inability has lasted or
is reasonably expected to last for at least six months. Whether Executive is
Disabled shall be determined by the Committee based on evidence provided by one
or more physicians selected by the Committee.

            (d) Benefit Plans. For purposes of this Agreement, "BENEFIT PLANS"
means plans, policies or arrangements that the Company sponsors (or participates
in) and that immediately prior to

                                                                             -3-


Executive's termination of employment provide Executive and/or Executive's
eligible dependents with medical, dental, vision and/or financial counseling
benefits. Benefit Plans do not include any other type of benefit (including, but
not by way of limitation, disability, life insurance or retirement benefits). A
requirement that the Company provide Executive and Executive's eligible
dependents with coverage under the Benefit Plans will not be satisfied unless
the coverage is no less favorable than that provided to Executive and
Executive's eligible dependents immediately prior to Executive's termination of
employment. Notwithstanding any contrary provision of Section 5, but subject to
the immediately preceding sentence, the Company may, at its option, satisfy any
requirement that the Company provide coverage under any Benefit Plan by instead
providing coverage under a separate plan or plans providing coverage that is no
less favorable or by paying Executive a lump-sum payment sufficient to provide
Executive and Executive's eligible dependents with equivalent coverage under a
third party plan that is reasonably available to Executive and Executive's
eligible dependents.

      7. Term of Agreement. This Agreement will have an initial term of two (2)
years commencing on the Effective Date. On the second anniversary of the
Effective Date and on each annual anniversary of the Effective Date thereafter,
this Agreement automatically will renew for an additional term of one year
unless at least three (3) months prior to such anniversary, Executive or the
Company gives the other party written notice that the Agreement will not be
renewed. If Executive incurs a termination of employment that entities Executive
to receive the payments and benefits described in Section 5, this Agreement will
not terminate until all of Executive's and the Company's obligations under the
Agreement have been satisfied.

      8. Assignment. This Agreement will be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive upon
Executive's death and (b) any successor of the Company. Any such successor of
the Company will be deemed substituted for the Company under the terms of this
Agreement for all purposes. For this purpose, "SUCCESSOR" means any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement may be assigned or transferred except by will or the laws of descent
and distribution. Any other attempted assignment, transfer, conveyance or other
disposition of Executive's right to compensation or other benefits will be null
and void.

      9. Notices. All notices, requests, demands and other communications called
for hereunder shall be in writing and shall be deemed given (i) on the date of
delivery if delivered personally, (ii) one (1) day after being sent by a well
established commercial overnight service, or (iii) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:

                                                                             -4-


      If to the Company:

      Solectron Corporation
      847 Gibraltar Drive
      Milpitas, CA 95035

      Attn: Chairman, Compensation Committee of the Board of Directors

      If to Executive:

      [__________________________________]

      at the last residential address known by the Company.

      10. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

      11. Non-Solicitation. For a period beginning on the Effective Date and
ending one year after the Executive ceases to be employed by the Company or, if
longer, upon the completion of the Severance Payment Period, Executive, directly
or indirectly, whether as employee, owner, sole proprietor, partner, director,
member, consultant, agent, founder, co-venturer or otherwise, will: (i) not
solicit, induce or influence any person to leave employment with the Company; or
(ii) not directly or indirectly solicit business from any of the Company's
customers and users on behalf of any business that directly competes with the
principal business of the Company.

      12. Entire Agreement. This Agreement, together with any agreements
relating to stock option outstanding as of the Effective Date and agreements
referenced in Section 5(b), if any, represent the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersede and replace any and all
prior agreements and understandings concerning Executive's employment
relationship with the Company.

      13. Arbitration.

            (a) General. In consideration of Executive's service to the Company,
its promise to arbitrate all employment related disputes and Executive's receipt
of the compensation, pay raises and other benefits paid to Executive by the
Company, at present and in the future, Executive agrees that any and all
controversies, claims, or disputes with anyone (including the Company and any
employee, officer, director, shareholder or benefit plan of the Company in their
capacity as such or otherwise) arising out of, relating to, or resulting from
Executive's service to the Company under this Agreement or otherwise or the
termination of Executive's service with the Company, including any breach of
this Agreement, shall be subject to binding arbitration under the Arbitration
Rules set forth in California Code of Civil Procedure Section 1280 through
1294.2, including Section 1283.05 (the "Rules") and pursuant to California law.
Disputes which Executive agrees to arbitrate, and thereby agrees to waive any
right to a trial by jury, include any statutory claims under state or federal
law, including, but not limited to, claims under Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination
in Employment Act of 1967, the Older Workers Benefit Protection Act, the
California Fair Employment and Housing Act, the

                                                                             -5-


California Labor Code, claims of harassment, discrimination or wrongful
termination and any statutory claims. Executive further understands that this
Agreement to arbitrate also applies to any disputes that the Company may have
with Executive.

            (b) Procedure. Executive agrees that any arbitration will be
administered by the American Arbitration Association ("AAA") and that a neutral
arbitrator will be selected in a manner consistent with its National Rules for
the Resolution of Employment Disputes. The arbitration proceedings will allow
for discovery according to the rules set forth in the National Rules for the
Resolution of Employment Disputes or California Code of Civil Procedure.
Executive agrees that the arbitrator shall have the power to decide any motions
brought by any party to the arbitration, including motions for summary judgment
and/or adjudication and motions to dismiss and demurrers, prior to any
arbitration hearing. Executive agrees that the arbitrator shall issue a written
decision on the merits. Executive also agrees that the arbitrator shall have the
power to award any remedies, including attorneys' fees and costs, available
under applicable law. Executive understands the Company will pay for any
administrative or hearing fees charged by the arbitrator or AAA except that
Executive shall pay the first $200.00 of any filing fees associated with any
arbitration Executive initiates. Executive agrees that the arbitrator shall
administer and conduct any arbitration in a manner consistent with the Rules and
that to the extent that the AAA's National Rules for the Resolution of
Employment Disputes conflict with the Rules, the Rules shall take precedence.

            (c) Remedy. Except as provided by the Rules, arbitration shall be
the sole, exclusive and final remedy for any dispute between Executive and the
Company. Accordingly, except as provided for by the Rules, neither Executive nor
the Company will be permitted to pursue court action regarding claims that are
subject to arbitration. Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator shall not order or require the Company to adopt a policy not
otherwise required by law, which the Company has not adopted.

            (d) Availability of Injunctive Relief. In addition to the right
under the Rules to petition the court for provisional relief, Executive agrees
that any party may also petition the court for injunctive relief where either
party alleges or claims a violation of this Agreement or the Confidentiality
Agreement or any other agreement regarding trade secrets, confidential
information, non  solicitation or Labor Code Section 2870. In the event either
party seeks injunctive relief, the prevailing party shall be entitled to recover
reasonable costs and attorneys' fees.

            (e) Administrative Relief. Executive understands that this Agreement
does not prohibit Executive from pursuing an administrative claim with a local,
state or federal administrative body such as the Department of Fair Employment
and Housing, the Equal Employment Opportunity Commission or the workers'
compensation board. This Agreement does, however, preclude Executive from
pursuing court action regarding any such claim.

            (f) Voluntary Nature of Agreement. Executive acknowledges and
agrees that Executive is executing this Agreement voluntarily and without any
duress or undue influence by the Company or anyone else. Executive further
acknowledges and agrees that Executive has carefully read this Agreement and
that Executive has asked any questions needed for Executive to understand the
terms, consequences and binding effect of this Agreement and fully understand
it, including that Executive is waiving Executive's right to a jury trial.
Finally, Executive agrees that Executive has

                                                                             -6-


been provided an opportunity to seek the advice of an attorney of Executive's
choice before signing this Agreement.

      14. No Oral Modification, Cancellation or Discharge. This Agreement may be
changed or terminated only in writing (signed by Executive and the Company).

      15. Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, shall not operate as or be construed
to be a waiver of any other previous or subsequent breach of this Agreement.

      16. Headings. All captions and section headings used in this Agreement are
for convenient reference only and do not form a part of this Agreement.

      17. Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

      18. Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

      19. Acknowledgment. Executive acknowledges that he has had the opportunity
to discuss this matter with and obtain advice from Executive's private attorney,
has had sufficient time to, and has carefully read and fully understands all the
provisions of this Agreement, and is knowingly and voluntarily entering into
this Agreement.

      20. Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.

                           [SIGNATURE PAGE TO FOLLOW]

                                                                             -7-


      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

EXECUTIVE
_________________________________________

[________________________________________]             Date: __________________

SOLECTRON CORPORATION
_________________________________________

[________________________________________]             Date: __________________

                                                                             -8-

EX-10.3

                                                                    EXHIBIT 10.3

                              SOLECTRON CORPORATION

                      DAVID M. PURVIS EMPLOYMENT AGREEMENT

      This Agreement is made by and between Solectron Corporation (the
"Company"), and David M. Purvis ("Executive") effective as of December 15, 2003
(the "Effective Date").

      1.    Duties and Scope of Employment.

            (a)   Positions and Duties. Executive will serve as the Company's
Executive Vice President, Engineering. Executive will render such business and
professional services in the performance of Executive's duties, consistent with
Executive's position within the Company, as will reasonably be assigned to
Executive by the Company's Chief Executive Officer (the "CEO") or the CEO's
designate. The period of Executive's employment under this Agreement is referred
to herein as the Employment Term.

            (b)   Obligations. During the Employment Term, Executive will devote
Executive's full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the CEO and the Board of Directors of
the Company (the "Board"); provided, however, that Executive may, without the
prior approval of the CEO and the Board, serve in any capacity with any civic,
educational or charitable organization, provided such services do not interfere
with Executive's obligations to Company.

      2.    Employee Benefits. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans, policies and arrangements that are applicable to other senior
executives of the Company, as such plans, policies and arrangements and terms
may exist from time to time.

      3.    At-Will Employment. Executive and the Company agree that Executive's
employment with the Company constitutes "at-will" employment. Executive and the
Company acknowledge that this employment relationship may be terminated at any
time, upon written notice to the other party, with or without good cause or for
any or no cause, at the option either of the Company or Executive. However, as
described in this Agreement, Executive may be entitled to severance benefits
depending upon the circumstances of Executive's termination of employment.

      4.    Compensation.

            (a)   Base Salary & Car Allowance. During the Employment Term, the
Company will pay Executive an annual salary of $420,000 as compensation for his
services (the "Base Salary"). The Base Salary will be paid through payroll
periods that are consistent with the Company's normal payroll practices, but in
all events will not be less frequent than once per month.



Executive's Base Salary will be subject to review and adjustments will be made
based upon the Company's normal performance review practices.

            (b)   Bonuses.

                  (i)   Relocation Bonus. Executive will receive a bonus as the
result of executing this Agreement in the gross amount of $200,000 (the
"RELOCATION BONUS") to be paid within thirty (30) days of the Effective Date.
If, before the third annual anniversary of the Effective Date, the Executive's
employment is terminated by the Company for Cause (as defined below), or by the
Executive without Good Reason (as defined below), the Executive shall be
required to repay the amount of such RELOCATION BONUS to the Company in full
within 30 days following such termination date.

                  (ii)  Annual Bonus. Executive's annual target bonus (pre-tax)
will be 120% of his Base Salary ("TARGET BONUS") with an annual maximum bonus of
200% of his annual Base Salary. Executive's annual bonus will be payable upon
achievement of performance goals established by the Compensation Committee of
the Board (the "COMMITTEE"). Notwithstanding anything in the foregoing to the
contrary, Executive's annual bonus (pre-tax) for his first year of employment
will be guaranteed to equal at least $504,000, and shall be determined in
accordance with the following two sentences. For purposes of the Company's
fiscal year ending August 27, 2004, the Executive shall receive a pro rata
annual bonus equal to (x) the greater of (i) $504,000 or (ii) the full year
actual annual bonus computed under the incentive compensation plan approved by
the COMMITTEE, multiplied by (y) a fraction, the numerator of which is the
number of days between and including the Effective Date and August 27, 2004 and
the denominator of which is 364 (the "Fiscal 2004 Fraction"). For purposes of
the Company's fiscal year ending August 26, 2005, the Executive shall receive an
annual bonus equal to the greater of (x) (i) $504,000 multiplied by the
difference between 1 and the Fiscal 2004 Fraction (the "Fiscal 2005 Fraction")
plus (ii) the actual full year annual bonus (if any) multiplied by the
difference between 1 and the Fiscal 2005 Fraction or (y) the actual full year
annual bonus computed under the incentive compensation plan approved by the
COMMITTEE. Subject to the above, Executive may participate in any bonus plan or
similar arrangement the Company may have in place that are applicable to other
senior executives of the Company, on such terms and conditions as the Committee
may determine from time to time in its discretion.

            (c)   Stock Options.

                  (i)   Non-Qualified Stock Option. On the Effective Date,
Executive will be granted (conditioned upon execution of this Agreement) a
non-statutory stock option to purchase 400,000 shares of the Company's Common
Stock (the "COMMON STOCK") at an exercise price equal to the fair market value
per share as of the close of trading on the New York Stock Exchange on the date
of grant (the "OPTION"). The Option will vest as to 1/48th of the shares subject
to the Option upon the Executive's completion of each full month of Service (as
defined below) over the forty-eight (48)-month period measured from the date of
grant. Notwithstanding anything in the foregoing to the contrary, the Shares
subject to the Option shall become fully vested upon the occurrence of a Change
in Control. The Option may be granted from one of the Company's stock option
plans or pursuant to a stand-alone stock option agreement, or a combination of
both. As a

                                      -2-


result, the Option will be subject to the terms, definitions and provisions of
the Company's stock option plan under which it is granted, if any, (the "OPTION
PLAN") and the stock option agreement by and between Executive and the Company
(the "OPTION AGREEMENT"), both of which documents are incorporated herein by
reference; provided, however, that the terms and provisions of the Option
Agreement shall be substantially the same as if the portion of the Option
represented by such Option Agreement had been granted under the Option Plan. The
Company shall take such actions as are necessary to register the shares relating
to such Options under the applicable securities laws on or before the date such
Options become exercisable.

            (b)   Restricted Stock. Immediately upon the commencement of
employment, the Company will issue Executive a thirty day option to purchase
250,000 shares of Common Stock at a purchase price of $0.001 per share (the
"RESTRICTED STOCK"). In the event Executive's SERVICE (as defined below)
terminates for any reason, and subject to the provisions of this Agreement, the
Company will have the right to repurchase the Restricted Stock at $0.001 per
share (the "REPURCHASE RIGHT") as and to the extent set forth herein and in the
restricted stock agreement by and between Executive and the Company (the
"RESTRICTED STOCK AGREEMENT"), which is hereby incorporated by reference.
Subject to the accelerated vesting provisions set forth in the RESTRICTED STOCK
AGREEMENT, all of the Restricted Stock will vest and be released from the
Company's Repurchase Right upon the Executive's continuation in SERVICE through
the fifth anniversary of the commencement of Executive's employment with the
Company. Notwithstanding anything in the foregoing to the contrary, all of the
Restricted Stock will vest and be released from the Company's Repurchase Right
in the event the Company terminates Executive without "Cause" (as defined
below).

            (c)   Future Option Grants. Executive acknowledges that the next
scheduled equity award date for all senior executives is September 2005, but the
COMMITTEE is not precluded from making earlier awards if it chooses to do so in
its sole discretion. The COMMITTEE will determine in its discretion whether
Executive will be granted any option or options and the terms of any such option
or options in accordance with the terms of any applicable plan or arrangement
that may be in effect from time to time.

            (d)   Other Benefits. Executive will be provided with a monthly car
allowance of $500.00, which will be paid in the second paycheck of each month.
In addition, Executive will be eligible to participate in Company's other
executive benefits programs as and to the extent they are in effect for the
Company's other senior executives from time to time.

      5.    Severance.

            (a)   Involuntary Termination other than for Cause, Death or
Disability Prior to a Change of Control or After Eighteen Months Following a
Change of Control. If the Company terminates Executive's employment with the
Company without Executive's consent and for a reason other than Cause, Executive
becoming Disabled or Executive's death, any of which occur prior to a Change of
Control, or after eighteen (18) months following a Change of Control, and
provided that Executive signs and delivers to the Company a separation agreement
and release of claims in a form satisfactory to the Company (including
non-solicitation, non-disparagement, and non-competition

                                      -3-


provisions covering 24 months post-termination), then promptly following such
termination of employment, or, if later, the effective date of the separation
agreement and release of claims, then Executive will receive (in addition to all
accrued salary, vacation, expense reimbursements and any other benefits due to
Executive through the date of termination of employment in accordance with the
Company's then existing employee benefit plans, policies and arrangements, and
such other compensation or benefits from the Company as may be required by law
(for example, "COBRA" coverage under Section 4980B of the Internal Revenue Code
of 1986, as amended) the following severance from the Company, conditional upon
Executive's compliance with the terms and conditions of this Agreement and of
the separation agreement and release of claims:

                  (i)   Severance Payment. Executive will be paid continuing
payments of severance pay at a rate equal to Executive's Base Salary rate, as
then in effect, and Executive's target bonus for the year of termination, for a
period of twelve (12) months plus one additional month for every full year
Executive has been employed with the Company as of the date of such termination,
not to exceed twenty-four (24) months (the "Severance Payment Period"), from the
date of such termination, to be paid periodically in accordance with the
Company's normal payroll policies; provided, however, that if during the
Severance Payment Period Executive engages in Competition (as defined below) or
breaches the Non-Solicitation covenants set forth in this Agreement or in the
separation agreement, Executive shall not be entitled to such severance
payments, all severance payments pursuant to this subsection will immediately
cease, and Executive shall be obligated to return to Company any severance
payments received by Executive at any time after Executive has engaged in
Competition or has breached the Non-Solicitation covenants.

                  (ii)  Continued Employee Benefits. Executive will receive
Company-paid coverage during the Severance Payment Period for Executive and
Executive's eligible dependents under the Company's Benefit Plans; provided,
however, that if during the Severance Payment Period Executive engages in
Competition or breaches the Non-Solicitation covenants set forth in this
Agreement or in the separation agreement, Executive shall not be entitled to
such Company-paid coverage, all Company-paid coverage pursuant to this
subsection will immediately cease, and Executive shall be obligated to repay to
Company the cost of such Company-paid coverage received by Executive at any time
after Executive has engaged in Competition or has breached the Non-Solicitation
covenants.

            (b)   Involuntary Termination other than for Cause, Death or
Disability, or Termination by Executive for Good Reason, within Eighteen Months
of a Change of Control. If within eighteen (18) months following a Change of
Control (i) Executive terminates his or her employment with the Company (or any
parent or subsidiary of the Company) for Good Reason or (ii) the Company (or any
parent or subsidiary of the Company) terminates Executive's employment for other
than Cause, and provided that Executive signs and delivers to the Company a
separation agreement and release of claims in a form satisfactory to the Company
(including non-solicitation, non-disparagement, and non-competition provisions
covering 18 months post-termination), then promptly following such termination
of employment, or, if later, the effective date of the separation agreement and
release of claims, then Executive will receive (in addition to all accrued
salary, vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with the Company's
then existing employee benefit plans, policies and arrangements, and such other
compensation or benefits from the Company as may be

                                      -4-


required by law (for example, "COBRA" coverage under Section 4980B of the
Internal Revenue Code of 1986, as amended) the following severance from the
Company, conditional upon Executive's compliance with the terms and conditions
of this Agreement and of the separation agreement and release of claims:

                  (i)   Severance Payment. For a period of eighteen (18) months
following Executive's termination of employment (the "Change of Control
Severance Payment Period"), Executive will be paid continuing payments of
severance pay equal to Executive's average Base Salary rate for the two years
prior to such termination, and Executive's average annual target bonus for the
two years prior to such termination, to be paid in equal installments
periodically in accordance with the Company's normal payroll practices;
provided, however, that if Executive has been employed for less than two years
prior to such termination, for a period of eighteen (18) months following such
termination under this subparagraph (b), Executive will be paid continuing
payments of severance pay equal to Executive's average Base Salary rate for the
period Executive was actually employed with the Company, and Executive's average
annual target bonus for the period Executive was actually employed with the
Company, to be paid in equal installments periodically in accordance with the
Company's normal payroll practices; provided, however, that in the event
Executive engages in Competition or breaches the Non-Solicitation covenants set
forth in this Agreement or in the separation agreement during the twenty-four
month period following such termination, Executive shall not be entitled to such
severance payments, all severance payments pursuant to this subsection will
immediately cease, and Executive shall be obligated to return to Company any
severance payments received by Executive at any time after Executive has engaged
in Competition or has breached the Non-Solicitation covenants.

                  (ii)  Options. Executive will be entitled to continue vesting
for twelve (12) months following the date of such termination with respect to
any Company stock options (whether granted to Executive on, before or after the
date of this Agreement); provided, however, that all Company stock options will
immediately cease vesting if Executive engages in Competition or breaches the
covenants in Section 12 or in the separation agreement during such 12-month
period. Additionally, Executive will have a period of one year and ninety days
(90) following such termination of employment (the "Post-Termination Exercise
Period") to exercise Executive's vested Company stock options (whether granted
on, before or after the date of this Agreement), but in no event beyond the
original maximum term of the option; provided, however, that all Company stock
options will immediately terminate and Executive will have no further rights
with respect to such options in the event Executive engages in Competition or
breaches the covenants in Section 12 or in the separation agreement during such
Post-Termination Exercise Period.

                  (iii) Continued Employee Benefits. Executive will receive
Company-paid coverage for a period of thirty-six (36) months for Executive and
Executive's eligible dependents under the Company's Benefit Plans; provided,
however, that if during the Change of Control Severance Payment Period Executive
engages in Competition or breaches the Non-Solicitation covenants set forth in
this Agreement or in the separation agreement, Executive shall not be entitled
to such Company-paid coverage, all Company-paid coverage pursuant to this
subsection will immediately cease, and Executive shall be obligated to repay to
Company the cost of such Company-paid coverage received by Executive at any time
after Executive has engaged in Competition or has breached the Non-Solicitation
covenants.

                                      -5-


            (c)   Other Terminations. If Executive voluntarily terminates
Executive's employment with the Company (other than for Good Reason within
eighteen (18) months of a Change of Control) or if the Company terminates
Executive employment with the Company for Cause, then Executive will (i) receive
the Base Salary through the date of termination of employment, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with established
Company plans, policies and arrangements, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting of
stock options or release from the Company's Repurchase Rights regarding the
Restricted Stock) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
"COBRA" coverage under Section 4980B of the Code).

            (d)   Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to Executive's death or
Executive's becoming Disabled, then Executive or Executive's estate (as the case
may be) will (i) receive the Base Salary through the date of termination of
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment in
accordance with Company-provided or paid plans, policies and arrangements, (iii)
receive the severance payments and Employee Benefits as set forth in
subparagraph (a) or (b) of this Section, whichever is applicable depending upon
the occurrence of a Change of Control event, and (iv) not be entitled to any
other compensation or benefits from the Company except to the extent required by
law (for example, "COBRA" coverage under Section 4980B of the Code).

      6.    Definition of Terms. The following terms referred to in this
Agreement will have the following meanings:

            (a)   Benefit Plans. "Benefit Plans" means plans, policies or
arrangements that the Company sponsors (or participates in) and that immediately
prior to Executive's termination of employment provide Executive and/or
Executive's eligible dependents with medical, dental, vision and/or financial
counseling benefits. Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or
retirement benefits). A requirement that the Company provide Executive and
Executive's eligible dependents with coverage under the Benefit Plans will not
be satisfied unless the coverage is no less favorable than that provided to
Executive and Executive's eligible dependents immediately prior to Executive's
termination of employment. Notwithstanding any contrary provision of this
Section 7, but subject to the immediately preceding sentence, the Company may,
at its option, satisfy any requirement that the Company provide coverage under
any Benefit Plan by instead providing coverage under a separate plan or plans
providing coverage that is no less favorable or by paying Executive a lump sum
payment sufficient to provide Executive and Executive's eligible dependents with
equivalent coverage under a third party plan that is reasonably available to
Executive and Executive's eligible dependents.

            (b)   Cause. "Cause" means (i) a willful failure by Executive to
substantially perform Executive's duties as an employee, other than a failure
resulting from the Executive's

                                      -6-


complete or partial incapacity due to physical or mental illness or impairment,
(ii) a willful act by Executive that constitutes gross misconduct and that is,
or poses the potential to be, injurious to the Company, (iii) circumstances
where Executive willfully imparts material confidential information relating to
the Company or its business to competitors, or to other third parties other than
in the course of properly carrying out Executive's duties, (iv) a material and
willful violation by Executive of a federal or state law or regulation
applicable to the business of the Company or (v) Executive's conviction or plea
of guilty or no contest to a felony. No act or failure to act by Executive will
be considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.

            (c)   Change of Control. "Change of Control" means the occurrence of
any of the following:

                  (i)   the sale, lease, conveyance or other disposition of all
or substantially all of the Company's assets to any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended),
entity or group of persons acting in concert;

                  (ii)  any person or group of persons becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 30% or more of the total voting power
represented by the Company's then outstanding voting securities;

                  (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; or

                  (iv)  a contest for the election or removal of members of the
Board that results in the removal from the Board of at least 50% of the
incumbent members of the Board.

            (d)   Competition. "Competition" will mean Executive's direct or
indirect engagement in (whether as an employee, consultant, agent, proprietor,
principal, partner, stockholder, corporate officer, director or otherwise), or
ownership interest in or participation in the financing, operation, management
or control of, any person, firm, corporation or business that competes with
Company or is a customer of the Company.

            (e)   Disability. "Disability" will mean that Executive has been
unable to perform the principal functions of Executive's duties due to a
physical or mental impairment, but only if such inability has lasted, or is
reasonably expected to last, for at least six months. Whether Executive has a
Disability will be determined by the Board based on evidence provided by one or
more physicians selected by the Board.

            (f)   Good Reason. "Good Reason" means (without Executive's consent)
(i) a material reduction in Executive's title, authority, status, or
responsibilities, (ii) a material breach by

                                      -7-


the Company of its obligations under this Agreement, or (iii) a relocation of
Executive's principal place of employment by more than twenty five (25) miles.
With respect to a termination of employment that occurs during the six (6) month
period immediately following a Change of Control, clause (i) of the preceding
sentence will be applied by replacing the word "reduction" with the word
"change."

            (g)   Service. For purposes of this Agreement, "SERVICE" means the
performance of services by Executive as an officer, employee, consultant or
board member of the Company or any parent or subsidiary corporation (as such
terms are defined in Sections 424(e) and (f) of the Internal Revenue Code).

      7.    Successors.

            (a)   The Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets will be obligated to assume and perform the obligations under this
Agreement in the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a succession. For all
purposes under this Agreement, the term "Company" will include any successor to
the Company's business and/or assets which become bound by the terms of this
Agreement by operation of law.

            (b)   Executive's Successors. The terms of this Agreement and all
vested rights of Executive hereunder will inure to the benefit of, and be
enforceable by, Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.

      8.    Notices. All notices, requests, demands and other communications
called for hereunder will be in writing and will be deemed given (i) on the date
of delivery if delivered personally, (ii) one (1) business day after being sent
by a well established commercial overnight service, or (iii) four (4) business
days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors at the
following addresses, or at such other addresses as the parties may later
designate in writing:

      If to the Company:

      Solectron Corporation
      847 Gibraltar Drive, Bldg. 5
      Milpitas, CA 95035

      Attn: Chairman, Compensation Committee of the Board of Directors

      cc:      Chief Legal Counsel
               Solectron Corporation
               847 Gibraltar Drive, Bldg. 5
               Milpitas, CA 95035

                                   -8-


      If to Executive:

      David M. Purvis

      at the last residential address of Executive known by the Company.

      9.    Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in force and shall be interpreted and
modified as necessary to give best effect to the intentions of the parties as
expressed in the text of this Agreement to the fullest extent permissible under
applicable law.

      10.   Non-Solicitation. For a period beginning on the Effective Date and
ending one year after the Executive ceases to be employed by the Company or, if
longer, upon the completion of the Severance Payment Period if Executive is
entitled to more than twelve months of severance payments under Section 5(a), or
the Change of Control Severance Payment Period if Executive is entitled to
receive more than twelve months of severance payments under Section 5(b),
Executive, directly or indirectly, whether as employee, owner, sole proprietor,
partner, director, member, consultant, agent, founder, co-venturer or otherwise,
will: (i) not solicit, induce or influence any person to leave employment with
the Company; or (ii) not directly or indirectly solicit business from any of the
Company's customers on behalf of any business that directly competes with the
principal business of the Company.

      11.   Entire Agreement. This Agreement, together with the PROPRIETARY
INFORMATION AGREEMENT which Executive is required to enter into as a condition
to the effectiveness of this Agreement, and the other agreements referenced
herein (the OPTION AGREEMENT, RESTRICTED STOCK AGREEMENT) constitute the entire
agreement of the parties with respect to the subject matters thereof, and
supersede in their entirety all prior representations, understandings,
undertakings or agreements (whether oral or written and whether expressed or
implied) of the parties with respect to the subject matters of such Agreements.
No future agreements between the Company and Executive may supersede this
Agreement, unless they are in writing and specifically state that they are
intended to supersede this Agreement.

      12.   Arbitration.

            (a)   General. In consideration of Executive's service to the
Company, its promise to arbitrate all employment related disputes and
Executive's receipt of the compensation, pay raises and other benefits paid to
Executive by the Company, at present and in the future, Executive agrees that
any and all controversies, claims, or disputes with anyone (including the
Company and any employee, officer, director, shareholder or benefit plan of the
Company in their capacity as such or otherwise) arising out of, relating to, or
resulting from Executive's service to the Company under this Agreement or
otherwise, or the termination of Executive's service with the Company, including
any alleged breach of this Agreement, will be subject to binding arbitration
under the Arbitration Rules set forth in California Code of Civil Procedure
Section 1280 through 1294.2, including Section 1283.05 (the "CCP Rules") and
pursuant to California law. Such disputes which Executive hereby agrees to
arbitrate, and as to which Executive accordingly hereby agrees to waive any
right to a trial by jury, include any statutory claims under state or federal
law, including, but not limited to,

                                      -9-


claims under Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the
Older Workers Benefit Protection Act, the California Fair Employment and Housing
Act, the California Labor Code, claims of harassment, discrimination or wrongful
termination and any statutory claims. Executive further understands that this
Agreement to arbitrate also applies to any disputes that the Company may have
with Executive.

            (b)   Procedure. Executive agrees that any arbitration will be
administered by the American Arbitration Association ("AAA") and that a neutral
arbitrator will be selected in a manner consistent with its National Rules for
the Resolution of Employment Disputes (the "AAA Rules"). The arbitration
proceedings will allow for discovery according to the rules set forth in the CCP
Rules and the AAA Rules. Executive agrees that the arbitrator will have the
power to decide any motions brought by any party to the arbitration, including
motions for summary judgment and/or adjudication and motions to dismiss and
demurrers, prior to any arbitration hearing. Executive agrees that the
arbitrator will issue a written decision on the merits. Executive also agrees
that the arbitrator will have the power to award any remedies, including
attorneys' fees and costs, available under applicable law. Executive understands
the Company will pay for any administrative or hearing fees charged by the
arbitrator or AAA except that Executive will pay the first $125.00 of any filing
fees associated with any arbitration Executive initiates. Executive agrees that
the arbitrator will administer and conduct any arbitration in a manner
consistent with the AAA Rules and that to the extent that the provisions of the
CCP Rules conflict with the AAA Rules, the CCP Rules will take precedence.

            (c)   Remedy. Except as provided by the CCP Rules, arbitration will
be the sole, exclusive and final remedy for any dispute between Executive and
the Company. Accordingly, except as provided for by the CCP Rules, neither
Executive nor the Company will be permitted to pursue court action regarding
claims that are subject to arbitration. Notwithstanding anything in the CCP
Rules or the AAA Rules, the arbitrator will not have the authority to disregard
or refuse to enforce any lawful Company policy, and the arbitrator will not
order or require the Company to adopt a policy not otherwise required by law,
which the Company has not adopted.

            (d)   Availability of Injunctive Relief. In addition to the right
under the CCP Rules to petition the court for provisional relief, Executive
agrees that any party may also petition the court for injunctive relief where
either party alleges or claims a violation of this Agreement or the
Confidentiality Agreement or any other agreement regarding trade secrets,
confidential information, nonsolicitation or Labor Code Section 2870. In the
event either party seeks injunctive relief, the prevailing party will be
entitled to recover reasonable costs and attorneys' fees.

            (e)   Administrative Relief. Executive understands that this
Agreement does not prohibit Executive from pursuing an administrative claim with
a local, state or federal administrative body such as the Department of Fair
Employment and Housing, the Equal Employment Opportunity Commission or the
workers' compensation board. This Agreement does, however, preclude Executive
from pursuing court action regarding any such claim.

            (f)   Voluntary Nature of Agreement. Executive acknowledges and
agrees that Executive is executing this Agreement voluntarily and without any
duress or undue influence by the Company or anyone else. Executive further
acknowledges and agrees that Executive has carefully

                                      -10-


read this Agreement and that Executive has asked any questions needed for
Executive to understand the terms, consequences and binding effect of this
Agreement and fully understand it, including that Executive is waiving
Executive's right to a jury trial. Finally, Executive acknowledges and agrees
that Executive has been provided an opportunity to seek the advice of an
attorney of Executive's choice before signing this Agreement.

      13.   No Oral Modification, Cancellation or Discharge. This Agreement may
be changed, amended, modified, waived or discharged (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely) only by a writing signed by Executive
and a duly authorized Officer of the Company and which specifically states that
it is intended to alter this Agreement.

      14.   Waiver of Breach. The waiver of any particular breach of any term or
provision of this Agreement, which must be in writing, will not operate as or be
construed to be a waiver of any other, previous, or subsequent breach of this
Agreement.

      15.   Headings. All captions and section headings used in this Agreement
are for convenient reference only and do not form a part of this Agreement.

      16.   Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

      17.   Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

      18.   Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from Executive's
private attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

      19.   Counterparts. This Agreement may be executed in counterparts, and
each counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

                            [SIGNATURE PAGE FOLLOWS]

                                      -11-


         IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

         EXECUTIVE

          /s/ David M. Purvis                           Date:    Feb 2, 2004
          -------------------------------------------
         David M. Purvis

         SOLECTRON CORPORATION

          /s/ Michael Cannon                            Date:    2 Feb 2004
          -------------------------------------------
         Michael Cannon
         President, Chief Executive Officer

                                      -12-

EX-10.4

                                                                    EXHIBIT 10.4

                              SOLECTRON CORPORATION

                        MARTY NEESE EMPLOYMENT AGREEMENT

      This Agreement is made by and between Solectron Corporation (the
"Company"), and Marty Neese ("Executive") as of 2 September 2004 (the "Effective
Date").

      1.    Duties and Scope of Employment.

            (a)   Positions and Duties. Executive will serve as the Company's
Executive Vice President Sales and Account Management. Executive will render
such business and professional services in the performance of Executive's
duties, consistent with Executive's position within the Company, as will
reasonably be assigned to Executive by the Company's Chief Executive Officer
(the "CEO") or the CEO's designate. The period of Executive's employment under
this Agreement is referred to herein as the Employment Term.

            (b)   Obligations. During the Employment Term, Executive will devote
Executive's full business efforts and time to the Company. For the duration of
the Employment Term, Executive agrees not to actively engage in any other
employment, occupation or consulting activity for any direct or indirect
remuneration without the prior approval of the Board of Directors of the Company
(the "Board") (which approval will not be unreasonably withheld); provided,
however, that Executive may, without the approval of the Board, serve in any
capacity with any civic, educational or charitable organization, provided such
services do not interfere with Executive's obligations to Company.

      2.    Employee Benefits. During the Employment Term, Executive will be
eligible to participate in accordance with the terms of all Company employee
benefit plans, policies and arrangements that are applicable to other senior
executives of the Company, as such plans, policies and arrangements and terms
may exist from time to time.

      3.    At-Will Employment. Executive and the Company agree that Executive's
employment with the Company constitutes "at-will" employment. Executive and the
Company acknowledge that this employment relationship may be terminated at any
time, upon written notice to the other party, with or without good cause or for
any or no cause, at the option either of the Company or Executive. However, as
described in this Agreement, Executive may be entitled to severance benefits
depending upon the circumstances of Executive's termination of employment.

      4.    Compensation.

            (a)   Base Salary. During the Employment Term, the Company will pay
Executive an annual salary of $300,000 as compensation for his services (the
"Base Salary"). The Base Salary will be paid through payroll periods that are
consistent with the Company's normal payroll practices, but in all events will
not be less frequent than once per month. Executive's salary will be subject to



review and adjustments will be made based upon the Company's normal performance
review practices.

            (b)   Bonuses. Executive may participate in any bonus plan or
similar arrangement the Company may have in place that are applicable to other
senior executives of the Company, on such terms and conditions as the
Compensation Committee of the Board (the "Committee") may determine from time to
time in its discretion.

            (c) Stock Options. Executive will be eligible to receive options to
purchase the Company's common stock pursuant to any plans or arrangements it may
have in effect from time to time. The Committee will determine in its discretion
whether Executive will be granted any such option or options and the terms of
any such option or options in accordance with the terms of any applicable plan
or arrangement that may be in effect from time to time.

      5.    Severance.

            (a)   Involuntary Termination other than for Cause, Death or
Disability Prior to a Change of Control or After Twelve Months Following a
Change of Control. If the Company terminates Executive's employment with the
Company without Executive's consent and for a reason other than Cause, Executive
becoming Disabled or Executive's death, any of which occur prior to a Change of
Control or after twelve (12) months following a Change of Control and Executive
signs and delivers to the Company a separation agreement and release of claims
in a form satisfactory to the Company, then promptly following such termination
of employment, or, if later, the effective date of the separation agreement and
release of claims, then Executive will receive the following severance from the
Company:

                  (i)   Accrued Compensation. Executive will be entitled to
receive all accrued vacation, expense reimbursements and any other benefits due
to Executive through the date of termination of employment in accordance with
the Company's then existing employee benefit plans, policies and arrangements.

                  (ii)  Severance Payment. Executive will be paid continuing
payments of severance pay at a rate equal to Executive's Base Salary rate, as
then in effect, and Executive's target bonus for the year of termination, for a
period of twelve (12) months plus one additional month for every full year
Executive has been employed with the Company as of the date of such termination,
not to exceed twenty-four (24) months (the "Severance Payment Period"), from the
date of such termination, to be paid periodically in accordance with the
Company's normal payroll policies; provided, however, that if during the
Severance Payment Period Executive engages in Competition or breaches the
covenants in Section 12 or in the separation agreement, all payments pursuant to
this subsection will immediately cease

                  (iii) Continued Employee Benefits. Executive will receive
Company-paid coverage during the Severance Payment Period for Executive and
Executive's eligible dependents under the Company's Benefit Plans; provided,
however, that if during the Severance Payment Period Executive engages in
Competition or breaches the covenants in Section 12 or in the separation
agreement, all Company-paid coverage pursuant to this subsection will
immediately cease.



                  (iv)  Payments or Benefits Required by Law. Executive will
receive such other compensation or benefits from the Company as may be required
by law (for example, "COBRA" coverage under Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code")).

            (b)   Involuntary Termination other than for Cause, Death or
Disability or Termination for Good Reason within Twelve Months of a Change of
Control. If within twelve (12) months following a Change of Control (i)
Executive terminates his or her employment with the Company (or any parent or
subsidiary of the Company) for Good Reason or (ii) the Company (or any parent or
subsidiary of the Company) terminates Executive's employment for other than
Cause, and Executive signs and delivers to the Company a separation agreement
and release of claims in a form satisfactory to the Company, then promptly
following such termination of employment, or, if later, the effective date of
the separation agreement and release of claims, then Executive will receive the
following severance from the Company:

                  (i)   Severance Payment. For a period of eighteen (18) months
following Executive's termination of employment (the "Change of Control
Severance Payment Period"), Executive will be paid continuing payments of
severance pay equal to Executive's average Base Salary rate for the two years
prior to such termination, and Executive's average annual target bonus for the
two years prior to such termination, to be paid in equal installments
periodically in accordance with the Company's normal payroll practices;
provided, however, that if Executive has been employed for less than two years
prior to such termination, for a period of eighteen (18) months following such
termination, Executive will be paid continuing payments of severance pay equal
to Executive's average Base Salary rate for the period Executive was actually
employed with the Company, and Executive's average annual target bonus for the
period Executive was actually employed with the Company, to be paid in equal
installments periodically in accordance with the Company's normal payroll
practices; provided, further, that in the event Executive engages in Competition
or breaches the covenants in Section 12 or in the separation agreement during
the twenty-four month period following such termination, all payments pursuant
to this subsection will immediately cease.

                  (ii)  Options. Executive will be entitled to continue vesting
for twelve (12) months following the date of such termination with respect to
any Company stock options (whether granted to Executive on, before or after the
date of this Agreement); provided, however, that all Company stock options will
immediately cease vesting if Executive engages in Competition or breaches the
covenants in Section 12 or in the separation agreement during such 12-month
period. Additionally, Executive will have a period of one year and ninety days
(90) following such termination of employment (the "Post-Termination Exercise
Period") to exercise Executive's vested Company stock options (whether granted
on, before or after the date of this Agreement), but in no event beyond the
original maximum term of the option; provided, however, that all Company stock
options will immediately terminate and Executive will have no further rights
with respect to such options in the event Executive engages in Competition or
breaches the covenants in Section 12 or in the separation agreement during such
Post-Termination Exercise Period.

                  (iii) Continued Employee Benefits. Executive will receive
Company-paid coverage for a period of thirty-six (36) months for Executive and
Executive's eligible dependents



under the Company's Benefit Plans; provided, however, that in the event
Executive engages in Competition or breaches the covenants in Section 12 or in
the separation agreement during the thirty-six month period following such
termination, all Company-paid coverage pursuant to this subsection will
immediately cease.

                  (iv)  Payments or Benefits Required by Law. Executive will
receive such other compensation or benefits from the Company as may be required
by law (for example, "COBRA" coverage under Section 4980B of the Code).

            (c)   Other Terminations. If Executive voluntarily terminates
Executive's employment with the Company (other than for Good Reason within
twelve (12) months of a Change of Control) or if the Company terminates
Executive employment with the Company for Cause, then Executive will (i) receive
the Base Salary through the date of termination of employment, (ii) receive all
accrued vacation, expense reimbursements and any other benefits due to Executive
through the date of termination of employment in accordance with established
Company plans, policies and arrangements, and (iii) not be entitled to any other
compensation or benefits (including, without limitation, accelerated vesting of
stock options) from the Company except to the extent provided under the
applicable stock option agreement(s) or as may be required by law (for example,
"COBRA" coverage under Section 4980B of the Code).

            (d)   Termination due to Death or Disability. If Executive's
employment with the Company is terminated due to Executive's death or
Executive's becoming Disabled, then Executive or Executive's estate (as the case
may be) will (i) receive the Base Salary through the date of termination of
employment, (ii) receive all accrued vacation, expense reimbursements and any
other benefits due to Executive through the date of termination of employment in
accordance with Company-provided or paid plans, policies and arrangements, and
(iii) not be entitled to any other compensation or benefits from the Company
except to the extent required by law (for example, "COBRA" coverage under
Section 4980B of the Code).

      6.    Golden Parachute Excise Tax.

            (a)   In the event it will be determined that any payment or
distribution by the Company or other amount with respect to the Company to or
for the benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6 (a "Payment"), is (or will be) subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") or any
interest or penalties are (or will be) incurred by Executive with respect to the
excise tax imposed by Section 4999 of the Code with respect to the Company (the
excise tax, together with any interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), Executive will be entitled to
receive an additional cash payment (a "Gross-Up Payment") from the Company in an
amount equal to the sum of the Excise Tax and an amount sufficient to pay the
cumulative Excise Tax and all cumulative income taxes (including any interest
and penalties imposed with respect to such taxes) relating to the Gross-Up
Payment so that the net amount retained by Executive is equal to all payments to
which Employee is entitled pursuant to the terms of this Agreement (excluding
the Gross-Up Payment) or otherwise less income taxes (but not reduced by the
Excise Tax or by income taxes attributable to the Gross-Up Payment).



            (b)   Subject to the provisions of Section 6(c), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at the determination, will be made by a nationally
recognized certified public accounting firm selected by the Company with the
consent of Executive, which should not unreasonably be withheld (the "Accounting
Firm") which will provide detailed supporting calculations both to the Company
and Executive within 30 days after the receipt of notice from Executive that
there has been a Payment, or such earlier time as is requested by the Company.
All fees and expenses of the Accounting Firm will be borne solely by the
Company. The Company, as determined in accordance with this Section 6, will pay
any Gross-Up Payment to Executive within five days after the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that no
Excise Tax is payable by Executive, it will so indicate to Executive in writing.
Any determination by the Accounting Firm will be binding upon the Company and
Executive. As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm, it is
possible that Gross-Up Payments that the Company should have made will not have
been made (an "Underpayment"), consistent with the calculations required to be
made hereunder. In the event the Company exhausts its remedies in accordance
with Section 6(c) and Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm will determine the amount of Underpayment that
has occurred and the Underpayment will be promptly paid by the Company to or for
the benefit of Executive.

            (c)   Executive will notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require a Gross-Up
Payment (that has not already been paid by the Company). The notification will
be given as soon as practicable but no later than ten business days after
Executive is informed in writing of the claim and will apprise the Company of
the nature of the claim and the date on which the claim is requested to be paid.
Executive will not pay the claim prior to the expiration of the 30-day period
following the date on which Executive gives notice to the Company or any shorter
period ending on the date that any payment of taxes with respect to the claim is
due. If the Company notifies Executive in writing prior to the expiration of the
30-day period that it desires to contest the claim, Executive will:

                  (i)   give the Company any information reasonably requested by
the Company relating to the claim;

                  (ii)  take any action in connection with contesting the claim
as the Company will reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to the claim by
an attorney reasonably selected by the Company;

                  (iii) cooperate with the Company in good faith in order
effectively to contest the claim; and

                  (iv)  permit the Company to participate in any proceedings
relating to the claim.



            (d)   The Company will bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with the
contest and will indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of the representation and payment of costs and
expenses. Without limitation of the forgoing provisions of this Section 6, the
Company will control all proceedings taken in connection with the contest and,
at its sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
the claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
Executive agrees to prosecute the contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company will determine. If the Company directs
Executive to pay the claim and sue for a refund, the Company will advance the
amount of the payment to Executive, on an interest-free basis, and will
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to the advance or with respect to any imputed income with respect
to the advance; and any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which the
contested amount is claimed to be due will be limited solely to the contested
amount. The Company's control of the contest will be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and Executive
will be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

            If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 6(d), Executive becomes entitled to receive any
refund with respect to the claim, Executive will, subject to the Company's
compliance with the requirements of Section 6(d), promptly pay to the Company
the amount of the refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by Executive of an amount
advanced by the Company pursuant to this Section 6(d), a determination is made
that Executive will not be entitled to any refund with respect to the claim and
the Company does not notify Executive in writing of its intent to contest the
denial of refund prior to the expiration of 30 days after the determination,
then the advance will be forgiven and will not be required to be repaid and the
amount of the advance will offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.

      7.    Definition of Terms. The following terms referred to in this
Agreement will have the following meanings:

            (a)   Benefit Plans. "Benefit Plans" means plans, policies or
arrangements that the Company sponsors (or participates in) and that immediately
prior to Executive's termination of employment provide Executive and/or
Executive's eligible dependents with medical, dental, vision and/or financial
counseling benefits. Benefit Plans do not include any other type of benefit
(including, but not by way of limitation, disability, life insurance or
retirement benefits). A requirement that the Company provide Executive and
Executive's eligible dependents with coverage under the Benefit Plans will not
be satisfied unless the coverage is no less favorable than that provided to
Executive and Executive's eligible dependents immediately prior to Executive's
termination of employment. Notwithstanding any contrary provision of this
Section 7, but subject to the immediately preceding sentence, the Company may,
at its option, satisfy any requirement that



the Company provide coverage under any Benefit Plan by instead providing
coverage under a separate plan or plans providing coverage that is no less
favorable or by paying Executive a lump sum payment sufficient to provide
Executive and Executive's eligible dependents with equivalent coverage under a
third party plan that is reasonably available to Executive and Executive's
eligible dependents.

            (b)   Cause. "Cause" means (i) a willful failure by Executive to
substantially perform Executive's duties as an employee, other than a failure
resulting from the Executive's complete or partial incapacity due to physical or
mental illness or impairment, (ii) a willful act by Executive that constitutes
gross misconduct and that is injurious to the Company, (iii) circumstances where
Executive willfully imparts material confidential information relating to the
Company or its business to competitors or to other third parties other than in
the course of carrying out Executive's duties, (iv) a material and willful
violation by Executive of a federal or state law or regulation applicable to the
business of the Company or (v) Executive's conviction or plea of guilty or no
contest to a felony. No act or failure to act by Executive will be considered
"willful" unless committed without good faith and without a reasonable belief
that the act or omission was in the Company's best interest.

            (c)   Change of Control. "Change of Control" means the occurrence of
any of the following:

                  (i)   the sale, lease, conveyance or other disposition of all
or substantially all of the Company's assets to any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended),
entity or group of persons acting in concert;

                  (ii)  any person or group of persons becoming the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 30% or more of the total voting power
represented by the Company's then outstanding voting securities;

                  (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; or

                  (iv)  a contest for the election or removal of members of the
Board that results in the removal from the Board of at least 33% of the
incumbent members of the Board.

            (d)   Competition. "Competition" will mean Executive's direct or
indirect engagement in (whether as an employee, consultant, agent, proprietor,
principal, partner, stockholder, corporate officer, director or otherwise), or
ownership interest in or participation in the financing, operation, management
or control of, any person, firm, corporation or business that competes with
Company or is a customer of the Company.



            (e)   Disability. "Disability" will mean that Executive has been
unable to perform the principal functions of Executive's duties due to a
physical or mental impairment, but only if such inability has lasted or is
reasonably expected to last for at least six months. Whether Executive has a
Disability will be determined by the Board based on evidence provided by one or
more physicians selected by the Board.

            (f)   Good Reason. "Good Reason" means (without Executive's consent)
(i) a material reduction in Executive's title, authority, status, or
responsibilities, (ii) a material breach by the Company of its obligations as an
employee, or (iii) a relocation of Executive's principal place of employment by
more than twenty five (25) miles. With respect to a termination of employment
that occurs during the six (6) month period immediately following a Change of
Control, clause (i) of the preceding sentence will be applied by replacing the
word "reduction" with the word "change."

      8.    Term of Agreement. This Agreement will have an initial term of two
(2) years commencing on the Effective Date. On the second anniversary of the
Effective Date and on each annual anniversary of the Effective Date thereafter,
this Agreement automatically will renew for an additional term of one year
unless at least three (3) months prior to such anniversary, Executive or the
Company gives the other party written notice that the Agreement will not be
renewed. If Executive incurs a termination of employment that entitles Executive
to receive the payments and benefits described in Section 5, this Agreement will
not terminate until all of Executive's and the Company's obligations under the
Agreement have been satisfied.

      9.    Successors.

            (a)   The Company's Successors. Any successor to the Company
(whether direct or indirect and whether by purchase, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets will assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company" will include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this Section
9(a) or which becomes bound by the terms of this Agreement by operation of law.

            (b)   Executive's Successors. The terms of this Agreement and all
rights of Executive hereunder will inure to the benefit of, and be enforceable
by, Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

      10.   Notices. All notices, requests, demands and other communications
called for hereunder will be in writing and will be deemed given (i) on the date
of delivery if delivered personally, (ii) one (1) day after being sent by a well
established commercial overnight service, or (iii) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:



      If to the Company:

      Solectron Corporation
      847 Gibraltar Drive
      Milpitas, CA 95035

      Attn: Chairman, Compensation Committee of the Board of Directors

      If to Executive:

      Marty Neese

      at the last residential address known by the Company.

      11.   Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.

      12.   Non-Solicitation. For a period beginning on the Effective Date and
ending one year after the Executive ceases to be employed by the Company or, if
longer, upon the completion of the Severance Payment Period if Executive is
entitled to severance under Section 5(a) or the Change of Control Severance
Payment Period if Executive is entitled to receive severance under Section 5(b),
Executive, directly or indirectly, whether as employee, owner, sole proprietor,
partner, director, member, consultant, agent, founder, co-venturer or otherwise,
will: (i) not solicit, induce or influence any person to leave employment with
the Company; or (ii) not directly or indirectly solicit business from any of the
Company's customers and users on behalf of any business that directly competes
with the principal business of the Company.

      13.   Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto and supersedes in their entirety all prior representations,
understandings, undertakings or agreements (whether oral or written and whether
expressed or implied) of the parties with respect to the subject matter hereof.
No future agreements between the Company and Executive may supersede this
Agreement, unless they are in writing and specifically mention this Section 13.

      14.   Arbitration.

            (a)   General. In consideration of Executive's service to the
Company, its promise to arbitrate all employment related disputes and
Executive's receipt of the compensation, pay raises and other benefits paid to
Executive by the Company, at present and in the future, Executive agrees that
any and all controversies, claims, or disputes with anyone (including the
Company and any employee, officer, director, shareholder or benefit plan of the
Company in their capacity as such or otherwise) arising out of, relating to, or
resulting from Executive's service to the Company under this Agreement or
otherwise or the termination of Executive's service with the Company, including
any breach of this Agreement, will be subject to binding arbitration under the
Arbitration Rules set forth in California Code of Civil Procedure Section 1280
through 1294.2, including Section 1283.05 (the "Rules") and pursuant to
California law. Disputes which Executive agrees to arbitrate, and thereby agrees
to waive any right to a trial by jury, include any statutory claims under state
or federal



law, including, but not limited to, claims under Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination
in Employment Act of 1967, the Older Workers Benefit Protection Act, the
California Fair Employment and Housing Act, the California Labor Code, claims of
harassment, discrimination or wrongful termination and any statutory claims.
Executive further understands that this Agreement to arbitrate also applies to
any disputes that the Company may have with Executive.

            (b)   Procedure. Executive agrees that any arbitration will be
administered by the American Arbitration Association ("AAA") and that a neutral
arbitrator will be selected in a manner consistent with its National Rules for
the Resolution of Employment Disputes. The arbitration proceedings will allow
for discovery according to the rules set forth in the National Rules for the
Resolution of Employment Disputes or California Code of Civil Procedure.
Executive agrees that the arbitrator will have the power to decide any motions
brought by any party to the arbitration, including motions for summary judgment
and/or adjudication and motions to dismiss and demurrers, prior to any
arbitration hearing. Executive agrees that the arbitrator will issue a written
decision on the merits. Executive also agrees that the arbitrator will have the
power to award any remedies, including attorneys' fees and costs, available
under applicable law. Executive understands the Company will pay for any
administrative or hearing fees charged by the arbitrator or AAA except that
Executive will pay the first $125.00 of any filing fees associated with any
arbitration Executive initiates. Executive agrees that the arbitrator will
administer and conduct any arbitration in a manner consistent with the Rules and
that to the extent that the AAA's National Rules for the Resolution of
Employment Disputes conflict with the Rules, the Rules will take precedence.

            (c)   Remedy. Except as provided by the Rules, arbitration will be
the sole, exclusive and final remedy for any dispute between Executive and the
Company. Accordingly, except as provided for by the Rules, neither Executive nor
the Company will be permitted to pursue court action regarding claims that are
subject to arbitration. Notwithstanding, the arbitrator will not have the
authority to disregard or refuse to enforce any lawful Company policy, and the
arbitrator will not order or require the Company to adopt a policy not otherwise
required by law, which the Company has not adopted.

            (d)   Availability of Injunctive Relief. In addition to the right
under the Rules to petition the court for provisional relief, Executive agrees
that any party may also petition the court for injunctive relief where either
party alleges or claims a violation of this Agreement or the Confidentiality
Agreement or any other agreement regarding trade secrets, confidential
information, nonsolicitation or Labor Code Section 2870. In the event either
party seeks injunctive relief, the prevailing party will be entitled to recover
reasonable costs and attorneys' fees.

            (e)   Administrative Relief. Executive understands that this
Agreement does not prohibit Executive from pursuing an administrative claim with
a local, state or federal administrative body such as the Department of Fair
Employment and Housing, the Equal Employment Opportunity Commission or the
workers' compensation board. This Agreement does, however, preclude Executive
from pursuing court action regarding any such claim.

            (f)   Voluntary Nature of Agreement. Executive acknowledges and
agrees that Executive is executing this Agreement voluntarily and without any
duress or undue influence by the



Company or anyone else. Executive further acknowledges and agrees that Executive
has carefully read this Agreement and that Executive has asked any questions
needed for Executive to understand the terms, consequences and binding effect of
this Agreement and fully understand it, including that Executive is waiving
Executive's right to a jury trial. Finally, Executive agrees that Executive has
been provided an opportunity to seek the advice of an attorney of Executive's
choice before signing this Agreement.

      15.   No Oral Modification, Cancellation or Discharge. This Agreement may
be changed or terminated only in writing (signed by Executive and the Company).

      16.   Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, will not operate as or be construed to
be a waiver of any other previous or subsequent breach of this Agreement.

      17.   Headings. All captions and section headings used in this Agreement
are for convenient reference only and do not form a part of this Agreement.

      18.   Withholding. The Company is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.

      19.   Governing Law. This Agreement will be governed by the laws of the
State of California (with the exception of its conflict of laws provisions).

      20.   Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from Executive's
private attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.

      21.   Counterparts. This Agreement may be executed in counterparts, and
each counterpart will have the same force and effect as an original and will
constitute an effective, binding agreement on the part of each of the
undersigned.

                           [SIGNATURE PAGE TO FOLLOW]



      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:

         EXECUTIVE

         /s/ Marty Neese                                Date: 10/21/04
         ---------------------------------
         Marty Neese

         SOLECTRON CORPORATION

         /s/ Kevin O'Connor                             Date: 25 Sep 2004
         ---------------------------------
         Kevin O'Connor
         Executive Vice President
         Human Resources

EX-31.1

                                                                    EXHIBIT 31.1

     CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302(A) OF

                        THE SARBANES - OXLEY ACT OF 2002

I, Michael Cannon, certify that:

      1.    I have reviewed this quarterly report on Form 10-Q of Solectron
            Corporation;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the
            circumstances under which such statements were made, not
            misleading with respect to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other
            financial information included in this report, fairly present in
            all material respects the financial condition, results of
            operations and cash flows of the registrant as of, and for, the
            periods presented in this report;

      4.    The registrant's other certifying officer and I are responsible
            for establishing and maintaining disclosure controls and
            procedures (as defined in Securities Exchange Act of 1934 Rules
            13a-15(e) and 15d-15(e)) for the registrant and have:

            a)    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this
                  report is being prepared;

            b)    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure
                  controls and procedures, as of the end of the period
                  covered by this report based on such evaluation; and

            c)    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred
                  during the registrant's most recent fiscal quarter (the
                  registrant's fourth fiscal quarter in the case of an annual
                  report) that has materially affected, or is reasonably
                  likely to materially affect, the registrant's internal
                  control over financial reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of registrant's board of directors (or persons
            performing the equivalent functions):

            a)    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: January 3, 2005


            /S/    Michael Cannon
            ----------------------------------------------
            Michael Cannon
            President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

     CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(A) OF

                        THE SARBANES - OXLEY ACT OF 2002

I, Kiran Patel, certify that:

      1.    I have reviewed this quarterly report on Form 10-Q of Solectron
            Corporation;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the
            circumstances under which such statements were made, not
            misleading with respect to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other
            financial information included in this report, fairly present in
            all material respects the financial condition, results of
            operations and cash flows of the registrant as of, and for, the
            periods presented in this report;

      4.    The registrant's other certifying officer and I are responsible
            for establishing and maintaining disclosure controls and
            procedures (as defined in Securities Exchange Act of 1934 Rules
            13a-15(e) and 15d-15(e)) for the registrant and have:

            a)    Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this
                  report is being prepared;

            b)    Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure
                  controls and procedures, as of the end of the period
                  covered by this report based on such evaluation; and

            c)    Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred
                  during the registrant's most recent fiscal quarter (the
                  registrant's fourth fiscal quarter in the case of an annual
                  report) that has materially affected, or is reasonably
                  likely to materially affect, the registrant's internal
                  control over financial reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of registrant's board of directors (or persons
            performing the equivalent functions):

            a)    All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

            b)    Any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: January 3, 2005



            /S/    Kiran Patel
            -----------------------------------------------------
            Kiran Patel
            Executive Vice President and Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


I, Michael Cannon, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Solectron Corporation on Form 10-Q for the three-month period ended
November 26, 2004 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained
in such Form 10-Q fairly presents in all material respects the financial
condition and results of operations of Solectron Corporation.

Date:   January 3, 2005

                                       /S/   Michael Cannon
                                       ---------------------------------
                                       Michael Cannon
                                       President and Chief Executive Officer

EX-32.2

                                                                    EXHIBIT 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


I, Kiran Patel, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly
Report of Solectron Corporation on Form 10-Q for the three-month period ended
November 26, 2004 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained
in such Form 10-Q fairly presents in all material respects the financial
condition and results of operations of Solectron Corporation.

Date:   January 3, 2005

                                       /S/   Kiran Patel
                                       ---------------------------------
                                       Kiran Patel
                                       Executive Vice President and Chief
                                       Financial Officer