Correction: Fitch Affirms Solectron at 'BB-'; Outlook to Stable.

NEW YORK -- (This is a corrected version of a press release issued today and contains a corrected rating of 'B' for ACES in the first paragraph.)

Fitch Ratings-NY-June 24, 2004: Fitch Ratings has affirmed Solectron Corporation's (Solectron) 'BB-' senior unsecured debt, 'BB+' senior secured bank credit facility, and the remaining 'B' adjustable conversion rate equity security units (ACES). The Rating Outlook is changed to Stable from Negative. Approximately $1.2 billion of debt is affected by Fitch's action.

The Stable Rating Outlook reflects Solectron's improved financial performance, a more stable demand environment across key-end markets, and the company's progress related to asset sales. The company's ongoing asset divestiture program, announced during the fourth fiscal quarter of 2003, represented approximately $700 million of aggregate revenues and break-even cash flows. To date the company has received approximately $405 million of pretax cash proceeds, which is within range of Fitch's expectations, with three businesses still to sell. In addition, the company's refinancing risk has been reduced and financial flexibility improved as a result of meeting the $950 million liquid yield option notes (LYONs) put with cash in May 2004 and repurchasing approximately 94% of the outstanding ACES units, mostly with common stock, representing approximately $1.0 billion of debt.

Solectron's ratings continue to reflect relatively weak albeit improving operating margins, driven by a continued competitive pricing environment and less than optimal capacity utilization rates, and a cash conversion cycle that lags those of its peers. Positively, the ratings are supported by Solectron's top tier position within the EMS industry, with significant scope and global footprint of operations, a lower revenue break-even point resulting from a combination of past restructuring and asset divestitures, a solid liquidity profile, and a manageable maturity schedule.

Solectron's credit protection measures meaningfully improved in the third quarter, as a result of the aforementioned debt repayments and a 100 basis points sequential improvement in operating margins. Operating margins have improved in each of the past four quarters, rising to 1.8% in the third quarter of 2004 from -1.1% one year ago. Leverage (total debt adjusted for ACES equity credit-to-EBITDA) improved significantly to 3.8 times(x) for the LTM ended May 31, 2004 versus 6.3x and 11.8x for the LTM periods ended May 30, 2003 and May 31, 2002, respectively. Interest coverage (EBITDA-to-interest incurred) was 2.9x for the LTM ended May 31, 2004 versus 0.3x for the twelve months ended May 31, 2003. Fitch expects credit protection measures will remain stable and ultimately improve over the next several quarters, driven by continued demand strength in its key-end markets, especially communications and consumer, profitability enhancement resulting from higher capacity utilization rates, and incremental cost savings associated with past restructuring programs and LEAN manufacturing initiatives, as well as meaningfully lower debt service requirements.

Liquidity as of May 31, 2004 consisted of unrestricted cash of $1.2 billion and an undrawn three-year $250 million secured revolving facility, expiring February 2005. The company also has various committed and uncommitted revolving lines of credit related to its foreign subsidiaries, totaling approximately $225 million. Free cash flow is likely to be modestly positive over the next several quarters; however, Fitch believes that in a rapidly accelerating demand environment profitability enhancement could increase more slowly than working capital requirements without continued reductions in cash conversion days. Furthermore, Solectron expects approximately $100 million of proceeds for the sale of the remaining three businesses in the divestiture program, none of which have a meaningful impact on cash flow. Total debt was $1.2 billion as of May 31, 2004, consisting primarily of $150 million of 7.375% senior notes due March 2006, $500 million of 9.625% senior notes due February 2009, and $450 million of 0.5% convertible senior notes due February 2034. In addition, approximately $63 million of ACES remain and are expected to be remarketed in August 2004 and mature in 2006.