Manufacturer faces $1bn fraud penalty

The dispute centred on blood test equipment

One of the world's largest contract manufacturers faces a penalty of nearly $1bn after a California jury found it guilty of fraud, breach of contract and economic arm-twisting against a former customer.

Flextronics, whose clients include Microsoft, Dell and Hewlett Packard, said it was "appalled and extremely disappointed" by the verdict and would appeal.

The loss-making Singapore firm's recovery prospects could face a setback unless it fails to knock a large amount off the sum on appeal.

The case stems from a contract between US medical equipment maker Beckman Coulter and Dovatron International, a company that Flextronics bought in 2000.

Blood testing system

Beckman Coulter hired Dovatron in 1997 to manufacture blood analysis equipment. The contract ended in 2001.

We intend to mount a vigorous challenge to this runaway jury verdict Flextronics chief executive Michael Marks

The jury found Flextronics guilty of two charges of economic duress.

Flextronics refused to hand back parts needed for the blood analysis system to Beckman Coulter unless it both ordered unnecessary equipment and paid a further fee, the jury found.

The charge of fraud was upheld after an ex-employee testified that Flextronics had ordered her to overcharge Beckman Coulter.

"We intend to mount a vigorous challenge to this runaway jury verdict and are fully confident that this award will be almost entirely eliminated in subsequent legal proceedings," said Flextronics chief executive Michael Marks.

The $934m penalty consists of $3m in compensatory damages and $931m in punitive damages.

Flextronics posted a net loss of $289.7m (£174.5m) for the months of April, May and June 2003, more than twice its losses for the same period of 2002.

Flextronics is waiting for a further decision on 23 October when a judge will decide if it breached fair trade laws.

Shares in Flextronics closed down $1.10, or 7%, at $13.90 on Thursday.