SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


X QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 27, 1998.

__  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             (IRS Employer
    of Incorporation or Organization)       Identification Number)


             777  Gibraltar  Drive,  Milpitas,   California  95035  (Address  of
           principal executive offices and Zip Code)

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



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  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes   X        No


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

At December 31, 1998,  118,961,232 shares of Common Stock of the Registrant were
outstanding.

<PAGE>

                         SOLECTRON CORPORATION

INDEX TO FORM 10-Q


PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets at
         November 30, 1998 and August 31, 1998                    3

         Condensed Consolidated Statements of Income for
         for the three months ended November 30, 1998
         and 1997                                                 4

         Condensed Consolidated Statements of Cash Flows
         for the three months ended November 30, 1998
         and 1997                                               5 - 6

         Notes to Condensed Consolidated Financial
         Statements                                             7 - 10

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                   11 - 27

Item 3.  Quantitative and Qualitative Disclosures About           27
         Market Risk


PART II. OTHER INFORMATION


Item 1.  Legal Proceedings                                        28

Item 2.  Changes in Securities                                    28

Item 3.  Defaults Upon Senior Securities                          28

Item 4.  Submission of Matters to a Vote of Security Holders      28

Item 5.  Other Information                                        28

Item 6.  Exhibits and Reports on Form 8-K                         28

Signature                                                         29

                                       2

<PAGE>

ITEM 1. FINANCIAL STATEMENTS

                 SOLECTRON CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                             (In millions)


                                             November 30,    August 31,
                                                 1998           1998
ASSETS                                       -----------    -----------
Current assets:
  Cash, cash equivalents and
    short-term investments                    $    194.8     $    308.8
  Accounts receivable, net                         872.2          670.2
  Inventories                                      901.1          788.5
  Prepaid expenses and other
    current assets                                 138.3          120.0
                                              ----------     ----------
    Total current assets                         2,106.4        1,887.5
Net property and equipment                         531.6          448.0
Other assets                                        74.7           75.0
                                              ----------     ----------
Total assets                                  $  2,712.7     $  2,410.5
                                              ==========     ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term debt                             $     11.2     $       -
  Accounts payable                                 844.2          666.5
  Accrued employee compensation                     64.8           72.1
  Accrued expenses                                  56.2           34.9
  Other current liabilities                         71.0           67.3
                                              ----------     ----------
    Total current liabilities                    1,047.4          840.8
Long-term debt                                     387.8          385.5
Other long-term liabilities                          4.5            2.9
                                              ----------     ----------
    Total liabilities                            1,439.7        1,229.2
                                              ----------     ----------
Commitments

Stockholders' equity:
  Common stock                                       0.1            0.1
  Additional paid-in capital                       536.4          510.8
  Retained earnings                                741.3          677.4
  Accumulated other comprehensive income -
    cumulative translation adjustment               (4.8)          (7.0)
                                              ----------     ----------
     Total stockholders' equity                  1,273.0        1,181.3
                                              ----------     ----------
Total liabilities and
  stockholders' equity                        $  2,712.7     $  2,410.5
                                              ==========     ==========


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>

                 SOLECTRON CORPORATION AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (In millions, except per share data)

                                                   Three Months Ended
                                                      November 30,
                                                -----------------------
                                                   1998         1997
                                                ----------   ----------
Net sales                                       $  1,945.6   $  1,136.8
Cost of sales                                      1,769.7      1,013.1
                                                ----------   ----------
  Gross profit                                       175.9        123.7
Operating expenses:
  Selling, general and
    administrative                                    70.8         51.9
  Research and
    development                                        7.9          4.4
                                                ----------   ----------
      Operating income                                97.2         67.4

Interest income                                        4.4          6.6
Interest expense                                      (5.5)        (6.5)
                                                ----------   ----------
     Income before
       income taxes                                   96.1         67.5

Income tax expense                                    32.2         22.6
                                                ----------    ---------
     Net income                                 $     63.9    $    44.9
                                                ==========    =========
Net income per share:
     Basic                                      $     0.54         0.39
                                                ==========    =========
     Diluted                                    $     0.52         0.38
                                                ==========    =========
Shares used to compute net income per share:
     Basic                                           118.4        114.8
                                                ==========    =========
     Diluted                                         128.7        126.0
                                                ==========    ==========


See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>

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

                                                  Three Months Ended
                                                     November 30,
                                                -----------------------
                                                   1998         1997
                                                ----------   ----------
Cash flows from operating activities:
  Net income                                    $     63.9   $     44.9
  Adjustments to reconcile net income
   to net cash (used in) provided by operating
   activities:
     Depreciation and amortization                    40.6         32.6
     Other                                             0.6          5.3
     Changes in operating assets and
     liabilities:
       Accounts receivable                          (201.7)       (98.4)
       Inventories                                   (99.2)       (92.3)
       Prepaid expenses and other
        current assets                               (18.2)        21.0
       Accounts payable                              177.6         94.8
       Accrued expenses and other
        current liabilities                           17.7         (0.1)
                                                ----------    ---------
     Net cash (used in) provided by operating
     activities                                      (18.7)         7.8
                                                ----------    ---------
Cash flows from investing activities:
  Sales and maturities of short-term
   investments                                        56.4        278.6
  Purchases of short-term investments                 (9.7)      (319.7)
  Acquisition of manufacturing location              (24.6)          -
  Capital expenditures                              (118.8)       (88.5)
  Proceeds from sale of property and equipment         5.0           -
  Other                                                0.3         (0.8)
                                                ----------    ---------
     Net cash used in investing
     activities                                      (91.4)      (130.4)
                                                ----------    ---------


                               (continued on next page)
                                       5
<PAGE>


                  SOLECTRON CORPORATION AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                            (In millions)

                                                  Three Months Ended
                                                     November 30,
                                               ------------------------
                                                  1998          1997
                                               ----------    ----------
Cash flows from financing activities:
  Net proceeds from bank lines of credit             11.2            -
  Repayments of long-term debt                        -            (0.9)
  Net proceeds from sale of common stock             25.6          10.9
  Other                                               3.9            -
                                               ----------    ----------
    Net cash provided by financing
    activities                                       40.7          10.0
                                               ----------    ----------
Effect of exchange rate changes on
 cash and cash equivalents                            2.2           1.4
                                                ----------    ---------
Net decrease in cash and
 cash equivalents                                   (67.2)       (111.2)

Cash and cash equivalents at
 beginning of period                                225.2         225.1
                                               ----------    ----------
Cash and cash equivalents at
 end of period                                 $    158.0    $    113.9
                                               ==========    ==========


SUPPLEMENTAL DISCLOSURES

Cash paid during the period:
   Income taxes                                $     32.2    $     19.4
   Interest                                    $     12.6    $       -


See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>


SOLECTRON CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - Basis of Presentation

The accompanying  unaudited condensed consolidated balance sheets as of November
30, 1998 and August 31, 1998, the unaudited condensed consolidated statements of
income for the three months ended  November 30, 1998 and 1997, and the unaudited
condensed  consolidated  statements  of cash  flows for the three  months  ended
November 30, 1998 and 1997 have been prepared on substantially the same basis as
the annual consolidated financial statements.  Management believes the financial
statements  reflect  all  adjustments,   consisting  only  of  normal  recurring
adjustments,  necessary  for a  fair  presentation  of the  Company's  financial
position,  operating  results  and cash  flows for the  periods  presented.  The
results of  operations  for the three  months  ended  November  30, 1998 are not
necessarily  indicative  of results to be expected  for the entire  year.  These
condensed  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements  and notes  thereto  for the year ended
August 31, 1998 included in the Company's Annual Report to Stockholders.

For clarity of presentation, the Company has indicated its first fiscal quarters
as ending on November 30, and its fiscal year as ending on August 31, whereas in
fact, the Company's first quarter of fiscal 1999 ended on November 27, 1998, its
first quarter of fiscal 1998 ended on November 28, 1997 and its 1998 fiscal year
ended on August 28, 1998.

NOTE 2 - Inventories

Inventories consisted of (in millions):

                                 November 30,        August 31,
                                     1998               1998
                                 -----------        -----------
          Raw materials          $     635.0        $     577.8
          Work-in-process              266.1              210.7
                                 -----------        -----------
          Total                  $     901.1        $     788.5
                                 ===========        ===========

NOTE 3 - Net Income Per Share

Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  per
Share,"  replaced the previously  reported  primary and fully diluted net income
per share with  basic and  diluted  net  income per share.  Basic net income per
share  is  calculated  using  the  weighted  average  number  of  common  shares
outstanding during the period.  Diluted net income per share is calculated using
the weighted  average  number of common shares plus dilutive  common  equivalent
shares outstanding during the period.  Common equivalent shares consist of stock
options that are computed  using the treasury  stock method and shares  issuable
upon conversion of the Company's  outstanding  convertible notes. Net income per
share amounts for the three months ended November 30, 1997 have been restated to
conform to the  requirements of SFAS No. 128. The following table sets forth the
computation of basic and diluted net income per share for the three months ended
November 30, 1998 and 1997.


                                       7
<PAGE>

                                                  Three Months Ended
                                                      November 30,
                                                -----------------------
                                                   1998         1997
                                                ----------   ----------
                                                     (in millions,
                                                 except per share data)

Net income - basic                              $     63.9   $     44.9

 Interest expense from convertible
   subordinated notes, net of taxes                    2.4          2.4
                                                ----------   ----------
Net income - diluted                            $     66.3   $     47.3
                                                ==========   ==========

Weighted average shares - basic                      118.4        114.8

  Common stock equivalents - stock options             3.5          4.4
  Common shares issuable upon assumed
    conversion of convertible subordinated
    notes                                              6.8          6.8
                                                ----------   ----------
Weighted average shares - diluted                    128.7        126.0
                                                ==========   ==========

Net income per share - basic                    $     0.54   $     0.39
                                                ==========   ==========

Net income per share - diluted                  $     0.52   $     0.38
                                                ==========   ==========

For the first  quarter  ended  November  30, 1998,  options to purchase  244,000
shares of common stock with exercise prices greater than the average fair market
value of the  Company's  stock for the period of $53.53 were not included in the
calculation  because  the  effect  would have been  antidilutive.  For the first
quarter  ended  November  30, 1997,  options to purchase  1.2 million  shares of
common stock with exercise  prices greater than the average fair market value of
the  Company's  stock  for  the  period  of  $41.40  were  not  included  in the
calculation because the effect would have been antidilutive.

NOTE 4 - Asset Securitization Arrangement

The Company has entered  into an asset  securitization  arrangement  with a bank
under  which it may sell up to $120  million of  eligible  accounts  receivable.
During  December  1998,  the  Company  sold a portion of its  eligible  accounts
receivable  under the  arrangement  for $50  million in cash.  As a result,  the
Company has a remaining $70 million under the  securitization  arrangement.  The
arrangement  which  expires  in August  1999 is  subject  to  certain  financial
covenants and management representations.


                                       8
<PAGE>



NOTE 5 - Commitments

The Company leases various  facilities  under  operating lease  agreements.  The
facility leases expire at various dates through 2006.  Substantially  all leases
require the Company to pay  property  taxes,  insurance  and normal  maintenance
costs.  Payments under certain leases are  periodically  adjusted based on LIBOR
rates.  The leases for certain of the  Company's  facilities in Milpitas and San
Jose, California, and Everett,  Washington,  provide the Company with the option
at the end of  each of the  leases  of  either  acquiring  the  property  at its
original  cost or  arranging  for the  property to be  acquired.  The Company is
contingently  liable  under a first loss clause for a decline in market value of
these leased  facilities  totaling up to $93.1  million in the event the Company
does not purchase  the  properties  at the ends of the lease terms.  The Company
must also maintain  compliance  with financial  covenants  similar to its credit
facilities.

During fiscal 1998, the Company  entered into an arrangement  with a third-party
leasing  company  under  which  certain of the  Company's  fixed  assets  with a
carrying value of  approximately  $31.3 million were sold to the leasing company
and leased back. The Company is accounting for these  transactions  as operating
leases.

Future  minimum  payments  related  to lease  obligations,  including  the $93.1
million contingent liability discussed above, are $39.5 million,  $29.8 million,
$20.9  million,  $65.1  million  and $44.9  million  in each of the years in the
five-year  period  ending  August 31,  2003 and an  aggregate  $2.6  million for
periods after that date.

NOTE 6 - Acquisition of Mitsubishi Assets

On October 1, 1998, the Company  acquired the wireless  telephone  manufacturing
assets of Mitsubishi Consumer Electronics America, Inc.'s (MCEA) Cellular Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA  is a  subsidiary  of
Mitsubishi Electric Corporation (Mitsubishi). The acquisition has been accounted
for as a purchase of assets, and the purchase price of approximately $25 million
has been allocated to the assets acquired based on their relative fair values at
the date of  acquisition.  Under the terms of the  agreement,  the Company  will
provide  MCEA-CMT  with a full range of  manufacturing  services for five years,
including New Product  Introduction  management,  printed circuit board assembly
and full systems assembly for MCEA's branded and private-label cellular products
sold within North  America.  Additionally,  Solectron  hired  approximately  400
MCEA-CMT manufacturing and support associates.
                                    
NOTE 7 - Pending Acquisition of IBM Assets in Texas

On January 6, 1999, the Company announced that it had signed agreements with IBM
to acquire IBM's Electronic Card Assembly and Test (ECAT)  manufacturing  assets
in Austin,  Texas.  Under the terms of the  agreements,  Solectron  will provide
fully integrated printed circuit board (PCB) assembly  manufacturing services to
IBM for the next three years. This includes physical design,  early prototyping,
new product  launch,  PCB  assembly  and test,  volume  production,  end-of-life
support,   field  return   services  and  life-cycle   management  for  all  IBM
motherboards used in their mobile products manufactured  worldwide.  The Company
will  also  hire  approximately  1,300  IBM  design,   test,  and  manufacturing
associates. In addition,  Solectron has signed agreements governing intellectual
property  rights and global  supply for PCB  assembly for  motherboards  used in
IBM's mobile products manufactured worldwide.  The transaction is expected to be
completed by the end of the Company's


                                       9
<PAGE>


second fiscal quarter of 1999.  Completionof  the transaction is subject to
applicable government approvals and various conditions of closing.

NOTE 8 - Newly Adopted Accounting Pronouncements

Effective in the first quarter of fiscal 1999, the Company adopted  Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting  Comprehensive
Income,"  which requires the Company to report and display  certain  information
related to comprehensive  income.  Comprehensive  income includes net income and
other comprehensive  income. Other comprehensive income is classified separately
into  foreign  currency  items,  minimum  pension  liability  adjustments,   and
unrealized  gains  and  losses  on  certain   investments  in  debt  and  equity
securities.  Solectron's  other  comprehensive  income  is  comprised  solely of
foreign currency translation adjustments. The components of comprehensive income
were as follows:

                                                  Three Months Ended
                                                      November 30,
                                                -----------------------
                                                   1998         1997
                                                ----------   ----------
                                                     (in millions)

Net income                                      $     63.9   $     44.9

Other comprehensive income -
   foreign currency translation adjustments            2.2          4.5
                                                ----------   ----------
Comprehensive income                            $     66.1   $     49.4
                                                ==========   ==========

The foreign  currency  translation  adjustments  are not currently  adjusted for
income taxes since they relate to investments which are permanent in nature.

Effective in the first quarter of fiscal 1999, the Company  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer  software  developed or obtained  for internal use and for  determining
when specific costs should be capitalized and when they should be expensed.  The
impact of adopting  SOP 98-1 was not  significant  to the  Company's  results of
operations or financial position.




                                       10
<PAGE>




ITEM 2      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

Certain  statements  contained  in the  following  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations,  including,  without
limitation,   statements   containing  the  words   "believes,"   "anticipates,"
"estimates," "expects," and words of similar import, constitute  forward-looking
statements  which involve risks and  uncertainties.  Solectron's  actual results
could  differ  materially  from  those  anticipated  in  these  forward  looking
statements  as a result of certain  factors,  including  those factors set forth
under "Trends and Uncertainties" below.

General

Solectron's  net sales are derived from sales to  electronics  systems  original
equipment manufacturers (OEMs). The majority of Solectron's customers compete in
the networking,  data and voice communications,  workstation,  personal computer
and  computer  peripheral  segments  of the  electronics  industry.  The Company
provides  integrated  solutions  that span the  entire  product  life cycle from
pre-production   planning  and  design,  to   manufacturing,   distribution  and
end-of-life  product  service  and  support.   Solectron  offers  its  customers
competitive  outsourcing  advantages  such as access to  advanced  manufacturing
technologies,  shortened  time-to-market,  reduced cost of  production  and more
effective asset utilization.  A discussion of some of the potential fluctuations
in operating results is included under "Trends and Uncertainties."

The Company has  manufacturing  operations  in locations  throughout  the world,
including North America, Europe,  Asia/Pacific and Latin America. Solectron also
has its Asia/Pacific  headquarters office in Taipei,  Taiwan and program offices
located in Japan and Israel.  The Company's  subsidiaries,  Force  Computers and
Fine Pitch Technologies, are both headquartered in San Jose, California. Force's
European headquarters and a significant portion of its operations are located in
Munich,  Germany.  In addition to its headquarters'  locations,  Force has sales
support offices in various locations in the United States and internationally.

During  1997,  the  Company  established  a  strategic,   global   manufacturing
partnership with Ericsson Telecom AB's Business Area Infocom Systems (Ericsson).
The  Company  established  a New  Product  Introduction  center in  Sweden,  and
production from certain  Ericsson plants  worldwide was transferred to Solectron
manufacturing  sites  around the  world.  In October  1997,  Solectron  acquired
certain assets, primarily equipment and inventory, of Ericsson's printed circuit
board assembly operation located in Sao Paulo, Brazil. In addition,  Solectron's
subsidiary,  Solectron Brasil Ltda., hired approximately 370 associates formerly
employed by Ericsson Telecomunicacoes S.A. in Brazil.

In April 1998, the Company acquired NCR Corporation's (NCR) manufacturing assets
in  three  cities  for a  purchase  price  of  approximately  $91  million.  The
acquisition was accounted for as a purchase of assets and the purchase price was
allocated to the assets acquired based on the relative fair values of the assets
at the date of acquisition. Under the terms of the agreement, NCR will outsource
the manufacturing of certain computer  components to Solectron for at least five
years.  Solectron also hired  approximately  1,200 NCR manufacturing and related
support associates.

In June 1998, the Company acquired International Business Machines
Corporation's (IBM) Electronic Card Assembly and Test (ECAT)


                                       11
<PAGE>

manufacturing  assets in Charlotte,  North Carolina and non-exclusive  rights to
certain IBM  intellectual  property for a purchase  price of  approximately  $96
million.  The  acquisition  was  accounted  for as a purchase  of assets and the
purchase price was allocated to the assets acquired,  including the intellectual
property rights, based on their relative fair values at the date of acquisition.
Under  the  terms  of the  agreement,  Solectron  hired  approximately  700  IBM
manufacturing  and  related  support  associates  and the Company  will  provide
printed  circuit  board  assembly  services to IBM in North America for the next
three years. In addition, IBM has made available to Solectron 115 patents and 51
disclosures  (collectively  the  intellectual  property  rights) covering a wide
spectrum of technologies  and  capabilities.  IBM will also provide to Solectron
failure  analysis  and  characterization   tools  for  process  development  and
manufacturing, including fault detection and isolation.

In October  1998,  the Company  acquired  the wireless  telephone  manufacturing
assets of Mitsubishi Consumer Electronics America, Inc.'s (MCEA) Cellular Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA  is a  subsidiary  of
Mitsubishi Electric Corporation (Mitsubishi).  The acquisition was accounted for
as a purchase of assets and the purchase price of approximately  $25 million was
allocated to the acquired assets based on their relative fair values at the date
of  acquisition.  Under the terms of the  agreement,  the Company  will  provide
MCEA-CMT with a full range of manufacturing  services for five years,  including
New Product  Introduction  management,  printed  circuit board assembly and full
systems  assembly for MCEA's branded and  private-label  cellular  products sold
within North America.  In addition,  Solectron hired  approximately 400 MCEA-CMT
manufacturing and support associates.

Also in October  1998,  the Company  signed a definitive  agreement  with Ingram
Micro Inc.  under which the two companies  entered into a strategic  alliance to
provide  global  build-to-order  and  configure-to-order  assembly  services for
personal computers,  servers and related products in the United States,  Canada,
Europe,  Asia and Latin America.  The alliance will be managed by both companies
under a joint  management  matrix that will include a sales and marketing staff,
program management,  materials management,  information technology resources and
test and process engineers and will, in most part, utilize existing  facilities,
systems and  personnel.  The companies  expect that  shipments to customers will
begin in early calendar 1999.

On January 6, 1999, the Company announced that it had signed agreements with IBM
to acquire IBM's Electronic Card Assembly and Test (ECAT)  manufacturing  assets
in Austin,  Texas.  Under the terms of the  agreements,  Solectron  will provide
fully integrated printed circuit board (PCB) assembly  manufacturing services to
IBM for the next three years. This includes physical design,  early prototyping,
new product  launch,  PCB  assembly  and test,  volume  production,  end-of-life
support,   field  return   services  and  life-cycle   management  for  all  IBM
motherboards used in their mobile products manufactured  worldwide.  The Company
will  also  hire  approximately  1,300  IBM  design,   test,  and  manufacturing
associates. In addition,  Solectron has signed agreements governing intellectual
property  rights and global  supply for PCB  assembly for  motherboards  used in
IBM's mobile products manufactured worldwide.  The transaction is expected to be
completed by the end of the Company's second fiscal quarter of 1999.  Completion
of the  transaction  is subject to applicable  government  approvals and various
conditions of closing.


                                       12
<PAGE>


Results of Operations

The  electronics  industry  is subject to rapid  technological  change,  product
obsolescence  and  price  competition.  These and other  factors  affecting  the
electronics industry, or any of Solectron's major customers in particular, could
have an  adverse  material  effect on  Solectron's  results of  operations.  See
"Trends and  Uncertainties -- Potential  Fluctuations in Operating  Results" and
"Competition"  for further  discussion  of potential  fluctuations  in operating
results.

The following table sets forth, for the periods indicated,  certain items in the
Consolidated  Statements of Income as a percentage  of net sales.  The financial
information  and the  discussion  below should be read in  conjunction  with the
Condensed Consolidated Financial Statements and Notes thereto.

                                         Three Months Ended
                                            November 30,
                                         ------------------
                                           1998       1997
                                          -----      -----
Net sales                                 100.0%     100.0%
Cost of sales                              91.0       89.1
                                          -----      -----
   Gross profit                             9.0       10.9
Operating expenses:
  Selling, general and administrative       3.6        4.6
  Research and development                  0.4        0.4
                                          -----      -----
   Operating income                         5.0        5.9
Net interest income (expense)              (0.1)         -
                                          -----      -----
   Income before income taxes               4.9        5.9
Income taxes                                1.6        2.0
                                          -----      -----
Net income                                  3.3%       3.9%
                                          =====      =====

Net Sales

Net sales for the first quarter of fiscal 1999 grew to $1.9 billion, an increase
of 71.1% over the same period in fiscal  1998.  The sales  growth was  primarily
attributable to significant increases in sales volume from both existing and new
customers  worldwide,  as well  as the  acquisitions  made  during  fiscal  1998
including  Ericsson,  NCR,  and IBM.  In  addition,  the recent  acquisition  of
Mitsubishi in October contributed $22.5 million in net sales for this quarter.

In the Americas,  the new site in Mexico and newly  acquired  sites from NCR and
IBM were the largest contributors to the strong growth in the fiscal 1999 period
as compared to the fiscal 1998  period.  The sales  growth at the Texas site was
particularly  strong as a result of  start-up  and new  programs.  The net sales
increase at the Milpitas,  California  site was offset  partially by the planned
transfer of personal  computer  printed  circuit  board  programs  and  computer
peripherals  systems  assembly  programs  to Mexico and  networking  business to
Penang which resulted from management's  action to improve global load balancing
and  specific  product  program  transitioning.  Sales  in all of the  Company's
European and Asian  operations  increased in fiscal 1999 over the same period of
fiscal 1998,  principally as a result of core business  growth and new accounts.
In particular, the sales growth at the Penang site was




                                       13
<PAGE>

significant  due primarily to improved demand from personal  computer  customers
and  networking  business  transferred  in from  California.  The  growth at the
Scotland  site  was  strong   primarily   due  to  increased   demand  from  its
telecommunications customers. Although the Company does not currently anticipate
any future  decline in sales,  to lessen the  potential  impact of any  possible
future  declines  related to customers  within any  particular  region or market
segment,  the Company is  committed to seeking  diversification  of its customer
base among many  countries,  market  segments and product  lines  within  market
segments.

Hewlett-Packard  Company  (HP) was  Solectron's  largest  customer  in the first
quarters  of both  fiscal  1999  and  1998,  accounting  for  12.2%  and  15.5%,
respectively,  of  consolidated  net sales in those periods.  Additionally,  Sun
Microsystems,  Inc.  accounted  for 10.0% of net sales in the first  quarter  of
fiscal 1998. No other  customer  accounted for more than 10% of net sales during
any of the periods presented.

Solectron's top ten customers  accounted for 71.7% and 67.3% of consolidated net
sales in the first three months of fiscal 1999 and 1998, respectively. Solectron
is still  dependent upon continued  revenues from HP and the rest of its top ten
customers and there can be no guarantee  that these or any other  customers will
not  increase or decrease  as a  percentage  of  consolidated  net sales  either
individually  or as a group.  Consequently,  any  material  decrease in sales to
these or other  customers  could have an adverse  material effect on Solectron's
results of operations.

In the first quarter of fiscal 1999,  international  locations contributed 39.2%
of  consolidated  net sales compared to 33.6% in the same period of fiscal 1998.
In addition to the sales  growth  factors for Europe and Asia noted  above,  the
Company's  international  sales also  benefited  from the growth of the sites in
Mexico  and  Brazil  added  during  the first  quarter  of  fiscal  1998 and the
acquisition  of the  Ireland  site  from  NCR in  April  1998.  As a  result  of
Solectron's  international  sales and  facilities,  Solectron's  operations  are
subject to risks of doing business abroad. While to date these dynamics have not
had an adverse material effect on Solectron's  results of operations,  there can
be no assurance that there will not be such an impact in the future. See "Trends
and  Uncertainties  --  International  Operations"  for a further  discussion of
potential  fluctuations in operating results  associated with the risks of doing
business abroad.

Solectron's operations in Milpitas, California contributed a substantial portion
of  Solectron's  net sales and  operating  income  during the first  quarters of
fiscal 1999 and fiscal 1998. Although management has been undertaking deliberate
actions to achieve  improved  global  load  balancing  by  transferring  certain
projects from the Milpitas site to other sites worldwide, the performance of the
Milpitas  operation  is  expected to  continue  as a  significant  factor in the
overall financial  performance of Solectron.  Any adverse material change to the
customer base, product mix,  efficiency,  or other attributes of this site could
have  an  adverse  material  effect  on  Solectron's   consolidated  results  of
operations.

Solectron  believes  that its ability to continue to achieve  growth will depend
upon growth in sales to existing  customers for their current and future product
generations,  successful  marketing  to  new  customers  and  future  geographic
expansion.  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 assured. In addition,  there can be no assurance that any
of Solectron's current customers will continue to utilize Solectron's  services.
Because of


                                       14
<PAGE>


these factors,  there can be no assurance that  Solectron's  historical  revenue
growth rate will continue.  See "Trends and  Uncertainties"  for a discussion of
certain  factors  affecting the management of growth,  geographic  expansion and
potential fluctuations in sales and results of operations.

Gross Profit

The gross  margin  percentage  declined  to 9.0% for the fiscal 1999 period from
10.9%  for the  first  quarter  of  fiscal  1998.  The  decrease  was  primarily
attributable to a shift toward higher volume projects and systems build projects
which typically yield lower margins.  Also,  gross margins of the newly acquired
NCR  operations  are lower than the overall  average  margins of the rest of the
Company primarily due to the fact that the majority of its net sales are derived
from systems integration activities, which normally generate lower gross margins
than printed circuit board assembly. In addition,  there was a somewhat seasonal
shift in product mix toward the lower margin personal computer  products.  After
the calendar  year end,  the personal  computer  industry  typically  reassesses
demand based on  inventory  levels that may cause the  Company's  product mix to
shift away from  personal  computers  to other  industry  segments in the second
quarter.

For the  foreseeable  future,  Solectron's  gross  margin is  expected to depend
primarily on product mix, production efficiencies,  utilization of manufacturing
capacity,  start-up and integration  costs of new and acquired  businesses,  the
percentage  of sales  derived from systems build  projects,  pricing  within the
electronics  industry and the cost  structure at  individual  sites.  Over time,
gross  margins  at the  individual  sites  and for the  Company  as a whole  may
continue to fluctuate.  The Company  anticipates that a larger percentage of its
sales may be derived  from systems  build  projects in future  periods.  Systems
build  projects  typically  have lower gross  margin  percentages  than  printed
circuit board assembly projects. Increases in systems build business, additional
costs  associated  with new projects and price  erosion  within the  electronics
industry  could  adversely  affect the  Company's  gross  margin.  Additionally,
changes in product  mix could cause the  Company's  gross  margin to  fluctuate.
Also,  while the  availability  of raw  materials  appears  adequate to meet the
Company's  current revenue  projections for the  foreseeable  future,  component
availability  is still  subject  to lead time and other  constraints  that could
possibly limit the Company's revenue growth. Because of these factors and others
discussed under "Trends and Uncertainties" below, there can be no assurance that
the Company's gross margin will not fluctuate or decrease in future periods.

Selling, General and Administrative Expenses

In  absolute  dollars,  selling,  general  and  administrative  (SG&A)  expenses
increased  36.4% in the first  quarter  of fiscal  1999 over the same  period of
fiscal 1998.  The increase in fiscal 1999 period was primarily due to investment
in  infrastructure  such as personnel and related  departmental  expenses at all
manufacturing  locations as well as continuing investment in information systems
to support the increased  size and  complexity of the Company's  business.  As a
percentage of net sales, SG&A expenses were 3.6% and 4.6% in the fiscal 1999 and
fiscal  1998  periods,  respectively.  The  primary  reason for the fiscal  1999
decrease  in SG&A  expenses  as a  percentage  of net  sales is the  significant
increase  in the  sales  base  offset  partially  by the costs  associated  with
investments  in  starting  up  new  sites  and   investments  in  the  Company's
information  systems.  The Company  anticipates  SG&A  expenses will continue to
increase in terms of absolute dollars in the future,  and may possibly  increase
as a


                                       15
<PAGE>


percentage  of revenue,  as the Company  continues  to build the  infrastructure
necessary to support its current and prospective business.

Research and Development Expenses

With the exception of its Force Computers operation,  the Company's research and
development  (R&D) activities have been focused  primarily on the development of
prototype  and  engineering  design  capabilities,  fine  pitch  interconnecting
technologies (which include ball-grid array,  tape-automated bonding,  multichip
modules,   chip-on-flex,   chip-on-board   and  flip  chip),   high  reliability
environmental  stress test technology and the  implementation of environmentally
friendly assembly processes, such as VOC-free and no-clean.  Force's R&D efforts
are  concentrated on new product  development and improvement of product designs
through improvements in functionality and the use of microprocessors in embedded
applications.  Research and development  expenses,  in absolute dollars and as a
percentage of net sales,  respectively,  were $7.9 million and 0.4% in the first
quarter of fiscal 1999 and $4.4 million and 0.4% in the fiscal 1998 period.  The
increase  in R&D  expenses  in the fiscal  1999  period  compared to fiscal 1998
period was  primarily  due to increased R&D effort at Force and new R&D projects
initiated  at the Malaysia  sites.  The Company  expects that R&D expenses  will
increase in absolute  dollars in the future and may increase as a percentage  of
net sales as Force  continues  to invest in its R&D efforts and  additional  R&D
projects are undertaken at certain Asian sites.

Net Interest Income (Expense)

Net interest  expense was $1.1 million for the first three months of fiscal 1999
compared  to net  interest  income of $0.1  million in the same period of fiscal
1998.  The net  interest  expense in the fiscal  1999 period  resulted  from the
Company's  interest  expense on  long-term  debt,  which is  approximately  $6.2
million per quarter, not fully offset by the reduction of interest income earned
on undeployed cash and investments and the  capitalization  of interest expense.
The reduction of interest  income  reflects  deployment  of cash and  short-term
investments to fund the acquisitions  from NCR, IBM-ECAT and MCEA's CMT division
as well as to meet working capital requirements.  In the first quarter of fiscal
1999, the Company  capitalized  approximately  $1.4 million of interest  expense
related to the costs of computer  software  developed  for  internal use and the
facility  construction  projects at the California  and Brazil sites.  Solectron
expects to utilize more of the  undeployed  cash during  fiscal 1999 in order to
fund anticipated  future growth.  See "Trends and Uncertainties -- Management of
Growth," and "Potential Fluctuations in Operating Results."

Income Taxes

Income taxes increased to $32.2 million in the first quarter of fiscal 1999 from
$22.6 million in the fiscal 1998 period primarily due to increased income before
income taxes. Solectron's effective income tax rate was 33.5% in the fiscal 1999
and 1998 periods.

In general,  the effective  income tax rate is largely a function of the balance
between  income  from  domestic  and   international   operations.   Solectron's
international operations, taken as a whole, have been taxed at a lower rate than
in the United States,  primarily due to the tax holiday granted to the Company's
Malaysia sites. The Malaysian tax holiday is effective through January 31, 2002,
subject to certain  conditions.  The Company has also been  granted  various tax
holidays in

                                       16
<PAGE>


China,  which  are  effective  for  various  termsand  are  subject  to  certain
conditions.

Liquidity and Capital Resources

Working  capital was $1.1 billion at November 30, 1998  compared to $1.0 billion
at the end of fiscal 1998.  During the same period,  cash, cash  equivalents and
short-term  investments  decreased to $194.8  million from $308.8  million which
reflects  funding  for  required  investments  in working  capital  and  capital
expenditures   to  support   sales  growth.   In  addition,   the  Company  used
approximately  $24.6  million  for its  acquisition  of the  wireless  telephone
manufacturing  assets of MCEA's CMT division  during the first quarter of fiscal
1999.  As  Solectron  continues  to grow,  it is expected  that the Company will
require  greater  amounts of working  capital to  support  its  operations.  The
Company  believes  that its current  level of working  capital and the Company's
available  credit  facilities  will  provide  adequate  working  capital for the
foreseeable future.  However,  the Company may need to raise additional funds to
finance more rapid expansion,  including establishing new locations or financing
additional  acquisitions.  There can be no assurance that such funds, if needed,
will be available on terms acceptable to the Company or at all.

Inventory   levels   fluctuate   directly  with  the  volume  of  the  Company's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory levels which may result in changes in levels of
inventory turns and liquidity. Historically, the Company has been able to manage
its inventory levels with regard to these fluctuations. However, should material
fluctuations  occur in product demand, the Company could experience slower turns
and reduced liquidity.

In the first quarter of fiscal 1999,  the Company  invested  approximately  $119
million in capital  expenditures.  A large portion of these expenditures related
to the purchase of new  equipment,  primarily  surface  mount  assembly and test
equipment, to meet current and expected production levels, as well as to replace
or upgrade older equipment which was retired or sold.  Significant  expenditures
were also  made for the  acquisition  of land and  buildings  for the  Company's
manufacturing  sites,  principally  in Brazil,  Mexico,  and Texas.  The Company
expects  total  capital  expenditures  in fiscal 1999 to be in the range of $275
million to $325 million.

In addition to working capital as of November 30, 1998,  which includes cash and
cash equivalents of $158.0 million and short-term  investments of $36.8 million,
the  Company has  available a $100  million  unsecured  multicurrency  revolving
credit  facility and a $70 million  asset  securitization  arrangement.  Both of
these  facilities  are subject to  financial  covenants.  The  Company  also has
approximately $93 million in unused foreign credit facilities available.

"Year 2000" Issues

The  Company  is aware  of and is  addressing  the  issues  associated  with the
programming code in existing  computer systems as the year 2000 approaches.  The
Year  2000  problem  is  pervasive  and  complex,   as  many  computer  systems,
manufacturing  equipment and industrial control systems will be affected in some
way by the  rollover  of the  two-digit  year value to 00.  Systems  that do not
properly  recognize such dates could generate  erroneous  information or cause a
system to fail. The Year 2000 issue creates risk for the Company from unforeseen
problems in its own systems


                                       17
<PAGE>

and from third  parties  with whom the Company  deals on  business  transactions
worldwide.  Failures of the Company's  and/or third parties'  computer  systems,
manufacturing  equipment and  industrial  control  systems would have an adverse
material impact on the Company's ability to conduct its business.

The  Company  has  formed  a  worldwide   task  force  and  has   implemented  a
comprehensive  program to analyze the Company's  internal systems as well as all
external systems (such as vendor,  customer,  banking systems,  etc.) upon which
the Company is  dependent,  to identify  and evaluate  any  potential  Year 2000
issues. This task force meets regularly and tracks progress against the program,
modifying  it as  needed  to help  ensure  timely  completion.  The  Company  is
committed to achieving  Year 2000  compliance;  however,  because a  significant
portion of the problem is external to the Company and  therefore  outside of its
direct  control,  there can be no  assurances  that the Company will be fully or
even significantly Year 2000 compliant at the critical juncture. In addition, as
full testing of Year 2000 functionality  must occur in a simulated  environment,
the  Company  will not be able to test  full  system  Year 2000  interfaces  and
capabilities prior to the Year 2000.

As of November  30,  1998,  the Company had  completed  an inventory of internal
systems,  hardware,  software,  manufacturing  equipment  and embedded  chips in
industrial  control  instruments.  Each of these items was identified as mission
critical,  mission  essential,  mission  impaired or mission  non-critical.  The
Company is in the process of prioritizing  and evaluating  mission  critical and
mission  essential items,  identifying  fixes and resources as appropriate,  and
performing and testing corrective measures.  While the Company believes that its
evaluation  has been  comprehensive,  there can be no assurance that all systems
critical to Year 2000  compliance have been  identified,  or that the corrective
actions identified will be completed on time.

As of November 30, 1998, the Company had inventoried every key supplier of goods
and services to the Company,  and considered the potential impact on the Company
and its customers of Year 2000 compliance by these  suppliers.  The Company also
mailed  surveys  to  many of  these  key  suppliers,  and is in the  process  of
evaluating  responses  and  sending  follow-up  letters.  The  Company  plans to
disqualify  potentially  non-compliant sources, look for alternative sources and
re-qualify new suppliers to help mediate  potential  business  disruptions.  The
Company  is  also  involved  with  various   geographic  Year  2000  consortiums
worldwide,  with the intent to leverage  contacts and  information  for commonly
used suppliers and services such as utility companies.  In addition, the Company
is in the  process of  reviewing  EDI  linkages  and data  transmission  for its
customers  and  suppliers.  While the Company  believes  that it will be able to
qualify alternative  suppliers as needed, until all supplier and customer survey
responses have been received and  evaluated,  the Company can not fully evaluate
the  extent of  potential  problems  and the costs  associated  with  corrective
actions.

The Company estimates the cost to complete its current  compliance program to be
in the range of $28 million to $42  million.  Of this amount,  approximately  $7
million  is  associated  with the  replacement  of capital  equipment,  of which
approximately  half is being  purchased  to replace  non-compliant  systems that
would not otherwise  have been replaced at this time.  The  variability in these
estimates  depends largely on the response from the Company's  suppliers and the
extent to which supplier re-qualification is needed. Cost estimates will also be
re-evaluated as the status of the overall compliance  program is updated.  There
can be no assurance that actual costs will not be materially


                                       18
<PAGE>

higher than currently  anticipated.  A significant portion of these costs is not
likely to be  incremental  costs to the Company,  but rather will  represent the
redeployment  of  existing  information  technology  resources.   Certain  other
information  technology projects have been delayed due to the focus on Year 2000
issues.  The  potential  costs of the  redeployment  of personnel  and delays in
implementing  other  projects is not known but could be  substantial.  The total
amount spent on the  compliance  program  this fiscal year through  November 30,
1998 was $5  million,  of which $3 million  pertained  to the  payroll  costs of
personnel  involved  in the  program  and costs of outside  consultants,  and $2
million principally pertained to the replacement of capital equipment.  Prior to
fiscal 1999, costs of software and hardware  applications incurred for Year 2000
compliance  were not  material  and  related  payroll  costs  for the  Company's
information systems group were not tracked separately.

Although  the Company has  identified  general  contingency  plans,  such as the
replacement and  re-qualification of suppliers,  the stockpiling of supplies and
purchase of generators,  a formal contingency plan will not be established until
at least the third  quarter of fiscal 1999 when the  evaluation  of suppliers is
expected to be  completed.  The Company is unable to  determine  what effect the
failure of systems  because of Year 2000 issues by the Company or its  suppliers
or customers  would have,  but any  significant  failures  could have an adverse
material effect on the Company's results of operations and financial condition.

Trends and Uncertainties

Customer Concentration; Dependence on the Electronics Industry

In the first quarter of fiscal 1999 and for the full years of fiscal 1998,  1997
and 1996, the Company's ten largest customers  accounted for as much as 71.7% of
consolidated  net sales.  The Company is dependent upon continued  revenues from
its top ten customers.  Any material delay,  cancellation or reduction of orders
from these or other significant  customers could have an adverse material effect
on the Company's results of operations. During the first quarter of fiscal 1999,
HP accounted for 12.2% of net sales  compared to 15.5% during the same period of
fiscal 1998.  During fiscal 1998,  HP, Cisco and Sun accounted for 13.9%,  10.7%
and 10.5%,  respectively,  of net sales,  compared to 13.5% for HP and less than
10% for each of Cisco and Sun during fiscal 1997. There can be no assurance that
the  Company  will  continue  to do business  with HP,  Cisco,  Sun or any other
customers.

The percentage of the Company's  sales to its major customers may fluctuate from
period to  period.  Significant  reductions  in sales to any of these  customers
would have an adverse  material  effect on the Company's  results of operations.
The Company has long-term contracts (generally for terms of three to five years)
with  Ericsson,  NCR,  IBM and  Mitsubishi  under  which  these  customers  have
committed  to source  production  of certain  products and  components  from the
Company.  However,  these  commitments to source  production do not include firm
volume  purchase  commitments.  In addition,  the Company has no firm  long-term
volume  purchase  commitments  from its other  customers,  and over the past few
years has  experienced  reduced lead times in customer  orders.  Also,  customer
contracts  can be  canceled  and volume  levels can be changed or  delayed.  The
timely  replacement of canceled,  delayed or reduced contracts with new business
cannot be assured. These risks are increased because a majority of the Company's
sales are to customers in the  electronics  industry,  which is subject to rapid
technological  change  and  product  obsolescence.  The  factors  affecting  the
electronics industry in


                                       19
<PAGE>

general,  or any of the Company's major  customers in particular,  could have an
adverse material effect on the Company's results of operations.

There can be no assurance that sales to customers  within any particular  market
segment  will not  experience  decreases  which  could have an adverse  material
effect on the Company's sales.

Management of Growth; Geographic Expansion

The Company has experienced  substantial growth over the last five fiscal years,
with net sales  increasing  from $1.5  billion in fiscal 1994 to $5.3 billion in
fiscal year 1998. Additionally,  Solectron reported record sales of $1.9 billion
for the first quarter of fiscal 1999. In recent years,  the Company has acquired
or  established  facilities  in many  locations.  In the first quarter of fiscal
1998, the Company announced the opening of its Asia/Pacific  headquarters office
in Taipei,  Taiwan,  began  operations in  Guadalajara,  Mexico,  and as further
discussed in "Partnership with Ericsson and Related Transactions," established a
manufacturing  facility  near  Sao  Paulo,  Brazil  and  opened  a  New  Product
Introduction  center in Sweden.  In April 1998, the Company  announced  plans to
open a manufacturing facility in Timisoara,  Romania, and in May 1998, announced
the establishment of a program office in Israel. In addition, in April, June and
October 1998, the Company  completed its  acquisitions of certain  manufacturing
assets from NCR, IBM and Mitsubishi, respectively. (See "Acquisition of NCR, IBM
and  Mitsubishi  Assets.")  In October  1998,  the Company  signed a  definitive
agreement with Ingram Micro,  Inc. under which the two companies  entered into a
strategic alliance.  (See "Alliance with Ingram Micro.") In the first quarter of
fiscal 1999, the Company announced plans to build new  manufacturing  facilities
in Romania  and  Suwanee,  Georgia.  On January 6, 1999,  announced  that it had
signed  agreements  with IBM to acquire IBM's  Electronic Card Assembly and Test
(ECAT) manufacturing assets in Austin, Texas.  (See "Pending Acquisition of IBM 
Assets in Texas.")

During fiscal 1997, the Company announced the establishment of new manufacturing
facilities in Suzhou, China; began operations at its manufacturing facility near
Boston,  Massachusetts;  and in November 1996,  acquired Force  Computers  Inc.,
which  has  operations  in  California  and  Germany.  The  Company  continually
evaluates  growth  and  acquisition  opportunities  and  may  pursue  additional
opportunities over time. There can be no assurance that the Company's historical
revenue  growth will continue or that the Company will  successfully  manage the
facilities  in China,  Mexico,  Brazil and  Romania,  the  partnership  with and
acquisitions from Ericsson,  the acquisitions from NCR, IBM and Mitsubishi,  the
alliance  with Ingram Micro or any other  businesses or assets it may acquire in
the  future.  As  the  Company  manages  its  existing  operations  and  expands
geographically,  it may experience  certain  inefficiencies as it integrates new
operations and manages  geographically  dispersed operations.  In addition,  the
Company's  results  of  operations  could  be  adversely  affected  if  its  new
facilities do not achieve  growth  sufficient to offset  increased  expenditures
associated with geographic expansion. The Company's expenses and working capital
requirements  will  continue  to  increase as the new  facilities  become  fully
operational.  Should the Company  increase its expenditures in anticipation of a
future  level of sales that does not  materialize,  its  profitability  would be
adversely  affected.  On  occasion,  customers  may require  rapid  increases in
production that can place an excessive burden on the Company's resources.


                                       20
<PAGE>


Partnership with Ericsson and Related Transactions

During  1997,  the  Company  established  a  strategic,   global   manufacturing
partnership  with  Ericsson  Telecom AB's  Business  Area Infocom  Systems.  The
Company established a New Product  Introduction center in Sweden, and production
from  certain   Ericsson   plants   worldwide  was   transferred   to  Solectron
manufacturing  sites  around the  world.  In October  1997,  Solectron  acquired
certain assets, primarily equipment and inventory, of Ericsson's printed circuit
board assembly operation located in Brazil. In addition, Solectron's subsidiary,
Solectron Brasil Ltda., hired  approximately 370 associates formerly employed by
Ericsson  Telecomunicacoes  S.A.  in Brazil.  Under the terms of the  agreement,
Ericsson contracted for Solectron's services from Solectron Brasil Ltda. through
September  1999.  Thereafter,  Solectron  will  bear  the  risk of  filling  the
manufacturing  capacity at the site with renewed  business from Ericsson and new
business from other customers.

The transactions with Ericsson entail a number of risks,  including successfully
managing  the  integration  of the  operations,  retention  of  key  associates,
integrating   purchasing   operations  and  information  systems,   managing  an
increasingly larger and more geographically  disparate business and renewing the
Ericsson  business or  replacing it with new business  after  expiration  of the
Ericsson  commitment.  In addition,  the  completion  of the  transactions  with
Ericsson has increased Solectron's expenses and working capital requirements and
there is no assurance that Solectron will achieve  sufficient  revenue to offset
the  increased  expenses.   There  can  be  no  assurance  that  Solectron  will
successfully manage the risks of these transactions.

Acquisitions of NCR, IBM and Mitsubishi Assets

On April 27, 1998,  the Company  acquired  NCR's  manufacturing  assets in three
cities,  two in the United  States and one in Ireland,  for a purchase  price of
approximately  $91  million.  As  part  of  the  transaction,   Solectron  hired
approximately  1,200 NCR manufacturing and related support associates  currently
employed  at  these  locations.  Under  the  terms  of the  agreement,  NCR will
outsource the manufacturing of certain computer,  computer peripheral and server
components to Solectron for at least five years. Thereafter, Solectron will bear
the risk of  filling  the  manufacturing  capacity  at the  sites  with  renewed
business from NCR and new business from other customers.

On June 1,  1998,  the  Company  acquired  IBM's  ECAT  manufacturing  assets in
Charlotte,  North Carolina and non-exclusive  rights to certain IBM intellectual
property for a purchase price of approximately  $96 million.  Under the terms of
the agreement,  Solectron hired  approximately 700 IBM manufacturing and related
support  associates and the Company will provide  printed circuit board assembly
services to IBM in North America for the next three years. In addition,  IBM has
made  available to Solectron 115 patents and 51  disclosures  (collectively  the
intellectual  property  rights)  covering a wide  spectrum of  technologies  and
capabilities.   IBM  will  also  provide  to  Solectron   failure  analysis  and
characterization  tools for process  development  and  manufacturing,  including
fault detection and isolation.

On October 1, 1998, the Company  acquired the wireless  telephone  manufacturing
assets of Mitsubishi Consumer Electronics America, Inc.'s (MCEA) Cellular Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA  is a  subsidiary  of
Mitsubishi   Electric   Corporation   (Mitsubishi).   The  purchase   price  was
approximately  $25 million.  Under the terms of the agreement,  the Company will
provide MCEA-CMT with a full range of


                                       21
<PAGE>


manufacturing  services  for five  years,  including  New  Product  Introduction
management,  printed circuit board assembly and full systems assembly for MCEA's
branded and  private-label  cellular  products  sold within  North  America.  In
addition,  Solectron hired approximately 400 MCEA-CMT  manufacturing and support
associates.

The  transactions  with  NCR,  IBM and  Mitsubishi  entail  a number  of  risks,
including successfully managing the integration of the operations,  retention of
key  associates,  integrating  purchasing  operations and  information  systems,
managing an  increasingly  larger and more  geographically  disparate  business,
obtaining  customers other than NCR, IBM and Mitsubishi for these facilities and
renewing each of the NCR, IBM and  Mitsubishi  business or replacing it with new
business  after  expiration  of  NCR's,   IBM's  and   Mitsubishi's   respective
commitments.  In addition,  the  transactions  with NCR, IBM and Mitsubishi will
increase  Solectron's  expenses and working capital requirements and there is no
assurance that Solectron will achieve sufficient revenue to offset the increased
expenses.  There can be no assurance that Solectron will successfully manage the
risks of these transactions.

Pending Acquisition of IBM Assets in Texas

On January 6, 1999, the Company announced that it had signed agreements with IBM
to acquire IBM's Electronic Card Assembly and Test (ECAT)  manufacturing  assets
in Austin,  Texas.  Under the terms of the  agreements,  Solectron  will provide
fully integrated printed circuit board (PCB) assembly  manufacturing services to
IBM for the next three years. This includes physical design,  early prototyping,
new product  launch,  PCB  assembly  and test,  volume  production,  end-of-life
support,   field  return   services  and  life-cycle   management  for  all  IBM
motherboards used in their mobile products manufactured  worldwide.  The Company
will  also  hire  approximately  1,300  IBM  design,   test,  and  manufacturing
associates. In addition,  Solectron has signed agreements governing intellectual
property  rights and global  supply for PCB  assembly for  motherboards  used in
IBM's mobile products manufactured worldwide.  The transaction is expected to be
completed by the end of the Company's second fiscal quarter of 1999.  Completion
of the  transaction  is subject to applicable  government  approvals and various
conditions of closing.

Alliance with Ingram Micro

On October 1, 1998, the Company announced that it signed a definitive  agreement
with Ingram Micro Inc.  under which the two  companies  entered into a strategic
alliance  to  provide  global  build-to-order  and  configure-to-order  assembly
services  for  personal  computers,  servers and related  products in the United
States,  Canada, Europe, Asia and Latin America. The alliance will be managed by
both  companies  under a joint  management  matrix that will include a sales and
marketing  staff,   program  management,   materials   management,   information
technology  resources  and test and process  engineers  and will,  in most part,
utilize existing facilities, systems and personnel.

The alliance with Ingram Micro entails a number of risks, including successfully
establishing  the joint  management  matrix for the  alliance,  retention of key
associates,  integrating  purchasing  operations  and  information  systems  and
obtaining  customers  for  the  services  to be  provided  by the  alliance.  In
addition,  the alliance with Ingram Micro will increase Solectron's expenses and
working  capital  requirements  and there is no assurance  that  Solectron  will
achieve sufficient revenue to offset the increased expenses.  There can be no
assurance that Solectron


                                       22
<PAGE>


will  successfully  manage the risks of this  alliance  or that the terms of the
alliance will be finalized.

International Operations

As a result of its international sales and facilities,  the Company's operations
are subject to risks of doing  business  abroad,  including  but not limited to,
fluctuations  in the value of  currency,  export  duties,  changes to import and
export regulations (including quotas),  possible restrictions on the transfer of
funds,  associate  turnover,   labor  unrest,  longer  payment  cycles,  greater
difficulty  in  collecting  accounts  receivable,   the  burdens  and  costs  of
compliance  with a variety  of foreign  laws and in certain  parts of the world,
political  instability.  In  addition,  the  Company has  operations  in several
locations that are considered to have highly inflationary  economies or volatile
currencies,  including Mexico,  Brazil,  China and Romania.  While to date these
factors  have not had an adverse  material  impact on the  Company's  results of
operations,  there can be no assurance  that there will not be such an impact in
the future.

Southeast Asia and Latin America are currently experiencing  currency,  economic
and  political   instability.   To  date,  the  Company's  operations  have  not
experienced  significant adverse effects from this instability.  However, to the
extent the  Company's  worldwide  customers  sell the products  manufactured  by
Solectron  into the Southeast  Asia and Latin America  markets,  the  customers'
sales may be adversely  affected,  which could decrease demand for the Company's
manufacturing  services.  The Company cannot predict  whether such a decrease in
demand will materialize and if it does, whether it will have an adverse material
effect on the Company's results of operations.

The Malaysian government recently adopted currency exchange controls,  including
controls on ringgit held outside Malaysia, and established a fixed exchange rate
for the ringgit  against the U.S.  dollar.  The  Company  does not hold  ringgit
outside of Malaysia and therefore  will not be affected by these  controls.  The
fixed exchange rate, when applied to local expenses denominated in ringgit, will
result in higher expenses when translated to U.S. dollars.  However,  such local
expenses represent a small percentage of the Company's total costs and therefore
the Company's  results of operations will not be  significantly  affected in the
near future.  The long term impact of such  controls is not  predictable  due to
dynamic  economic  conditions that also affect or are affected by other regional
or global economies.

The Company  has been  granted a tax  holiday  for its  Malaysia  sites which is
effective through January 31, 2002, subject to certain  conditions.  The Company
has also been  granted  various tax  holidays in China.  These tax  holidays are
effective for various terms and are subject to certain  conditions.  There is no
assurance  that the current tax holidays  will not be  terminated or modified or
that any future tax holidays  that the Company may seek will be granted.  If the
current tax holidays are  terminated or modified or if  additional  tax holidays
are not granted in the future,  the  Company's  effective  income tax rate would
likely increase.

Foreign Exchange Rate Sensitivity

The Company does not use derivative financial instruments for speculative
purposes. The Company's policy is to hedge its foreign currency denominated
transactions in a manner that substantially offsets the effects of changes in
foreign currency exchange rates. The Company 


                                       23
<PAGE>

uses foreign currency borrowings and foreign currency forward contracts to hedge
the currency risks of transactions denominated in foreign currencies.  Gains and
losses on these foreign  currency hedges are generally  offset by  corresponding
losses  and  gains  on  the  underlying  transaction.   At  November  30,  1998,
approximately 88% of its derivative  instruments mature in three months or less.
There were no material  deferred  gains or losses at November 30, 1998,  and the
Company does not hold or issue foreign exchange  contracts for trading purposes.
In addition, the Company's  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.  However,  because  less  than 10% of net
sales are denominated in currencies other than the U.S. dollar, the Company does
not believe its total exposure to be significant.

Euro Conversion Issues

Effective  January 1, 1999, 11 of the 15 member  countries of the European Union
(the participating  countries)  established fixed conversion rates between their
existing  sovereign   currencies  and  the  euro.  For  three  years  after  the
introduction  of the euro,  the  participating  countries can perform  financial
transactions  in either the euro or their original local  currencies.  This will
result in a fixed exchange rate among the participating  countries,  whereas the
euro (and the  participating  countries'  currencies in tandem) will continue to
float freely against the U.S. dollar and other  currencies of  non-participating
countries.

The Company has a task force which is constantly  evaluating  the effects of the
euro  conversion  on the Company.  Solectron  does not believe that  significant
modifications  of its  information  technology  systems  are  needed in order to
handle euro  transactions  and  reporting,  and the Company is in the process of
evaluating its tax positions and all outstanding  contracts in currencies of the
participating   countries  to  determine  the  effects,  if  any,  of  the  euro
conversion.  The  Company  does  not  expect  the  euro  conversion  to  have  a
significant  impact on its  derivatives as the Company has already  modified its
hedging  policies to take the euro  conversion  into account.  While the Company
currently  believes that the effects of the conversion do not have a significant
adverse material effect on the Company's  business and operations,  there can be
no assurances that such  conversion will not have an adverse  material effect on
the Company's  results of operations  and financial  position due to competitive
and  other  factors  that may be  affected  by the  conversion  that  cannot  be
predicted by the Company.

Availability of Components

A  substantial  portion  of the  Company's  net sales is  derived  from  turnkey
manufacturing  in which the Company  provides  both  materials  procurement  and
assembly.  In turnkey  manufacturing,  the Company potentially bears the risk of
component  price  increases,  which could  adversely  affect the Company's gross
profit margins.  At various times there have been shortages of components in the
electronics  industry.  If significant shortages of components should occur, the
Company may be forced to delay manufacturing and shipments,  which could have an
adverse material effect on the Company's results of operations.


                                       24
<PAGE>

Potential Fluctuations in Operating Results

The Company's  operating results are affected by a number of factors,  including
the mix of turnkey and  consignment  projects,  the mix of printed circuit board
assembly and systems build projects,  capacity  utilization,  price competition,
the  degree  of  automation  that  can be  used  in the  assembly  process,  the
efficiencies  that can be achieved by the  Company in managing  inventories  and
fixed assets, the timing of orders from major customers,  fluctuations in demand
for customer  products,  the timing of expenditures in anticipation of increased
sales, customer product delivery requirements, and increased costs and shortages
of components or labor. Turnkey manufacturing currently represents a substantial
portion of Solectron's sales. Turnkey projects, in which Solectron procures some
or all of the components necessary for production, typically generate higher net
sales and  higher  gross  profits  with  lower  gross  margin  percentages  than
consignment  projects due to the inclusion in Solectron's  operating  results of
sales and costs  associated with the purchase and sale of components.  Solectron
assembles  products with varying  degrees of material  content,  which may cause
Solectron's gross margin to fluctuate. In addition, the degree of start-up costs
and  inefficiencies  associated  with new sites and new  customer  projects  may
affect  Solectron's gross margin. All of these factors can cause fluctuations in
the Company's operating results.

Interest Rate Sensitivity

The primary  objective of the  Company's  investment  activities  is to preserve
principal  while  at the  same  time  maximizing  yields  without  significantly
increasing risk. To achieve this objective,  the Company maintains its portfolio
of  cash-equivalents  and  short-term  investments  in a variety of  securities,
including both government and corporate obligations, certificates of deposit and
money market funds. As of November 30, 1998,  approximately 85% of the Company's
portfolio  mature in less than 6 months.  Because the Company's  investments are
diversified  and of relatively  short maturity,  a hypothetical  10% increase in
interest  rates  would not have a  material  effect on the  Company's  financial
position.

The Company  has entered  into an  interest  rate swap  transaction  under which
Solectron pays a fixed rate of interest  hedging  against the variable  interest
rates charged by the lessor for the facility lease at Milpitas,  California. The
interest rate swap expires in the year of 2002 which coincides with the maturity
date of the lease term.  As the Company  intends to hold the interest  rate swap
until the maturity  date,  the Company is not subject to market  risk.  In fact,
such  interest  rate swap has fixed the  interest  rate for the  facility  lease
reducing interest rate risk.

The Company's debt  instruments  are subject to fixed interest rates and, in the
case of the  convertible  notes, to fixed  conversion  ratios into the Company's
common stock.  In addition,  the amount of principal to be repaid at maturity is
also fixed.  Therefore,  the Company is not subject to market risk from its debt
instruments.

Competition

The electronics  manufacturing  services industry is comprised of a large number
of companies,  several of which have  achieved  substantial  market  share.  The
Company also faces  competition  from  current and  prospective  customers  that
evaluate Solectron's  capabilities against the merits of manufacturing  products
internally. Solectron competes with different


                                       25
<PAGE>

companies  depending  on  the  type  of  service  or  geographic  area.  Certain
competitors may have greater manufacturing,  financial, research and development
and marketing resources than the Company.  The Company believes that the primary
bases of  competition  in its  targeted  markets are  manufacturing  technology,
quality, responsiveness,  the provision of value-added services and price. To be
competitive,  the Company must provide  technologically  advanced  manufacturing
services,  high product quality levels, flexible delivery schedules and reliable
delivery  of  finished  products on a timely and price  competitive  basis.  The
Company currently may be at a competitive disadvantage as to price when compared
to  manufacturers  with  lower cost  structures,  particularly  with  respect to
manufacturers with established facilities where labor costs are lower.

Intellectual Property Protection

The  Company's  ability to compete may be affected by its ability to protect its
proprietary  information.  The Company  holds a limited  number of U.S.  patents
related to the process and equipment used in its surface mount  technology.  The
Company's subsidiary, Force Computers, also holds a number of patents related to
VME technology. The Company believes these patents are valuable.  However, there
can be no assurance  that these patents will provide  meaningful  protection for
the  Company's  manufacturing  process  and  equipment  innovations  or  Force's
technology.  There  can be no  assurance  that  third  parties  will not  assert
infringement  claims against the Company or its customers in the future,  either
against  the patents  the  Company  holds  itself or against the IBM patents and
other  intellectual  property rights that the Company has the right to practice.
In the event a third party does assert an infringement claim, the Company may be
required  to  expend   significant   resources   to  develop  a   non-infringing
manufacturing  process or technology or to obtain licenses to the  manufacturing
process  or  technology  that is the  subject  of  litigation.  There  can be no
assurance  that the Company would be successful in such  development or that any
such licenses would be available on commercially acceptable terms, if at all. In
addition,  such litigation could be lengthy and costly and could have an adverse
material effect on the Company's financial  condition  regardless of the outcome
of such litigation.

Environmental Compliance

The Company is subject to a variety of environmental regulations relating to the
use,  storage,  discharge  and disposal of hazardous  chemicals  used during its
manufacturing  process.  Any failure by the  Company to comply with  present and
future  regulations could subject it to future  liabilities or the suspension of
production.  In addition,  such regulations could restrict the Company's ability
to expand  its  facilities  or could  require  the  Company  to  acquire  costly
equipment or to incur other  significant  expenses to comply with  environmental
regulations.

Dependence on Key Personnel and Skilled Associates

The Company's  continued  success depends to a large extent upon the efforts and
abilities of key  managerial and technical  associates.  The loss of services of
certain key personnel could have an adverse material effect on the Company.  The
Company's  business  also  depends  upon its  ability to continue to attract and
retain senior managers and skilled associates.  Failure to do so could adversely
affect the Company's operations.


                                       26
<PAGE>


Possible Volatility of Market Price of Common Stock

The trading price of the common stock is subject to significant  fluctuations in
response to variations in quarterly operating results, general conditions in the
electronics industry and other factors. In addition, the stock market is subject
to price and volume  fluctuations  that  affect  the market  price for many high
technology  companies in  particular,  and that often are unrelated to operating
performance.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Management's Discussion and Analysis of Financial Condition and Results of
Operations "Trends and Uncertainties -- Interest Rate Sensitivity" and "--
Foreign Exchange Rate Sensitivity."



                                       27
<PAGE>


SOLECTRON CORPORATION AND SUBSIDIARIES



Part II. OTHER INFORMATION

Item 1:  Legal Proceedings

         None

Item 2:  Changes in Securities

         None

Item 3:  Defaults upon Senior Securities

         None

Item 4:  Submission of Matters to a Vote of Security Holders

         None

Item 5:  Other Information

         None

Item 6:  Exhibits and Reports on Form 8-K

         (a) Exhibits

             27.1  Financial Data Schedule - Three Months Ended
                   November 27, 1998

             27.2  Restated Financial Data Schedule - Three Months Ended
                   November 28, 1997

         (b)  Reports on Form 8-K

                   None


                                       28
<PAGE>


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 8, 1999             By: /s/ Susan Wang
                                     ----------------------
                                     Susan S. Wang
                                     Senior Vice President, Chief
                                     Financial Officer and Secretary
                                    (Principal Financial and
                                     Accounting Officer)





                                       29
<PAGE>


                                  EXHIBIT INDEX

Exhibit Number    Document
--------------    --------
27.1              Financial Data Schedule - Three Months Ended November 27, 1998

27.2              Restated Financial Data Schedule - Three Months Ended
                  November 28, 1997