**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-Q**

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(MARK ONE)

**[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended **June 1, 2001****

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

**FOR THE TRANSITION PERIOD FROM ___________ TO  _____________**

**Commission file number 1-11098**

**SOLECTRON CORPORATION**(Exact name of registrant as specified in its charter)



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

**777 Gibraltar DriveMilpitas, California     95035**(Address of principal executive offices including zip code)

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







Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.    YES [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 June 30, 2001,  656,705,994  shares of Common Stock of the  Registrant  were
outstanding.







**SOLECTRON CORPORATION
                           Index to Form 10-Q for The
                           Quarter Ended May 31, 2001
                                     INDEX**



|**PART I.   Financial Information**                                                                                                                     | **Page No.**
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                                        |             
|Item 1.   Financial Statements                                                                                                                          |             
|                                                                                                                                                        |             
|Condensed Consolidated Balance Sheets at
          
         May 31, 2001 and August 31, 2000                                                           | 3           
|                                                                                                                                                        |             
|Condensed Consolidated Statements of Operations
          
         for the three months and nine months ended
         May 31, 2001 and 2000           | 4           
|                                                                                                                                                        |             
|Condensed Consolidated Statements of Comprehensive Income
          
         for the three months and nine months ended
         May 31, 2001 and 2000 | 5           
|                                                                                                                                                        |             
|Condensed Consolidated Statements of Cash Flows
          
         for the nine months ended
         May 31, 2001 and 2000                            | 6           
|                                                                                                                                                        |             
|Notes to Condensed Consolidated Financial
         Statements                                                                                           | 7           
|                                                                                                                                                        |             
|Item 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                   | 14          
|                                                                                                                                                        |             
|Item 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                                    | 34          
|                                                                                                                                                        |             
|**PART II.  Other Information**                                                                                                                         |             
|                                                                                                                                                        |             
|Item 1.  Legal Proceedings                                                                                                                              | 35          
|                                                                                                                                                        |             
|Item 2.  Changes in Securities                                                                                                                          | 36          
|                                                                                                                                                        |             
|Item 3.  Defaults Upon Senior Securities                                                                                                                | 36          
|                                                                                                                                                        |             
|Item 4.  Submission of Matters to a Vote of Security Holders                                                                                            | 36          
|                                                                                                                                                        |             
|Item 5.  Other Information                                                                                                                              | 36          
|                                                                                                                                                        |             
|Item 6.   Exhibits and Reports on Form 8-K                                                                                                              | 36          
|                                                                                                                                                        |             
|**Signature**                                                                                                                                           | 37          

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**PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS**

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**SOLECTRON CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                  (In millions)**

`May 31,       August 31,
                                                           2001          2000
                                                       ------------  ------------
                                                       (unaudited)
ASSETS
Current assets:
  Cash, cash equivalents and short-term investments.. $    2,175.9  $    2,434.1
  Accounts receivable, net...........................      2,391.4       2,146.3
  Inventories........................................      4,201.7       3,787.3
  Prepaid expenses and other current assets..........        312.7         260.5
                                                       ------------  ------------
    Total current assets.............................      9,081.7       8,628.2
Net property and equipment...........................      1,381.1       1,080.4
Other assets.........................................        844.5         627.4
Goodwill.............................................      1,985.2          39.6
                                                       ------------  ------------
Total assets......................................... $   13,292.5  $   10,375.6
                                                       ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term debt.................................... $      337.6  $       69.2
  Accounts payable...................................      2,040.5       2,694.1
  Accrued employee compensation......................        203.0         179.8
  Accrued expenses...................................        120.7         262.5
  Other current liabilities..........................        146.3          11.2
                                                       ------------  ------------
    Total current liabilities........................      2,848.1       3,216.8
Long-term debt.......................................      4,977.2       3,319.5
Other long-term liabilities..........................         57.2          37.2
                                                       ------------  ------------
    Total liabilities................................      7,882.5       6,573.5
                                                       ------------  ------------
Committments

Stockholders' equity:
  Common stock.......................................          0.7           0.6
  Additional paid-in capital.........................      3,847.9       2,259.1
  Retained earnings..................................      1,781.9       1,656.8
  Accumulated other comprehensive losses.............       (220.5)       (114.4)
                                                       ------------  ------------
     Total stockholders' equity......................      5,410.0       3,802.1
                                                       ------------  ------------
Total liabilities and stockholders' equity........... $   13,292.5  $   10,375.6
                                                       ============  ============`

See accompanying notes to condensed consolidated financial statements.

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**SOLECTRON CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In millions, except per share data)

                                   (Unaudited)**

`Three Months Ended           Nine Months End
                                                May 31,                    May 31,
                                      --------------------------  --------------------------
                                          2001          2000          2001          2000
                                      ------------  ------------  ------------  ------------
Net sales........................... $    3,983.4  $    3,645.0  $   15,097.4  $    9,401.3
Cost of sales.......................      3,677.7       3,339.5      13,818.8       8,538.9
                                      ------------  ------------  ------------  ------------
Gross profit........................        305.7         305.5       1,278.6         862.4
Operating expenses:
  Selling, general and
    administrative..................        203.1         111.3         580.8         319.4
  Research and development..........         19.5          15.7          55.8          44.7
  Goodwill amortization expense.....         52.3           1.3          87.8           3.9
  Acquisition costs.................          0.3           5.2          29.5          25.5
  Restructuring and
    impairment costs................        285.0           1.8         310.3           7.7
                                      ------------  ------------  ------------  ------------
      Operating (loss) income.......       (254.5)        170.2         214.4         461.2
Interest income.....................         22.7          24.0          95.9          67.4
Interest expense....................        (48.2)        (16.7)       (128.0)        (40.6)
                                      ------------  ------------  ------------  ------------
(Loss) income before income taxes
  and cumulative effect of
  change in accounting principle....       (280.0)        177.5         182.3         488.0
Income taxes........................        (94.3)         57.8          55.5         158.3
                                      ------------  ------------  ------------  ------------
(Loss) income before cumulative
  effect of change in
  accounting principle..............       (185.7)        119.7         126.8         329.7
Cumulative effect of change
  in accounting principle
  for start-up costs, net of
  $1.6 income tax benefit...........        --            --            --             (3.5)
                                      ------------  ------------  ------------  ------------
     Net (loss) income.............. $     (185.7) $      119.7  $      126.8  $      326.2
                                      ============  ============  ============  ============
Basic net (loss) income per share:
 (Loss) income before cumulative
  effect of change in
  accounting principle.............. $      (0.28) $       0.20  $       0.20          0.55
 Cumulative effect of change
  in accounting principle...........           --         --            --            (0.01)
                                      ------------  ------------  ------------  ------------
                                     $      (0.28) $       0.20  $       0.20          0.54
                                      ============  ============  ============  ============
 Diluted net (loss) income per share
  (Loss) income before cumulative
   effect of change in
   accounting principle............. $      (0.28) $       0.19  $       0.19          0.53
  Cumulative effect of change
   in accounting principle..........           --         --            --            (0.01)
                                      ------------  ------------  ------------  ------------
                                     $      (0.28) $       0.19  $       0.19          0.52
                                      ============  ============  ============  ============
Shares used to compute net
 (loss) income per share:
     Basic..........................        654.1         601.4         636.9         597.8
                                      ============  ============  ============  ============

     Diluted........................        654.1         623.8         653.1         622.7
                                      ============  ============  ============  ============`

See accompanying notes to condensed consolidated financial statements.

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**SOLECTRON CORPORATION AND SUBSIDIARIES

                         CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                              (In millions)

                                               (Unaudited)**

`Three Months Ended         Nine Months End
                                                   May 31,                     May 31,
                                         --------------------------  --------------------------
                                             2001          2000          2001          2000
                                         ------------  ------------  ------------  ------------
Net (loss) income...................... $     (185.7) $      119.7   $     126.8  $      326.2
Other comprehensive income (loss):
 Foreign currency translation
  adjustments, net of income
  tax benefit of $0.6 and $0.4
  for the three- and nine-month
  periods in fiscal 2001 ..............        (72.0)        (21.0)       (101.1)        (33.7)
 Unrealized loss on investments
  and derivatives, net of income
  tax benefit of $0.2 and $3.0
  for the three- and nine-month
  periods in fiscal 2001 ..............         (0.2)         (0.8)         (4.9)         (1.6)
                                         ------------  ------------  ------------  ------------
Comprehensive (loss) income............ $     (257.9) $       97.9   $      20.8  $      290.9
                                         ============  ============  ============  ============`

Accumulated foreign currency translation losses were $220.8
million at May 31, 2001 and $119.6 million at August 31, 2000. The foreign
currency translation losses for fiscal year 2000 and for the nine months ended
May 31, 2001 primarily resulted from the unrealized losses on dollar-denominated
debt held by certain foreign subsidiaries. As most of Solectron's foreign
currency translation adjustment amounts relate to investments that are permanent
in nature, no adjustment for income taxes is made. Accumulated unrealized gain
on investments and derivatives was $0.3 million at May 31, 2001, and $5.2
million at August 31, 2000.

See accompanying notes to condensed consolidated financial statements.

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**SOLECTRON CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                               (In millions)

                                   (Unaudited)**

`Nine Months End
                                                                                      May 31,
                                                                              ------------------------
                                                                                  2001         2000
                                                                              -----------  -----------
Cash flows from operating activities:
  Net income................................................................ $     126.8  $     326.2
  Adjustments to reconcile net income to net cash
   used in operating activities:
     Depreciation and amortization..........................................       389.8        173.1
     Impairment of fixed assets and other long-term assets..................       139.4          --
     Amortization of debt issuance costs and
       accretion of discount on notes payable...............................       108.8         27.4
     Tax benefit associated with the exercise of stock options..............        40.1         52.6
     Cumulative effect of change in accounting principle for start-up costs.         --           3.5
     Loss on disposal of property and equipment.............................         3.2          --
     Other..................................................................        18.6         (4.7)
     Changes in operating assets and liabilities:
       Accounts receivable..................................................        84.9       (637.7)
       Inventories..........................................................       (21.9)    (1,192.4)
       Prepaid expenses and other current assets............................       (27.0)       (98.6)
       Accounts payable.....................................................      (989.9)       874.3
       Accrued expenses and other
        current liabilities.................................................      (103.1)       198.7
                                                                              -----------  -----------
     Net cash used in
       operating activities.................................................      (230.3)      (277.6)
                                                                              -----------  -----------
Cash flows from investing activities:
  Sales and maturities of short-term investments............................     1,169.1        699.8
  Purchases of short-term investments.......................................      (540.5)    (1,079.1)
  Purchase of NatSteel Electronics Ltd, net of cash acquired ...............    (2,399.5)         --
  Cash acquired in business combination ....................................         8.1          --
  Acquisition of manufacturing assets and locations.........................       (84.0)      (297.7)
  Capital expenditures......................................................      (454.9)      (323.5)
  Proceeds from sale of property and equipment..............................        83.6         71.7
  Other.....................................................................      (148.5)       (13.5)
                                                                              -----------  -----------
     Net cash used in investing
      activities............................................................    (2,366.6)      (942.3)
                                                                              -----------  -----------
Cash flows from financing activities:
  Net proceeds from bank lines of credit....................................       121.0          4.5
  Repayment of borrowings under bank lines of credit........................      (113.8)         --
  Net proceeds from long-term debt..........................................     1,544.2      2,297.3
  Principal payments on long-term debt......................................       (15.3)        (0.5)
  Net proceeds from stock issued under
   option and employee purchase plans.......................................        54.8         97.1
  Net proceeds from issuance of common stock................................     1,429.0         11.1
  Other.....................................................................        17.0          6.9
                                                                              -----------  -----------
    Net cash provided by financing
    activities..............................................................     3,036.9      2,416.4
                                                                              -----------  -----------
Effect of exchange rate changes on
 cash and cash equivalents..................................................       (69.5)       (15.2)
                                                                              -----------  -----------
Net increase in cash and cash equivalents...................................       370.5      1,181.3
Cash and cash equivalents at beginning of period............................     1,475.5      1,417.4
                                                                              -----------  -----------
Cash and cash equivalents at
 end of period.............................................................. $   1,846.0  $   2,598.7
                                                                              ===========  ===========
SUPPLEMENTAL DISCLOSURES
Cash paid during the period:
   Income taxes............................................................. $      11.0  $     103.3
   Interest................................................................. $     144.5  $      15.8
Non-cash investing activities:
   Issuance of common stock for business
     combination, net of cash acquired...................................... $      56.1  $       1.0`

See accompanying notes to condensed consolidated financial statements.

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SOLECTRON CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

NOTE 1 - Basis of Presentation

The accompanying unaudited condensed consolidated balance
sheet as of May 31, 2001, and the related unaudited condensed consolidated
statements of operations and comprehensive income for the three and nine months
ended May 31, 2001 and 2000, and cash flows for the nine-months ended May 31,
2001 and 2000, 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 condensed consolidated
balance sheet as of August 31, 2000 was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto for the year ended August 31, 2000, included in the Company's Annual
Report to Stockholders.

The Company's third quarter of fiscal 2001 ended June 1,
2001, its third quarter of fiscal 2000 ended May 26, 2000 and its 2000 fiscal
year ended August 25, 2000. For clarity of presentation, the Company has
indicated its third fiscal quarters as having ended May 31, 2001 and 2000, and
its fiscal year ended August 31, 2000.

As of the beginning of the third quarter of fiscal 2001, the
Company changed depreciation lives on certain equipment from four to five years.
Consequently, the depreciation charge on these assets was $11.8 million lower
than it would have been using a four-year life.

NOTE 2 - Inventories

Inventories consisted of (in millions):

`May 31,        August 31,
                                           2001            2000
                                      --------------  --------------
          Raw materials............. $      3,328.8  $      3,043.0
          Work-in-process...........          436.7           558.9
          Finished goods............          436.2           185.4
                                      --------------  --------------
          Total..................... $      4,201.7  $      3,787.3
                                      ==============  ==============`

NOTE 3 - Net Income (Loss) Per Share

The following table sets forth the computation of basic
and diluted net income (loss) per share for the three- and nine-month periods
ended May 31, 2001 and 2000.

`Three Months Ended             Nine Months Ended
                                                 May 31,                        May 31,
                                      ------------------------------  ---------------------------
                                          2001            2000            2001            2000
                                      --------------  --------------  -------------- ------------
                                                 (in millions, except per share data)

Income (loss) before cumulative
  effect of change in
  accounting principle.............. $       (185.7) $        119.7 $         126.8 $      329.7
Cumulative effect of change
  in accounting principle,
  net of tax .......................           --              --              --           (3.5)
                                      --------------  --------------  --------------  -----------
Net (loss) income - diluted......... $       (185.7) $        119.7 $         126.8 $      326.2
                                      ==============  ==============  ==============  ===========

Weighted average shares - basic.....          654.1           601.4           636.9        597.8
Common shares issuable upon
  exercise of stock options.........             --            22.4            16.3         24.9
                                      --------------  --------------  --------------  -----------
Weighted average shares
  diluted...........................          654.1           623.8           653.2        622.7
                                      ==============  ==============  ==============  ===========

Basic net (loss) income per share:
 Income (loss) before cumulative
   effect of change in
   accounting principle............. $        (0.28) $         0.20 $          0.20 $       0.55
 Cumulative effect of change
   in accounting principle..........        --                   --              --        (0.01)
                                      --------------  --------------  --------------  -----------
    Net (loss) income per share..... $        (0.28) $         0.20 $          0.20 $       0.54
                                      ==============  ==============  ==============  ===========

Diluted net income (loss) per share:
 Income (loss) before cumulative
   effect of change in
   accounting principle............. $        (0.28) $         0.19 $          0.19 $       0.53
 Cumulative effect of change
   in accounting principle..........        --              --                   --        (0.01)
                                      --------------  --------------  --------------  -----------
     Net (loss) income per share.... $        (0.28) $         0.19 $          0.19 $       0.52
                                      ==============  ==============  ==============  ===========`

For the three-month period ended May 31, 2001, a total
of 45.5 million options were not included in the calculation because the effect
would have been antidilutive. For the nine-month period ended May 31, 2001, the
exercise prices for 15.3 million options were greater than the average market
prices of the stock at $33.52. Consequently, these options were not included in
the calculation because the effect would have been antidilutive. For the three-
and nine-month periods ended May 31, 2000, the exercise prices for 1.9 million
options for both of these periods were greater than the average market price of
$38.66 and $39.43, respectively, and were not included in the calculation
because the effect would have been antidilutive.

In addition, the calculation for the three- and nine-month
periods ended May 31, 2001, did not include the 108.6 million and 97.9 million,
respectively, common shares issuable upon conversion of the zero-coupon senior
convertible notes, as the effect would have been antidilutive. For the
comparable periods in fiscal 2000, the calculation did not include the 35.1 and
74.3 million, respectively, common shares issuable upon conversion of the zero-
coupon senior convertible notes, as the effect would have been antidilutive.

NOTE 4 - Commitments

Solectron leases various facilities under operating lease
agreements. The facility leases outstanding on May 31, 2001 expire at various
dates through 2004. All such leases require Solectron to pay property taxes,
insurance and normal maintenance costs. Payments of some leases are periodically
adjusted based on LIBOR rates. Certain leases for Solectron's facilities,
including Fremont, Milpitas and San Jose, California; Everett, Washington;
Suwanee, Georgia; Columbia, South Carolina; and Nakaniida, Japan, provide
Solectron with an option at the end of the lease term to either acquire the
property at its original cost or arrange for the property to be acquired. In the
event Solectron does not purchase the properties or reach an agreement with the
lessor to extend the lease at the end of the respective lease terms, Solectron
is contingently liable under a first loss clause for a decline in market value
of such leased facilities up to 85% of the original costs, or approximately
$308.3 million in total as of May 31, 2001. Under such agreements, the Company
must also maintain compliance with financial covenants similar to its credit
facilities. As of May 31, 2001, Solectron was in compliance with all of its
lease facility financial covenants.

Additionally, Solectron periodically enters into lease
arrangements with third-party leasing companies under which it sells fixed
assets and leases them back from the leasing companies. Solectron accounts for
these leases as operating leases.

NOTE 5 - Segment Information

The Company operates as three strategic business units -
manufacturing and operations, technology solutions, and global services. Each
business unit has its own president and support staff. Solectron's management
uses an internal management reporting system, which provides important financial
data to evaluate performance and allocate resources for the three business
units. Certain corporate expenses were allocated to these operating segments and
were included for performance evaluation. Some amortization expenses were also
allocated to these business units, but the related intangible assets were not
allocated. The accounting policies for the segments were the same as for
Solectron taken as a whole.

Segment information by business units and geography for the
three- and nine-month periods ended May 31, 2001 and 2000, was as follows:

`Three Months Ended             Nine Months Ended
                                             May 31,                       May 31,
                                 --------------------------    --------------------------
                                     2001          2000            2001          2000
                                 ------------  ------------    ------------  ------------
                                                        (in millions)
Net sales:
 Manufacturing and operations.. $    3,606.0  $    3,215.9    $   13,793.6  $    8,208.4
 Technology solutions..........        293.4         363.4         1,082.0       1,035.1
 Global services...............         84.0          65.7           221.8         157.8
                                 ------------  ------------    ------------  ------------
                                $    3,983.4  $    3,645.0    $   15,097.4  $    9,401.3
                                 ============  ============    ============  ============
Depreciation and amortization:
 Manufacturing and operations.. $      149.0  $       60.0    $      359.5  $      140.9
 Technology solutions..........          6.7           6.6            21.3          21.0
 Global services...............          2.9           1.8             9.0          11.2
                                 ------------  ------------    ------------  ------------
                                $      158.6  $       68.4    $      389.8  $      173.1
                                 ============  ============    ============  ============
Interest income:
 Manufacturing and operations.. $        4.2  $        1.8    $       11.9  $        5.7
 Technology solutions..........          0.4           1.9             1.6           5.0
 Global services...............           --           0.1             0.1           0.1
 Corporate.....................         18.1          20.2            82.3          56.6
                                 ------------  ------------    ------------  ------------
                                $       22.7  $       24.0    $       95.9  $       67.4
                                 ============  ============    ============  ============
Interest expense:
 Manufacturing and operations.. $        4.9  $        1.9    $       13.9  $        4.2
 Technology solutions..........          0.6           0.3             1.0           0.8
 Global services...............           --           0.5              --           0.9
 Corporate.....................         42.7          14.0           113.1          34.7
                                 ------------  ------------    ------------  ------------
                                $       48.2  $       16.7    $      128.0  $       40.6
                                 ============  ============    ============  ============
Pre-tax (loss) income:
 Manufacturing and operations.. $     (222.9) $      156.5    $      212.6  $      444.5
 Technology solutions..........        (33.9)         20.3             8.9          44.4
 Global services...............         11.1          (5.9)           28.1          (0.5)
 Corporate.....................        (34.3)          6.6           (67.3)         (0.4)
                                 ------------  ------------    ------------  ------------
                                $     (280.0) $      177.5    $      182.3  $      488.0 a
                                 ============  ============    ============  ============
Capital expenditures:
 Manufacturing and operations.. $       35.0  $      110.1    $      395.3  $      270.9
 Technology solutions..........          1.7           7.9            18.7          21.6
 Global services...............          0.8           3.1             8.4          11.5
 Corporate.....................          2.8           6.9            32.5          19.5
                                 ------------  ------------    ------------  ------------
                                $       40.3  $      128.0    $      454.9  $      323.5
                                 ============  ============    ============  ============

Geographic net sales:
 North America................. $    1,642.3  $    2,093.6    $    7,355.6  $    5,727.7
 Europe........................        798.9         565.7         2,832.7       1,183.8
 Asia Pacific & Other..........      1,542.2         985.7         4,909.1       2,489.8
                                 ------------  ------------    ------------  ------------
                                $    3,983.4  $    3,645.0    $   15,097.4  $    9,401.3
                                 ============  ============    ============  ============


                                    May 31,     August 31,
                                     2001          2000
                                 ------------  ------------
                                      (in millions)
Total assets:
 Manufacturing and operations.. $    6,875.1  $    5,303.4
 Technology solutions..........        531.8         500.2
 Global services...............        216.1         222.2
 Corporate.....................      5,669.5       4,349.8
                                 ------------  ------------
                                $   13,292.5  $   10,375.6
                                 ============  ============


 North America................. $    8,548.8  $    6,060.8
 Europe........................      1,303.7       1,864.8
 Asia Pacific & Other..........      3,440.0       2,450.0
                                 ------------  ------------
                                $   13,292.5  $   10,375.6
                                 ============  ============`

1. Excludes $5.1 million pretax charge for cumulative effect of
change in accounting principle for start-up costs.

NOTE 6 - Zero-Coupon Convertible Senior Notes

In November 2000, Solectron issued 2,900,000 zero-coupon
convertible senior notes at an issue price of $524.78 per note, which resulted
in net proceeds to Solectron of approximately $1.5 billion. These notes are
unsecured and unsubordinated indebtedness of Solectron with a maturity value
aggregating $2.9 billion. Solectron will pay no interest prior to maturity. Each
note has a yield of 3.25% with a maturity value of $1,000 on November 20, 2020.
Solectron is amortizing the issue discount using the effective interest method
over the term of the notes. Each note is convertible at any time by the holder
at a conversion rate of 11.7862 shares per note. Holders may require Solectron
to purchase all or a portion of their notes on May 20, 2004, November 20, 2005
and November 20, 2010, at a price of $587.46, $616.57 and $724.42 per note,
respectively, payable in cash or common stock at the option of Solectron. Also,
each holder may require Solectron to repurchase all or a portion of such
holder's notes if a change in control of the Company occurs on or before May 20,
2004. Solectron, at its option, may redeem all or a portion of the notes at any
time on or after May 20, 2004.

NOTE 7 - Stockholders' Equity

In November 2000, Solectron issued 35 million shares of
its common stock at a price of $34.25 per share, less a 98 cent per share
underwriter's discount, resulting in a net per share price of $33.27. Total net
proceeds after underwriter's discount and issuance costs were approximately
$1.16 billion.

NOTE 8 - Accounting Pronouncements

On September 1, 2000, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137 and No. 138.

Solectron enters into short-term foreign currency forward
contracts and borrowings to hedge only those currency exposures associated with
certain assets and liabilities denominated in non-functional currencies. These
contracts' fair value is recorded on the balance sheet with corresponding
charges or credits to income. The fair value of these short-term foreign
currency forward contracts was not material from adoption of the standard
through the third quarter of fiscal 2001.

In addition, the Company periodically hedges variability in
cash flows resulting from fluctuating interest rates. The Company entered into
an interest rate swap agreement with a notional amount of $52 million, maturing
on June 3, 2002, to hedge against varying rental payments associated with an
operating lease that requires payments based on LIBOR. This swap agreement was
designated as a cash flow hedge upon adoption of the standard and the
ineffective portion of the hedge was not material. Accordingly, changes in the
fair value of this interest rate swap designated as a cash flow hedge are
included in Accumulated Other Comprehensive Income (AOCI). These amounts are
subsequently reclassified into rent expense during the period in which the
LIBOR-based lease agreement affects earnings.

From the adoption through the third quarter of fiscal 2001,
the fair value of the swap agreement was not significant.

NOTE 9 - Acquisitions

During the second quarter of the fiscal 2001, the Company
completed acquisitions of NatSteel Electronics Ltd. (NEL), Sony's manufacturing
facilities in Japan and Taiwan as well as IBM's repair center in the
Netherlands. The Company accounted for these acquisitions using the purchase
method of accounting and did not record any goodwill related to the Sony and IBM
transactions.

In connection with the NEL acquisition, the Company purchased
all of the outstanding issued share capital and convertible bonds of NEL for
approximately $2.3 billion and $122.4 million, respectively. As a result, the
Company recorded goodwill of approximately $1.97 billion. Goodwill is being
amortized in equal quarterly amounts over a ten-year period. The Company also
expensed acquisition and integration costs of $29.5 million related to the
acquisition of NEL.

The NEL purchase price was allocated as follows:

`Assets acquired............................ $       1,172.6
  Goodwill...................................         1,968.1
  Liabilities assumed........................          (808.3)
                                               ---------------

      Total purchase price................... $       2,332.4
                                               ===============`

On April 30, 2001, the Company completed its acquisition of
Centennial Technologies, Inc. for approximately 2.19 million shares of Solectron
common stock. The transaction was accounted for under the purchase method of
accounting and total consideration was approximately $64.5 million, including
$55.4 million recorded as goodwill. This goodwill is being amortized in equal
quarterly amounts over a ten-year period.

NOTE 10 - Restructuring and Impairment

The current quarter restructuring and impairment charge
was taken in connection with Solectron's plan to review its operations in light
of the current economic downturn and that it expected to undertake several
measures to restructure the company. The measures, which included reducing the
workforce, consolidating some facilities, relocating certain capabilities and
changing the strategic focus of a number of sites, was largely intended to align
its capacity and infrastructure to anticipated customer demand as well as
rationalize its footprint worldwide.

During the third quarter of fiscal 2001, total restructuring
and impairment costs of $285.0 million were charged against earnings. These
restructuring and impairment charges included employee severance and benefit
costs of approximately $41.8 million, costs related to facilities that will be
abandoned and subleased of approximately $44.7 million, costs related to
leased equipment that will be abandoned of approximately $56.2 million, impairment
of equipment held for disposal of approximately $99.9 million, impairment  of
facilities held for disposal of approximately $11.3 million, impairment of goodwill
and intangible assets related to closed facilities of approximately $28.2
million and other exit costs of approximately $2.9 million.

The employee severance and benefit costs related to the
elimination of 7,700 positions worldwide. Approximately 67% of the positions
eliminated were in the Americas region, 23% were in Europe and 10% were in
Asia/Pacific. The employment reductions primarily affected employees in
manufacturing and back office support functions. Facilities and equipment
subject to restructuring were primarily located in the Americas and Europe. For
leased facilities that will be abandoned and subleased, the lease costs represent
future lease payments subsequent to abandonment less estimated sublease income.
For facilities and equipment held for disposal, the impairment loss recognized was
based on the fair value less costs to sell with fair value based on estimates of
existing market prices for similar assets. As of May 31, 2001, 7,700 employees
have left the Company under this plan.

During the second quarter of the fiscal 2001, the Company
recorded restructuring costs of $25.3 million related to the consolidation of
certain facilities. These restructuring costs included fixed asset impairments
of $19.7 million, employee severance and benefit costs of approximately $3.2
million, and other exit costs of $2.4 million.

Below are  tables summarizing restructuring and impairment activity
in the second and third fiscal quarters of 2001:

`Severance
                                     and       Lease Payments   Lease Payments
(in millions)                      Benefits     on Facilities   on Equipment      Other       Total
                                 ------------  ---------------  -------------  -----------  ----------
Balance at February 28, 2001             3.2              --             --           2.4         5.6
Third Quarter 2001 Provision            41.8             44.7           56.2          2.9       145.6
Cash payments                          (31.2)             --             --          (0.1)      (31.3)
                                 ------------  ---------------  -------------  -----------  ----------
Balance at May 31, 2001                 13.8             44.7           56.2          5.2       119.9
                                 ============  ===============  =============  ===========  ==========


                                  Impairment                    Impairment on
                                 on Facilities  Impairment on   Goodwill and
                                     Held      Equipment Held    Intangible
                                  for Disposal  for Disposal       Assets         Total
                                 ------------  ---------------  -------------  -----------
Third Quarter 2001 Impairments          11.3             99.9           28.2        139.4

                                 ------------  ---------------  -------------  -----------
Balance at May 31, 2001                 11.3             99.9           28.2        139.4
                                 ============  ===============  =============  ===========`

NOTE 11 - Subsequent Events

On June 24, 2001 the Company announced that it completed
its acquisition of Singapore Shinei Sangyo Pte Ltd., a privately held
manufacturer and designer of enclosures for electronics products. Shinei will be
an independently operated subsidiary within Solectron's newly formed Power,
Packaging and Cooling unit, and continues to market its services to other
companies separately.

On July 2, 2001, the Company filed a registration statement
(the "Registration Statement") with the Securities and Exchange Commission
pursuant to Rule 415 under the Securities Act of 1933, as amended, pursuant to
which it may, from time to time, offer its debt securities, and shares of its
common stock and preferred stock (collectively, the "Securities"), which
together have an aggregate initial public offering price of up to $3.0 billion.
The Securities may be offered, separately or together, in separate series, in
amounts, at prices and on terms to be set forth in the prospectus contained in
the Registration Statement (the "Prospectus"), and in one or more supplements to
the Prospectus, and may only be offered pursuant thereto.

Solectron anticipates that the universal shelf Registration
Statement should provide flexibility and efficiency in accessing the public
securities markets should Solectron decide to offer any Securities for sale to
the public in the future, although it has no immediate plans to do so. Solectron
anticipates using the net proceeds of any eventual offerings under the
Registration Statement to fund the expansion of its operations to meet demand,
for general corporate purposes, or to finance the acquisition of assets or
businesses.

On July 2, 2001, the Company announced its Board of Directors
approval of the adoption of a Stockholder Rights Plan on June 29, 2001. Under
the plan, Solectron will issue a dividend of one right for each share of common
stock, par value of $0.001 per share, of the Company held by stockholders of
record at the close of business July 30, 2001.

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

Cautionary Statement Regarding Forward-Looking Statements

With the exception of historical facts, the statements
contained in this discussion are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the
Safe Harbor provisions created by that statute. 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 that involve risks and
uncertainties. Such statements, including, but not limited to, our fourth
quarter outlook, are based on current expectations and are subject to risk,
uncertainties and changes in condition, significance, value and effect,
including those discussed under the heading Risk Factors within the section of
this report entitled "Item 2," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and reports filed by Solectron
with the Securities and Exchange Commission, specifically, forms 8-K, 10-Q, 10-K,
S-3, S-4 and S-8. Such risks, uncertainties and changes in condition,
significance, value and effect could cause our actual results to differ
materially from our anticipated outcomes. Although we believe that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate, including, but not limited to, statements
about our future operating results and business plans. We disclaim any intention
or obligation to update or revise any forward-looking statements as a result of
new information, future events or otherwise.

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 materially harm Solectron's results of
operations. See "Risk Factors" for additional factors relating to possible
fluctuations of our 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         Nine Months Ended
                                                May 31,                     May 31,
                                      --------------------------  --------------------------
                                          2001          2000          2001          2000
                                      ------------  ------------  ------------  ------------
Net sales...........................        100.0 %       100.0 %       100.0 %       100.0 %
Cost of sales.......................         92.3          91.6          91.5          90.8
                                      ------------  ------------  ------------  ------------
Gross profit........................          7.7           8.4           8.5           9.2
Operating expenses:
  Selling, general and
    administrative..................          5.1           3.1           3.8           3.4
  Research and development..........          0.5           0.4           0.4           0.5
  Goodwill amortization expense.....          1.3            --           0.6            --
  Acquisition costs.................           --           0.1           0.2           0.3
  Restructuring and
    impairment costs................          7.2            --           2.1           0.1
                                      ------------  ------------  ------------  ------------
      Operating (loss) income.......         (6.4)          4.8           1.4           4.9
Interest income.....................          0.6           0.7           0.6           0.7
Interest expense....................         (1.2)         (0.5)         (0.8)         (0.4)
                                      ------------  ------------  ------------  ------------
(Loss) income before income taxes
  and cumulative effect of
  change in accounting principle....         (7.0)          5.0           1.2           5.2
Income taxes........................         (2.4)          1.6           0.4           1.7
                                      ------------  ------------  ------------  ------------
(Loss) income before cumulative
  effect of change in
  accounting principle..............         (4.6)          3.4           0.8           3.5
Cumulative effect of change
  in accounting principle
  for start-up costs................           --            --            --            --
                                      ------------  ------------  ------------  ------------
     Net (loss) income..............         (4.6)%         3.4 %         0.8 %         3.5 %
                                      ============  ============  ============  ============`

Net Sales

Net sales for the three- and nine-month periods of fiscal
2001 grew to $4.0 billion and $15.1 billion, respectively. Net sales increased
9.3% and 60.6%, respectively, over the same periods in fiscal 2000. The growth
in sales year over year was primarily attributable to increased demand from our
personal computer, notebook and consumer and automotive business sectors. This
increase is also due to the full-quarter contributions from the NEL and Sony
acquisitions, which were completed during the second quarter of fiscal 2001,
acquisition of Nortel, which was completed during the fourth quarter of fiscal
2000, and the partial-quarter contribution from the Centennial Technologies,
Inc. acquisition during the third quarter of fiscal 2001.

Our worldwide manufacturing operations business unit,
including the former NEL and Sony Plants, accounted for 91% of total sales for
the three- and nine-month periods of fiscal 2001 compared to 88% and 87%,
respectively, for the same periods in fiscal 2000. Our technology solutions unit
generated 7% of total sales for the three- and nine-month period of fiscal 2001
compared to 10% and 11% respectively, for the same periods in fiscal 2000. The
global services unit contributed 2% for the three- and nine-month periods of
fiscal 2001 compared to 2% and 2%, respectively, for the same periods in fiscal
2000.

As a result of recent unfavorable economic conditions and
reduced capital spending, our sales have declined in the third quarter compared
to the first two quarter of fiscal 2001. In particular, sales to OEMs in the
telecommunications, workstation and server equipment manufacturing industry in
the United States were impacted during the third quarter of fiscal 2001. If the
economic conditions in the United States worsen or if a wider or global economic
slowdown occurs, we may experience a material adverse impact on our business,
operating results, and financial condition. Given current economic conditions
and limited visibility, we currently anticipate that sales for the fiscal fourth
quarter are expected to range from $3.0 billion to $3.5 billion.

Manufacturing and Operations

Net sales from our worldwide manufacturing operations
group grew to $3.6 billion and $13.8 billion, respectively, for the three- and
nine-month periods in fiscal 2001 compared to $3.2 billion and $8.2 billion for
the corresponding periods in fiscal 2000. This represented increases of 12% and
68% for the three- and nine-month periods, respectively, in fiscal 2001 over the
comparable periods of fiscal 2000. The increase in net sales was principally due
to the acquisitions of NEL and Sony manufacturing plants during the prior fiscal
quarter, as well as Nortel sites during the fourth quarter of fiscal 2000.

Within the Americas, net sales decreased 22% for the three-
month period ended May 31, 2001 from the corresponding period of fiscal 2000 and
increased 25% for the nine-month period ended May 31, 2001 from the same period
of fiscal 2000. The decrease in the three-month period was due to lower demand
from our customers as a result of unfavorable economic conditions and reduced
capital spending by our customers. Our plants in California, Texas, Mexico and
North Carolina were the largest contributors to the increase for the nine-month
period. This increase was primarily due to higher demand from our customers and
the acquisition of Nortel sites in North Carolina, Mexico and Canada.

In Europe, net sales increased 12% and 94%, respectively, in
the three- and nine-month periods of fiscal 2001 from the corresponding periods
of fiscal 2000. The increase was principally due to higher demand from our
customers and to our acquisition of Ericsson's manufacturing assets in
Ostersund, Sweden ("Ostersund") during the third quarter of fiscal 2000. Our
France, Ostersund and Scotland sites were the largest contributors to the sales
increase in the region.

In Asia Pacific, net sales grew to $1.0 billion for the
three-month period ended May 31, 2001 compared to $581 million for the
corresponding period of fiscal 2000, and $3.3 billion for the nine-month period
for fiscal 2001 compared to $1.4 billion for the corresponding period of the
prior year. The increase from the prior year was primarily due to the ramp-up in
production to meet demand growth from our customers. Our Penang site in Malaysia
benefited from the transfer of networking business from our Milpitas, California
site. Our Penang and former NEL Penang sites in Malaysia, Suzhou site in China,
as well as other recently acquired NEL sites were the major contributors to the
increase.





Technology Solutions

Sales from our new technology solutions operations,
including SMART, Force and former Centennial Technologies units, decreased 19%
for the three-month period ended May 31, 2001, and increased 5% for the nine-
month period from the corresponding periods of fiscal 2000. The decrease in the
three-month period ended May 31, 2001 was principally due to decrease in demand
and declines in average selling prices of memory components. The increase in net
sales for the nine-month period was attributable to the increase in the first
fiscal quarter of 2001 that primarily resulted from an overall increase in the
average memory densities incorporated into the standard memory products and from
stronger sales of specialty memory modules and embedded computer boards and
systems. The increase in net sales was partially offset by declines in average
selling prices of memory components.

Global Services

Net sales from our global services unit increased 28% and
40%, respectively, for the three- and nine-month periods ended May 31, 2001 over
the corresponding periods in fiscal 2000. Net sales benefited from stronger
demand as well as the acquisitions of Nortel, Bluegum Group and IBM Netherlands
service facilities.

International Sales - In the three- and nine-month periods
ended May 31, 2001, international locations contributed 58% and 49%,
respectively, of consolidated net sales compared to 46% and 43% for the same
periods of fiscal 2000. Our international operations are subject to various
risks of doing business abroad. See "Risk Factors" for additional factors
relating to possible fluctuations of our international operating results. While
these dynamics have not materially harmed our results of operations, we cannot
ensure that there will not be such an impact in the future.

Net Sales to Major Customers - Several of our customers
accounted for 10% or more of our net sales in the three- and nine-month periods
ended May 31, 2001 and May 31, 2000. The following table details these customers
and the percentage of net sales attributed to them.

`Three Months Ended              Nine Months Ended
                                             May 31,                     May 31,
                                 -----------------------------  --------------------------
                                     2001          2000             2001           2000
                                 ------------  ---------------  -------------  -----------
Cisco..........................           --             13.0%          12.0%        12.0%
Ericsson ......................         14.0%            15.0%          14.0%        11.0%
Nortel ........................         12.0%              --           12.0%          --`

Our top ten customers accounted for approximately 65% and 72% of consolidated
net sales in the three- and nine-month periods ended May 31, 2001, respectively,
compared to 68% and 71% for the same periods in fiscal 2000. We are dependent
upon continued revenues from Cisco, Ericsson, Nortel and Compaq as well as our
other top ten customers. We cannot 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 materially harm our results of operations.

We believe that our ability to grow depends on increasing
sales to existing customers for their current and future product generations, on
successfully attracting new customers and on 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 ensured. In addition, we cannot ensure that any of our current
customers will continue to utilize our services. Because of these factors, we
cannot ensure that our historical revenue growth rate will continue.

Gross Profit

The gross margin percentage decreased to 7.7% and 8.5%,
respectively, for the three- and nine-month periods ended May 31, 2001,
respectively, compared to 8.4% and 9.2% for the corresponding periods of fiscal
2000. The decrease was primarily attributable to under-absorbed fixed costs that
could not be taken out immediately in response to the deterioration in our
customers' end market. In the second quarter of fiscal 2001, we began to
experience manufacturing inefficiencies due to higher-than-normal costs
associated with the additional manpower required in the materials management
area and underutilization of capacity which occurred later in the second
quarter. In the first quarter of fiscal 2001, we sustained the improvement in
component linearity that had been gained in the fourth quarter of the prior
year. While the constricted supply of components in the electronics industry
began to ease late in the first quarter, we continued to experience spot
shortages of parts resulting in production control inefficiencies during the
first quarter of the fiscal 2001.

For our worldwide manufacturing operations, we anticipate
that a larger percentage of our sales may be derived from systems-build
projects, which generally yield lower profit margins than PCB assemblies. We
expect most of our technology solutions sales may continue to be derived from
turn-key projects, which typically yield lower profit margins than the
consignment projects. In addition, factors affecting technology solutions profit
margins include the sales mix of specialty memory modules, standard memory
modules, communication card products and embedded computer modules, as well as
changes in average memory densities used in memory products.

In the foreseeable future, our overall gross margin will
depend primarily on several factors, including but not limited to, product mix,
production efficiencies, utilization of manufacturing capacity, start-up and
integration costs of new and acquired businesses, percentage of sales derived
from systems-build and turn-key projects, pricing within the electronics
industry, component costs, and delivery linearity, and cost structure at
individual sites. Over time, gross margins at the individual sites and for
Solectron as a whole may continue to fluctuate. Increases in the systems-build
business or turn-key projects, additional costs associated with new projects,
and price erosion within the electronics industry could harm our gross
margin.

In addition, we have experienced component shortages. While
the component availability fluctuates from time to time and is still subject to
lead-time and other constraints, this could possibly limit our net profit growth
and might have a negative impact on our sales and gross margins for the
foreseeable future. Therefore, we cannot ensure that our 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 83% and 82%, respectively, for the three- and
nine-month periods ended May 31, 2001 over the corresponding periods of fiscal
2000. As a percentage of net sales, SG&A expenses were 5.1% for the three-
month period ended May 31, 2001, compared to 3.1% for the corresponding period
in fiscal 2000, and 3.8% for the first nine-month period in fiscal 2001,
compared to 3.4% for the corresponding period in fiscal 2000. The increase in
absolute dollars for the first three- and nine-month periods in fiscal 2001
primarily resulting from higher human resource costs, information systems costs,
and higher SG&A costs resulted from our acquisition of NEL entities. The
increase as a percentage of net sales for the nine-month period ended May 31,
2001, reflected our on-going efforts to invest in our infrastructure such as
marketing, sales, supply-base management and information systems to support the
increased size and complexity of our business. We anticipate SG&A expenses
will continue to increase in terms of absolute dollars over the long-term, and
may possibly increase as a percentage of revenue, as we continue to invest in
our infrastructure such as marketing, sales, supply-base management and
information systems to support the increased size and complexity of our
business.

Research and Development Expenses

With the exception of our technology solutions unit, our
research and development (R&D) activities have been focused primarily on
developing prototype and engineering design capabilities, fine pitch
interconnecting technologies (including 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. Technology solutions'
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.

In absolute dollars, R&D expenses increased 24.2% and
24.9%, respectively, for the three- and nine-month periods in fiscal 2001 from
the corresponding periods in fiscal 2000. As a percentage of net sales, R&D
expenses were 0.5% for the three-month period ended May 31, 2001, compared to
0.4% for the corresponding period in fiscal 2000, and 0.4% for the first nine-
month period in fiscal 2001 compared to 0.5% for the corresponding period in
fiscal 2000. The increases in absolute dollars in the fiscal 2001 periods
compared to the fiscal 2000 periods were primarily due to increased R&D
effort at SMART and Force and new R&D projects initiated at various sites.
We expect that R&D expenses will increase in absolute dollars in the future
and may increase as a percentage of net sales, as SMART and Force will continue
to invest in their R&D efforts and additional R&D projects are
undertaken at certain sites.

Goodwill Amortization Expense

The goodwill amortization expense of $52.3 million for
the three-month period in fiscal 2001 primarily resulted from the NEL
acquisition. During the second quarter of fiscal 2001, we purchased all of the
outstanding issued share capital and convertible bonds of NEL for approximately
$2.3 billion and $122.4 million, respectively. The NEL acquisition was accounted
for under the purchase accounting method and, as a result, we recorded
approximately $1.97 billion of goodwill. Goodwill is being amortized in equal
quarterly amounts over a ten-year period. Annual and quarterly goodwill
amortization expenses are approximately $196.8 million and $49.2 million,
respectively.

Acquisition Costs

Acquisition and integration costs of $29.5 million for
the nine months ended May 31, 2001, related to the acquisition of NEL.

Restructuring and Impairment Costs

The current quarter restructuring and impairment charge
was taken in connection with Solectron's plan to review its operations in light
of the current economic downturn and that it expected to undertake several
measures to restructure the company. The measures, which included reducing the
workforce, consolidating some facilities, relocating certain capabilities and
changing the strategic focus of a number of sites, was largely intended to align
its capacity and infrastructure to anticipated customer demand as well as
rationalize its footprint worldwide.

During the third quarter of fiscal 2001, total restructuring
and impairment costs of $285.0 million were charged against earnings. These
restructuring and impairment charges included employee severance and benefit
costs of approximately $41.8 million, costs related to facilities that will be
abandoned and subleased of approximately $44.7 million, costs related to
leased equipment that will be abandoned of approximately $56.2 million, impairment
of equipment held for disposal of approximately $99.9 million, impairment of
facilities held for disposal of approximately $11.3 million, impairment of goodwill
and intangible assets related to closed facilities of approximately $28.2
million and other exit costs of approximately $2.9 million.

The employee severance and benefit costs related to the
elimination of 7,700 positions worldwide. Approximately 67% of the positions
eliminated were in the Americas region, 23% were in Europe and 10% were in
Asia/Pacific. The employment reductions primarily affected employees in
manufacturing and back office support functions. Facilities and equipment
subject to restructuring were primarily located in the Americas and Europe. For
leased facilities that will be abandoned and subleased, the lease costs represent
future lease payments subsequent to abandonment less estimated sublease income.
For facilities and equipment held for disposal, the impairment loss recognized was
based on the fair value less costs to sell with fair value based on estimates of
existing market prices for similar assets. As of May 31, 2001, 7,700 employees
have left the Company under this plan.

During the second quarter of the fiscal 2001, the Company
recorded restructuring costs of $25.3 million related to the consolidation of
certain facilities. These restructuring costs included fixed asset impairments
of $19.7 million, employee severance and benefit costs of approximately $3.2
million, and other exit costs of $2.4 million.

Net Interest Income (Expense)

Net interest expense was $25.5 million for the third
quarter of fiscal 2001 compared to net interest income of $7.3 million for the
same period of fiscal 2000. For the nine-months ended May 31, 2001, net interest
expense was $32.1 million compared to net interest income of $26.8 million for
the comparable period of fiscal 2000. The net interest expense in the fiscal
2001 periods primarily resulted from our 4.0% yield zero-coupon convertible
senior notes, 2.75% and 3.25% yield zero-coupon convertible senior notes and
7.38% senior notes partially offset by interest income earned on undeployed cash
and investments. We did not incur any interest expense from the 3.25% yield
zero-coupon convertible senior notes in the three- and nine-month periods in
fiscal 2000 since these notes were issued subsequently. We incurred partial
interest expense from 2.75% yield zero-coupon convertible senior notes in the
three- and nine-month periods ended May 31, 2000 since they were issued in May
of 2000.

Income Taxes

For the nine-months ended May 31, 2001, income taxes
decreased to $55.5 million from $158.3 million for the same period of fiscal
2000. The decrease was primarily due to decreased income before income taxes. In
general, the effective income tax rate is largely a function of the balance
between income from domestic and international operations. Our international
operations, taken as a whole, have been taxed at a lower rate than those in the
United States, primarily due to a tax holiday granted to our sites in Malaysia.
The Malaysian tax holiday is effective through January 31, 2002, subject to some
conditions, including maintaining certain levels of research and development
expenditures. We have also been granted various tax holidays in China that are
effective for various terms and are subject to certain conditions.

Cumulative Effect of Change in Accounting Principle

Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" requires companies to expense all costs incurred in
connection with start-up activities. We recorded a cumulative effect of change
in accounting principle of $3.5 million, net of $1.6 million tax benefit, in the
first quarter of fiscal 2000.

Liquidity and Capital Resources

Net working capital was $6.2 billion at May 31, 2001
compared to $5.4 billion at August 31, 2000. The increase in net working capital
was primarily due to the growth in accounts receivable and inventory
attributable to higher sales. Cash, cash equivalents and short-term investments
decreased to $2.2 billion at May 31, 2001 from $2.4 billion at August 31, 2000.
This change reflected the proceeds of approximately $1.5 billion from the 3.25%
yield zero-coupon convertible senior debt issued in November 2000 and the
issuance of 35 million shares of common stock for approximately $1.2 billion,
offset by inventory purchases and investing activities, including the
acquisition of NEL's shares and convertible bonds for approximately $2.4
billion, purchases of manufacturing assets of $84 million and capital
expenditures of $454.9 million.

Accounts receivable increased approximately $245.1 million
during the first nine months of fiscal 2001 over the fiscal year ended 2000. The
increase was primarily due to growth in total net sales and the acquisition of
NEL. Inventories increased $414.4 million during the first nine months of fiscal
2001 over the fiscal year ended 2000. The increase in inventory levels was
primarily due to non-cancelable, non-returnable parts ordered on behalf of
customers, under terms agreed to in the tight supply environment in the first
quarter of fiscal 2001 and the acquisition of NEL and Centennial.

As of May 31, 2001, we had available a $100 million unsecured
multicurrency revolving line of credit that expires April 30, 2002. Borrowings
under the credit facility bear interest, at our option, at either the bank's
prime rate, the London interbank offering rate (LIBOR) plus a margin, or the
bank's certificate of deposit (CD) rate plus a margin. The margin under the
LIBOR or CD rate options will vary depending on Solectron's Standard &
Poor's Corporation and/or Moody's Investor Services, Inc. rating for its long-
term senior unsecured debt. Under the credit agreement, we must meet certain
financial covenants. We were in compliance with all of our line of credit
financial covenants as of May 31, 2001. There were no borrowings outstanding
under this line of credit as of May 31, 2001. In addition, we had approximately
$175 million and $562 million, respectively, in committed and uncommitted
foreign lines of credit and other bank facilities as of May 31, 2001. The
interest rates ranged from the bank's prime lending rate to the bank's prime
rate plus a margin. As of May 31, 2001, borrowings and guaranteed amounts under
committed and uncommitted foreign lines of credit were $152 million and $198
million, respectively.

We believe that our current cash and cash equivalents, short-
term investments, line of credit, any potential funds that may be raised under
our recently filed shelf Registration Statement and cash generated from
operations will satisfy our expected working capital, capital expenditure, and
investment requirements through at least the next 12 months.

RECENT DEVELOPMENTS

On June 24, 2001 we announced that we completed our
acquisition of Singapore Shinei Sangyo Pte Ltd., a privately held manufacturer
and designer of enclosures for electronics products. Shinei, which will be
renamed Shinei International, will be an independently operated subsidiary
within Solectron's newly formed Power, Packaging and Cooling unit, and continues
to market its services to other companies separately. The acquisition of Shinei
will bring to Solectron a global company providing customer-focused solutions
for metal stamping, contract manufacturing and ODM assembly with full product-
design capabilities.

On July 2, 2001, we filed a registration statement (the
"Registration Statement") with the Securities and Exchange Commission pursuant
to Rule 415 under the Securities Act of 1933, as amended, pursuant to which we
may, from time to time, offer our debt securities, and shares of our common
stock and preferred stock (collectively, the "Securities"), which together have
an aggregate initial public offering price of up to $3.0 billion. The Securities
may be offered, separately or together, in separate series, in amounts, at
prices and on terms to be set forth in the prospectus contained in the
Registration Statement (the "Prospectus"), and in one or more supplements to the
Prospectus, and may only be offered pursuant thereto.

We anticipate that the universal shelf Registration Statement
should provide flexibility and efficiency in accessing the public securities
markets should we decide to offer any Securities for sale to the public in the
future, although we have no immediate plans to do so. We anticipate using the
net proceeds of any eventual offerings under the Registration Statement to fund
the expansion of our operations to meet demand, for general corporate purposes,
or to finance the acquisition of assets or businesses.

On July 2, 2001, we announced that our Board of Directors
approved the adoption of a Stockholder Rights Plan on June 29, 2001. Under the
plan, we will issue a dividend of one right for each share of common stock, par
value of $0.001 per share, held by stockholders of record at the close of
business July 30, 2001.

RISK FACTORS

WE ARE EXPOSED TO GENERAL ECONOMIC CONDITIONS

As a result of recent unfavorable economic conditions and
reduced capital spending, our sales have declined in the third quarter compared
to the first two quarters of fiscal 2001. In particular, sales to OEMs in the
telecommunications, workstation and server equipment manufacturing industry in
the United States were impacted during the third quarter of fiscal 2001. If the
economic conditions in the United States worsen or if a wider or global economic
slowdown occurs, we may experience a material adverse impact on our business,
operating results, and financial condition.



MOST OF OUR NET SALES COMES FROM A SMALL NUMBER OF CUSTOMERS;
IF WE LOSE ANY OF THESE CUSTOMERS, OUR NET SALES COULD DECLINE
SIGNIFICANTLY.

Most of our annual net sales come from a small number of
our customers. Our 10 largest customers accounted for approximately 65% and 72%
of net sales in the three- and nine-month periods ended May 31, 2001, and
approximately 68% and 71% of net sales for the corresponding periods of fiscal
2000. Since we depend on continued net sales from our 10 largest customers, any
material delay, cancellation or reduction of orders from these or other major
customers could cause our net sales to decline significantly. Some of these
customers individually account for more than 10 percent of our annual net sales.
We cannot guarantee that we will be able to retain any of our 10 largest
customers or any other accounts. In addition, our customers may materially
reduce the level of services ordered from us at any time. This could cause a
significant decline in our net sales and we may not be able to reduce the
accompanying expenses at the same time. Moreover, our business, financial
condition and results of operations will continue to depend significantly on our
ability to obtain orders from new customers, as well as on the financial
condition and success of our customers. Therefore, any adverse factors affecting
any of our customers or their customers could have a material adverse effect on
our business, financial condition and results of operations.

OUR LONG-TERM CONTRACTS DO NOT INCLUDE MINIMUM PURCHASE
REQUIREMENTS.

Although we have long-term contracts with a few of our
top 10 customers, including Cisco, Ericsson and Nortel under which these
customers are obligated to obtain services from us, not all of them are
obligated to purchase any minimum amount of services. As a result, we cannot
guarantee that we will receive any net sales from these contracts. In addition,
customers which we have long-term contracts with may materially reduce the level
of services ordered at any time. This could cause a significant decline in our
net sales, and we may not be able to reduce our accompanying expenses at the
same time.

SIGNIFICANT LEVERAGE; DEBT SERVICE

Our ratio of earnings to fixed charges for the nine
months ended May 31, 2001 was 2.10X as compared to 8.84X for the nine months
ended May 31, 2000 which is the corresponding period for the prior year.

As a result of the potential future sale of certain
securities described in our recently filed shelf Registration Statement on form
S-3 and accompanying prospectus, our debt service obligations could increase
substantially. The degree to which we may leveraged could materially and
adversely affect our ability to obtain financing for working capital,
acquisitions or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations will be dependent upon our future performance, which will be subject
to financial, business and other factors affecting our operations, many of which
are beyond our control.

We will require substantial amounts of cash to fund scheduled
payments of principle and interest on our outstanding indebtedness, future
indebtedness we may incur, future capital expenditures and any increased working
capital requirements. If we are unable to meet our cash requirements out of cash
flow from operations, there can be no assurance that we will be able to obtain
alternative financing, that any such financing would be on favorable terms, or
that we will be permitted to do so under the terms of our existing financing
arrangements, or our financing arrangements in effect in the future. In the
absence of such financing, our ability to respond to changing business and
economic conditions, to make future acquisitions, to experience adverse
operating results or fund required capital expenditures or increased working
capital requirements may be adversely affected.

POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO
QUARTER COULD AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

Our quarterly earnings may fluctuate in the future due to
a number of factors including the following:

- Differences in the profitability of the types of
manufacturing services we provide. For example, high-velocity and low-complexity
PCB and systems assembly services have lower gross margins than low-volume,
high-complexity PCB and systems assembly services;
- Our ability to maximize the use of our equipment and
facilities depends on the duration of the production run time for each job and
customer;
- The amount of automation we can use in the manufacturing
process for cost reduction varies, depending upon the complexity of the product
being made;
- Our ability to optimize the ordering of inventory as to
timing and amount to avoid holding inventory in excess of immediate production
needs;
- Fluctuations in demand for our services or the products
being manufactured;
- Fluctuations in the availability and pricing of
components;
- Timing of expenditures in anticipation of increased
sales;
- Cyclicality in our target markets; and
- Expenses associated with acquisitions.

Therefore, our operating results in the future could be below
the expectations of securities analysts and investors. If this occurs, the
market price of our common stock could be harmed.

WE DEPEND UPON THE ELECTRONICS INDUSTRY, WHICH CONTINUALLY
PRODUCES TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES; OUR INABILITY
TO CONTINUALLY MANUFACTURE SUCH PRODUCTS COST EFFECTIVELY WOULD HARM OUR
BUSINESS.

Most of our net sales are to companies in the electronics
industry, which is subject to rapid technological change and product
obsolescence. If our customers are unable to create products that keep pace with
the changing technological environment, our customers' products could become
obsolete and the demand for our services could decline significantly. If we are
unable to offer technologically advanced, cost-effective, quick-response
manufacturing services to customers, demand for our services would also decline.
In addition, a substantial portion of our net sales is derived from our ability
to offer complete service solutions for our customers. For example, if we fail
to maintain high-quality design and engineering services, our net sales would
significantly decline.

For our technology solutions business, we have experienced,
and may in the future experience, delays from time to time in the development
and introduction of new products. Moreover, we cannot ensure that we will be
successful in selecting, developing, manufacturing and marketing new products or
enhancements. We cannot ensure that defects or errors will not be found in our
products after commencement of commercial shipments, which could delay the
market acceptance of those products. The inability to introduce new products or
enhancements could harm our business, financial condition and results of
operations.

WE DEPEND ON A LIMITED OR SOLE SOURCE OF SUPPLIERS FOR
CRITICAL COMPONENTS. THE INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED
WOULD CAUSE SALES REDUCTIONS.

We depend on certain suppliers, including limited and
sole source suppliers, to provide key components used in our products. We have
experienced and may continue to experience delays in component deliveries, which
could cause delays in product shipments and require the redesign of certain
products. Also, for our technology solutions business, we depend on certain
limited or sole source suppliers for critical components used for our memory
module, communications card and embedded computer products. The electronics
industry has experienced in the past, and may experience in the future,
shortages in semiconductor devices, including DRAM, SRAM, flash memory, tantalum
capacitors and other commodities that may be caused by such conditions as
overall market demand surges or supplier production capacity constraints. Except
for certain commodity parts, we generally have no written agreements with our
suppliers. We cannot ensure that we will receive adequate component supplies on
a timely basis in the future. The inability to continue to obtain sufficient
components as required, or to develop alternative sources as required, could
cause delays, disruptions or reductions in product shipments or require product
redesigns, which could damage relationships with current or prospective
customers, thereby causing sales reductions.

WE POTENTIALLY BEAR THE RISK OF PRICE INCREASES ASSOCIATED
WITH POTENTIAL SHORTAGES IN THE AVAILABILITY OF ELECTRONICS COMPONENTS.

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

OUR NET SALES COULD DECLINE IF OUR COMPETITORS PROVIDE
COMPARABLE MANUFACTURING SERVICES AND IMPROVED PRODUCTS AT A LOWER COST.

We compete with different contract manufacturers,
depending on the type of service we provide or the location of our operations.
The memory module, communications card and embedded computer subsystem
industries are also intensely competitive. Competitors may have greater
manufacturing, financial, R&D and/or marketing resources than we have. In
addition, we may not be able to offer prices as low as some of our competitors
because those competitors may have lower cost structures as a result of their
geographic location or the services they provide. Our inability to provide
comparable or better manufacturing services at a lower cost than our competitors
could cause our net sales to decline. We also expect our competitors to continue
to improve the performance of their current products or services, to reduce
their current products or service sales prices and to introduce new products or
services that may offer greater performance and improved pricing. Any of these
could cause a decline in sales, loss of market acceptance of our products or
services, or profit margin compression.

WE DEPEND ON THE MEMORY MODULE PRODUCT MARKET.

Most of our technology solutions net sales are derived
from memory modular products. The market for these products is characterized by
frequent transitions in which products rapidly incorporate new features and
performance standards. A failure to develop products with required feature sets
or performance standards or a delay as short as a few months in bringing a new
product to market could reduce our net sales which may have a material adverse
effect on our business, financial condition and results of operations. In
addition, the market for semiconductor memory devices has been cyclical. The
industry has experienced significant economic downturns at various times,
characterized by diminished product demand, excess production, and accelerated
erosion of average selling prices. In the past, there have been significant
declines in the prices for DRAM, SRAM and flash memory. Similar occurrences in
the future would reduce our profit.

WE DEPEND ON THE CONTINUING TREND OF OEMs TO
OUTSOURCE.

A substantial factor in our revenue growth is
attributable to the transfer of manufacturing and supply base management
activities from our OEM customers. Future growth depends partially on new
outsourcing opportunities. To the extent that these opportunities are not
available, our future growth would be unfavorably impacted. These outsourcing
opportunities may include the transfer of assets such as facilities, equipment
and inventory.

IF WE ARE UNABLE TO MANAGE OUR RAPID GROWTH AND ASSIMILATE
NEW OPERATIONS COST EFFECTIVELY, OUR PROFITABILITY COULD DECLINE.

We have experienced rapid growth over many years. Our
historical growth may not continue. In recent years we have established
operations throughout the world. For example, in fiscal 1998, we opened offices
in Taipei, Taiwan; Norrkoping and Stockholm, Sweden; and commenced manufacturing
operations in Guadalajara, Mexico; Suzhou, China; and Timisoara, Romania. Also
in fiscal 1998, we acquired facilities in Sao Paulo, Brazil, and Dublin,
Ireland. Furthermore, through acquisitions in fiscal 1998 and 1999, we added
facilities in Columbia, South Carolina; Memphis, Tennessee; and enhanced our
capabilities in Charlotte, North Carolina; Austin, Texas; and Milpitas,
California.

In fiscal 2000, we completed acquisitions of AMERICOM, SMART
and Bluegum Group, each of which was accounted for as a pooling of interests.
Through additional acquisitions, we also acquired facilities in Puerto Rico,
Mexico, Canada, France, Sweden, Northern Ireland and Australia.

During the second quarter of fiscal 2001, we completed
acquisitions of NEL, Sony's manufacturing facilities in Japan and Taiwan and
IBM's repair center in the Netherlands. During the third quarter of fiscal 2001,
we completed the acquisition of Centennial Technologies, Inc. During the fourth
quarter of fiscal 2001, we completed the acquisition of Singapore Shinei Sangyo
Pte Ltd. and subsidiaries.

Our expansion and growth places a heavy strain on our
personnel and management, manufacturing and other resources. Our ability to
manage the expansion to date, as well as any future expansion, will require
progressive increases in manufacturing capacity, enhancements or upgrades of
accounting and other internal management systems, and implementation of various
procedures and controls. We cannot ensure that significant problems in these
areas will not occur. Any failure to enhance or expand these systems and
implement such procedures and controls in an efficient manner and at a pace
consistent with our business activities could harm our financial condition and
results of operations. Also, in order to achieve anticipated revenue and other
financial performance targets, we will continue to be required to manage our
assets and operations efficiently. In addition, should we continue to expand
geographically, we may experience certain inefficiencies from the management of
geographically dispersed facilities.

As we manage and continue to expand new operations, we may
incur substantial infrastructure and working capital costs. If we do not achieve
sufficient growth to offset increased expenses associated with rapid expansion,
our profitability would decline.

WE NEED TO SUCCESSFULLY INTEGRATE OUR ACQUISITIONS TO
MAINTAIN PROFITABILITY.

As we expand our operations through acquisitions and
continue to evaluate acquisition opportunities, we may pursue additional
acquisitions over time. These acquisitions involve risks, including:

- Integration and management of the operations;
- Retention of key personnel;
- Integration of purchasing operations and information
systems;
- Retention of the customer base of acquired
businesses;
- Management of an increasingly larger and more
geographically disparate business; and
- Diversion of management's attention from other ongoing
business concerns.

Our profitability will suffer if we are unable to
successfully integrate and manage recent acquisitions and pending acquisitions
including, in particular, the NEL, Shinei and Centennial transactions, as well
as any future acquisitions that we might pursue, or if we do not achieve
sufficient revenue to offset the increased expenses associated with these
acquisitions.

OUR NON-U.S. LOCATIONS REPRESENT A SIGNIFICANT AND GROWING
PORTION OF OUR NET SALES; WE ARE INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH
OPERATING INTERNATIONALLY.

In the three- and nine-month periods ended May 31, 2001,
approximately 58% and 49%, respectively, of our net sales came from sites
outside the United States, while approximately 46% and 43% of net sales came
from sites outside the United States in the same periods of fiscal 2000. As a
result of our foreign sales and facilities, our operations are subject to a
variety of risks unique to international operations, including the
following:

- Adverse movement of foreign currencies against the U.S.
dollar in which our results are reported;
- Import and export duties, and value added taxes;
- Import and export regulation changes that could erode our
profit margins or restrict exports;
- Potential restrictions on the transfer of funds;
- Inflexible employee contracts in the event of business
downturns; and
- The burden and cost of complying with foreign
laws.

In addition, we have operations in several emerging or
developing economies that have a potential for higher risk. The risks associated
with these economies include but are not limited to currency volatility and
other economic or political risks. In the future, these factors may harm our
results of operations. Solectron locations in emerging or developing economies
include Mexico, Brazil, China, Malaysia and Romania. As of May 31, 2001 we
recorded $220.8 million in cumulative foreign exchange translation losses on our
balance sheet, primarily due to the devaluation of the Brazilian real. While, to
date, these factors have not had a significant adverse impact on our results of
operations, we cannot ensure that there will not be such an impact. Furthermore,
while we may adopt measures to reduce the impact of losses resulting from
volatile currencies and other risks of doing business abroad, we cannot ensure
that such measures will be adequate.

The Malaysian government adopted currency exchange controls,
including controls on its currency, the ringgit, held outside Malaysia, and
established a fixed exchange rate for the ringgit against the U.S. dollar. The
fixed exchange rate provides a stable rate environment when applied to local
expenses denominated in ringgit. 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.

We have been granted a tax holiday effective through January
31, 2002, subject to some conditions, for our Malaysian sites. We have also been
granted various tax holidays in China. These tax holidays are effective for
various terms and are subject to some conditions. It is possible that the
current tax holidays will be terminated or modified or that future tax holidays
that we may seek will not be granted. If the current tax holidays are terminated
or modified, or if additional tax holidays are not granted in the future, our
effective income tax rate would likely increase.

WE ARE EXPOSED TO FLUCTUATIONS IN FOREIGN CURRENCY
EXCHANGE RATES.

We do not use derivative financial instruments for
speculative purposes. Our policy is to hedge our foreign currency denominated
transactions in a manner that substantially offsets the effects of changes in
foreign currency exchange rates. Presently, we use foreign currency borrowings
and foreign currency forward contracts to hedge only those currency exposures
associated with certain assets and liabilities denominated in non-functional
currencies. Corresponding gains and losses on the underlying transaction
generally offset the gains and losses on these foreign currency hedges.

As of May 31, 2001, the majority of the foreign currency
hedging contracts was scheduled to mature in less than three months and there
were no material deferred gains or losses. In addition, our international
operations in some instances act as a natural hedge because both operating
expenses and a portion of sales are denominated in local currency. In these
instances, including our current experience involving the devaluation of the
Brazilian real, although an unfavorable change in the exchange rate of a foreign
currency against the U.S. dollar would result in lower sales when translated to
U.S. dollars, operating expenses would also be lower in these circumstances.
Also, since less than 13% of our net sales for the first nine-month period in
fiscal 2001 are denominated in currencies other than U.S. dollar, we do not
believe our total exposure is significant.

We have currency exposures arising from both sales and
purchases denominated in currencies other than the functional currency of our
sites. Fluctuations in the rate of exchange between the currency of the exposure
and the functional currency of our site could seriously harm our business,
operating results and financial condition. For example, an increase in the rate
at which a foreign currency is exchanged for U.S. dollars would require more of
the foreign currency to equal a specified amount of U.S. dollars than before the
rate increase. In such cases, and if we price our products and services in the
foreign currency, we would receive less in U.S. dollars than we did before the
rate increase went into effect. If we price our products and services in U.S.
dollars and competitors price their products in local currency, an increase in
the relative strength of the U.S. dollar would result in our prices being
uncompetitive in markets where business is transacted in the local currency.

WE ARE EXPOSED TO INTEREST RATE FLUCTUATIONS.

The primary objective of our investment activities is to
preserve principal and at the same time, maximize yields without significantly
increasing risk. To achieve this objective, we maintain our 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 May 31, 2001, approximately 96% of our total portfolio was
scheduled to mature in less than six months. In addition, our investments are
diversified and of relatively short maturity.

The following table presents the amounts of our cash
equivalents and short-term investments that are subject to interest rate risk by
calendar year of expected maturity and weighted average interest rates as of May
31, 2001:

|                                            | Expected Maturity     |        
|------------------------------------------- | --------------------- | -------
|                                            | Q1 2002               | Q4 2002
|                                            | (amounts in millions)
|Cash equivalents and short-term investments | $1,122.8              | $ 46.5 
|Average interest rate                       | 4.70%                 | 6.30%  

We have entered into an interest rate swap transaction under
which we pay a fixed rate of interest hedging against the variable interest
rates implicit in the rent charged by the lessor for the facility lease at
Milpitas, California. The interest rate swap expires in the year 2002, which
coincides with the maturity date of the lease term. As we intend to hold the
interest rate swap until the maturity date, we are not subject to market risk.
In substance, such interest rate swap has fixed the interest rate for the
facility lease, thus reducing interest rate risk.

Our long-term debt instruments are subject to fixed interest
rates. In addition, the amount of principal to be repaid at maturity is also
fixed. In the case of the convertible notes, such notes are based on fixed
conversion ratios into common stock. Therefore, we are not exposed to variable
interest rates related to our long-term debt instruments.

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE OUR
INTELLECTUAL PROPERTY RIGHTS; AND WE COULD BECOME INVOLVED IN INTELLECTUAL
PROPERTY DISPUTES.

Our ability to effectively compete may be affected by our
ability to protect our proprietary information. We hold a number of patents and
other license rights. These patent and license rights may not provide meaningful
protection for our manufacturing processes and equipment innovations. On June
23, 1999, we were served, along with 87 other companies including SMART, as a
defendant in a lawsuit brought by the Lemelson Medical, Education & Research
Foundation. The lawsuit alleges that we have infringed certain of the
plaintiff's patents relating to machine vision and bar-code technology. We
believe we have meritorious defenses to these allegations and do not expect this
litigation to materially impact our financial condition or results of
operations. In the semiconductor, computer, telecommunications and networking
industries, companies receive notices from time to time alleging infringement of
patents, copyrights or other intellectual property rights, and litigation
sometimes arises out of such notices. For example, in January of last year,
SMART filed a lawsuit seeking to have declared invalid, and/or not infringed,
three patents purportedly applicable to industry standard memory products,
including those manufactured by SMART and the other manufacturers of these
industry standard memory products. The owner of these patents brought a cross-
complaint alleging patent infringement against SMART, and has also brought suit
against several other memory product manufacturers alleging infringement of the
three patents. We believe that SMART's memory products do not infringe any valid
claims of any of the three patents at issue. Moreover, we have been and may from
time to time continue to be notified of claims that we may be infringing
patents, copyrights or other intellectual property rights owned by other third
parties. The current litigation or any other litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, financial condition and results of operations. In the
future, third parties may assert infringement claims against our customers or
us. In the event of an infringement claim, we may be required to spend a
significant amount of money to develop a non-infringing alternative or to obtain
licenses. We may not be successful in developing such an alternative or
obtaining a license on reasonable terms, if at all. In addition, any such
litigation could be lengthy and costly and could harm our financial
condition.

FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD
HARM OUR BUSINESS.

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

OUR ADMINISTRATIVE FACILITIES AND PRINCIPAL BUSINESS
OPERATIONS ARE LOCATED IN CALIFORNIA, AND ANY DISTRUPTION IN THE AVAILABLE POWER
SUPPLY IN CALIFORNIA COULD DISRUPT OUR OPERATIONS, REDUCE OUR REVENUES, AND
INCREASE OUR EXPENSE.

The State of California is in the midst of an energy
crisis that could interrupt our power supply or that of the third-party service
providers and thereby disrupt our operations, reduce our revenues, and increase
our expenses. A substantial portion of our operating activities and facilities,
including our headquarters and principal administrative facilities, are located
in California. During acute power shortages, California has implemented, and may
in the future continue to implement, rolling blackouts throughout the state. The
rolling blackouts that have occurred to date have not materially disrupted the
operations of our facilities. Should these blackouts continue or increase in
severity, however, they could materially disrupt the operations of one or more
of our facilities. Although Solectron currently does not have backup generator
or long-term alternate sources of power in the event of a blackout, Solectron
does have some flexibility to shift some manufacturing volume to other
manufacturing sites around the world. If blackouts interrupt our power supply,
we would be temporarily unable to continue operations at our affected
facilities. Our current insurance does not provide coverage for any damages our
customers or we may suffer as a result of any interruption in our power supply.
Consequently, any interruption in our ability to continue operations at our
facilities could damage our reputation, harm our ability to retain existing
customers and to obtain new customers, and could result in lost revenue, any of
which would substantially harm our business and results of operations.

In addition, the utility deregulation program instituted in
1996 by the California government deregulated wholesale prices while continuing
to regulate the retail prices charged by the electrical utilities. While
wholesale prices have increased dramatically, retail prices have, until
recently, not increased at a comparable rate. Our business is substantially
dependent on the availability and price of electricity. If retail electricity
prices rise dramatically, we would expect our expenses to increase, our
operating results to be harmed, and the possible decline of our stock price.

OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF
OUR CONTROL.

Our stock price could fluctuate due to the following
factors, among others:

- Announcements of operating results and business
conditions by our customers;
- Announcements by our competitors relating to new
customers, technological innovation or new services;
- Economic developments in the electronics industry as a
whole;
- Political and economic developments in countries where we
have operations; and
- General market conditions.

OUR LOW STOCK PRICE MAY REDUCE OUR DILUTED EARNINGS PER
SHARE

On January 27, 2002, we may become obligated to purchase,
at the option of the holders, all or a portion of the outstanding 4.0% LYONs at
a price of $510.03 per note ("Purchase Price"). We have the option to pay the
Purchase Price of LYONs in cash or common stock or any combination thereof. If
we elect to pay the Purchase Price, in whole or part, in shares of our common
stock, the number of shares of common stock to be delivered shall equal the
Purchase Price divided by the average of the Sale Prices of the common stock for
the five trading day period ending on the third business day prior to January
27, 2002. The LYONs are convertible into common stock at a price of $34.13 per
share or 14.944 shares per LYON. In the event that our stock price remains below
$34.13 per share at January 27, 2002, we may have to issue additional shares to
the holders. Accordingly, our diluted earnings per share may be reduced.

FAILURE TO RETAIN KEY PERSONNEL AND SKILLED ASSOCIATES
COULD HURT OUR OPERATIONS.

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

OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL
ACQUIRORS AND MAY DEPRESS OUR STOCK PRICE.

Our certificate of incorporation, bylaws and the
stockholder rights plan recently approved by the Board of Directors contain
provisions that could make it more difficult for a third party to acquire, or
may discourage a third party from attempting to acquire, control of Solectron.
These provisions allow us to issue preferred stock with rights senior to those
of our common stock and impose various procedural and other requirements that
could make it more difficult for our stockholders to effect certain corporate
actions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

See Management's Discussion and Analysis of Financial
Condition and Results of Operations for factors related to fluctuations in the
exchange rates of foreign currency and fluctuations in interest rates under
"Risk Factors."





SOLECTRON CORPORATION AND SUBSIDIARIES



PART II. OTHER INFORMATION

Item 1: Legal Proceedings

SMART Modular Technologies, Inc. ("SMART"), a wholly
owned subsidiary of Solectron Corporation, and certain of SMART's ex-officers
and ex-directors have been named as defendants in six securities class action
lawsuits filed in the United States District Court for the Northern District of
California, Boren v. SMART Modular Technologies, Inc., et al., No. C 98
20692 JW (PVT) (filed July 1, 1998), Woszczak v. SMART Modular Technologies,
Inc., et al., No. C 98 2617 JL (filed July 2, 1998), Bisson v. SMART
Modular Technologies, Inc., et al., No. C 98 20714 JF (filed July 8,
1998), D'Amato v. SMART Modular Technologies, Inc., et al., No. C 98 2804
PJH (filed July 16, 1998), Cha v. SMART Modular Technologies, Inc., et
al., No. C 98 2833 BZ (filed July 17, 1998) and Chang v. SMART Modular
Technologies, Inc., et al., No. C 98 3151 SI (filed August 13, 1998)
(collectively, the "Federal Actions"). The plaintiffs in the Federal Actions
allege that defendants made material misrepresentations and omissions during the
period from July 1, 1997 through May 21, 1998 in violation of Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
Federal Actions were consolidated on October 9, 1998, and a consolidated
complaint was filed on November 30, 1998 (the "Federal Complaint"). On November
2, 1999, defendants filed a motion to dismiss the Federal Complaint. This motion
is pending. On January 26, 2001, the Court dismissed the Federal Complaint with
prejudice.

On October 22, 1998, a putative securities class action
lawsuit, captioned Reagan v. SMART Modular Technologies, Inc., et al.,
Case No. H204162-5 (the "State Complaint"), was filed against SMART and certain
of SMART's ex-officers and ex-directors in the Superior Court of the State of
California, County of Alameda. The State Complaint alleges violations of
Sections 25400 and 25500 of the California Corporations Code and seeks
unspecified damages on behalf of a purported class of purchasers of SMART common
stock during the period from July 1, 1997 through May 21, 1998. The factual
allegations of the State Complaint are nearly identical to the factual
allegations contained within the Federal Complaint. On February 22, 1999, the
Superior Court granted SMART's motion to stay the state action pending
resolution of the federal action. In March 2001, plaintiffs notified defendants
of their intent to have the stay of the state action lifted and to proceed with
the state action.

On February 26, 1999, Solectron was named as a defendant in
the lawsuit Lemelson Medical Education and Research Foundation v. Lucent
Technologies, Inc., et al., No. CIV99-0377, along with 87 other companies
including SMART, filed in the US District for the District of Arizona. The
lawsuit alleges that Solectron and SMART have infringed certain of the
plaintiff's patents relating to machine vision and bar-code technology. The
lawsuit, as it pertains to Solectron, has been stayed pending the outcome of two
actions in the state of Arizona, Cognex v. Lemelson and Symbol Technologies
v. Lemelson. Cognex and Symbol are seeking a declaratory judgement stating
that their machine-read and bar-code technologies, respectively, do not infringe
on Lemelson's patents.

We believe that all claims related to the state and federal
securities actions are without merit and intend to defend vigorously against
these actions. We also believe we have meritorious defenses to the patent
infringement allegations. We do not expect that all these allegations will
result in a material impact on our financial position or results of operations.

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: Reports on Form 8-K

On March 20, 2001, Solectron filed a Current Report on
Form 8-K/A to include the required pro forma financial information which gives
effect to the acquisition of NatSteel Electronics Ltd.

On May 2, 2001, Solectron filed a Current Report on Form 8-K
regarding its completion of the acquisition of Centennial Technologies, Inc.

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SOLECTRON CORPORATION

SIGNATURE

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



| |                      
| | ---------------------
| | SOLECTRON CORPORATION

| |             
| | ------------
| | (Registrant)

Dated:  July 13, 2001



| |     |                  
| | --- | -----------------
| | By: | /s/ Susan S. Wang

| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| |                                                                                                                     
| | Susan S. Wang                                                                                                       
| | Senior Vice President, Chief Financial Officer and Corporate Secretary 
(Principal Financial and Accounting Officer)

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