SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.
                         ----------------------

                               FORM 10-K
             ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934
             ----------------------------------------------
Mark One
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
    of 1934 For the Fiscal Year Ended August 27, 1999,
or

[   ]  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              (I.R.S. Employer
  incorporation or organization)           Identification Number)

            777  Gibraltar  Drive,   Milpitas,   California  95035
            (Address of principal executive offices and Zip Code)
      Registrant's telephone number, including area code:  (408) 957-8500

Securities registered pursuant to Section 12(b) of the Act:
Common Stock traded on New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  report(s),  and (2) has  been  subject  to such  filing
requirements for the past 90 days.
  YES  __X__                    NO _____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The  aggregate   market  value  of  the   Registrant's   Common  Stock  held  by
non-affiliates on November 1, 1999 was approximately $16,268 million (based upon
the last  reported  price of the Common Stock on the New York Stock  Exchange on
such date). Shares of Common Stock held by each officer, director, and holder of
5% or more of the  outstanding  Common  Stock  have been  excluded  in that such
persons may be deemed to be affiliates.  This  determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of November 1, 1999, there were 271,914,272 shares of the Registrant's common
stock outstanding.

<PAGE>

                  DOCUMENTS INCORPORATED BY REFERENCE

The   Registrant's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Stockholders to be held on January 11, 2000,  which Solectron will file with the
Securities and Exchange  Commission  within 120 days after the end of the fiscal
year covered by this report,  is  incorporated  by reference in Part III of this
Form 10-K to the extent stated herein.

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                         SOLECTRON CORPORATION
                     1999 FORM 10-K ANNUAL REPORT
                           TABLE OF CONTENTS
                                                          Page
                                Part I

Item 1.   Business                                          4

Item 2.   Properties                                       14

Item 3.   Legal Proceedings                                15

Item 4.   Submission of Matters to a Vote of
          Security Holders                                 15

                                Part II

Item 5.   Market for the Registrant's Common Equity
          and Related Stockholder Matters                  18

Item 6.   Selected Financial Data                          19

Item 7.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations    20

Item 7A.  Quantitative and Qualitative Disclosures
          About Market Risk                                37

Item 8.   Financial Statements and Supplementary Data      37

Item 9.   Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure           62

                                Part III

Item 10.  Directors and Executive Officers of the
          Registrant                                       62

Item 11.  Executive Compensation                           62

Item 12.  Security Ownership of Certain Beneficial
          Owners and Management                            62

Item 13.  Certain Relationships and Related Transactions   62

                                Part IV

Item 14.  Exhibits, Financial Statement Schedule and
          Reports on Form 8-K                              63

          Signatures                                       64

Solectron  and  the  Solectron  logo  are  registered  trademarks  of  Solectron
Corporation.  All other names are  trademarks  and/or  registered  trademarks of
their respective owners.

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<PAGE>

                                 PART I

ITEM 1: BUSINESS

Solectron  provides  electronics  manufacturing  services to original  equipment
manufacturers  (OEMs) who design and sell  networking  equipment,  workstations,
personal  and  notebook  computers,  computer  peripherals,   telecommunications
equipment  or other  electronic  equipment.  These OEMs include  Cisco  Systems,
Hewlett-Packard  Company,  Inc.,  International  Business  Machines  Corporation
(IBM),  and Sun  Microsystems,  Inc. These companies  contract with Solectron to
build  their  products  for  them  or to  obtain  other  related  services  from
Solectron.

Solectron  furnishes  integrated  supply-chain  solutions  that span the  entire
product life cycle - from  technology,  to  manufacturing,  to global  services.
These solutions include the following range of services:

-  Product design;
-  New Product Introduction  management;
-  Materials purchasing and management;
-  Prototyping;
-  Printed circuit board assembly (the process of placing components
   on an electrical printed circuit board that controls the processing functions
   of a personal computer or other electronic equipment);
-  System  assembly  (for  example,  building  complete  systems  such as mobile
   telephones and testing them to ensure functionality);
-  Distribution;
-  Product repair; and
-  Warranty services.

Solectron's  performance  of these  services  allows  its  customers  to  remain
competitive  by focusing on their core  competencies  of sales,  marketing,  and
research and  development.  We have  manufacturing  facilities  in the Americas,
Europe  and  Asia.  This  geographic  presence  gives  our  customers  access to
manufacturing  services  in the  locations  where they need to be close to their
expanding markets for faster product delivery.

We were originally  incorporated in California in August 1977. In February 1997,
we were reincorporated in Delaware.  Our principal executive offices are located
at 777 Gibraltar  Drive,  Milpitas,  California  95035.  Our telephone number is
(408) 957-8500 and Internet address is www.solectron.com.

The information  contained  within this overview of the business is qualified in
its  entirety  by, and is subject  to, the  detailed  information,  consolidated
financial  statements and notes thereto contained elsewhere within this document
under  "Management's  Discussion and Analysis of Financial Condition and Results
of Operations" and "Financial Statements and Supplementary Data."

Industry Overview

Solectron  is well  recognized  for its printed  circuit  board  (PCB)  assembly
business.  While we  continue  to lead in this  industry,  we have  grown into a
global  supply-chain  facilitator  expanding our capabilities  across the entire
product cycle to include:  product design,  pre-production planning, New Product
Introduction  (NPI)  management,  manufacturing,  distribution,  and end-of-life
product service and support.  We are benefiting from increased  worldwide market
acceptance of, and reliance upon, the use of outsourcing  manufacturing services
by many electronics OEMs. We expect the trend towards outsourcing  manufacturing
to continue for many reasons including the following:

Reduce Time to Market. Due to intense  competitive  pressures in the electronics
industry, OEMs are facing increasingly shorter product life-cycles and

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therefore  have a growing need to reduce the time required to bring a product to
market.  OEMs can reduce the time to market by using  Solectron's  manufacturing
expertise  and  infrastructure.  OEMs can  further  reduce the time to market by
partnering   with  Solectron  at  the  stages  of  product  design  and  product
improvement  to expedite the  transition  into large volume of production in its
manufacturing centers.

Reduce  Investment.  As  electronic  products  have become more  technologically
advanced  and are shipped in greater  unit  volumes,  the  necessary  investment
required for internal  product design,  manufacturing,  and end-of-line  support
services  by OEMs has  increased  significantly  for  working  capital,  capital
equipment,  labor, systems and infrastructure.  Solectron, a global supply-chain
facilitator,  enables OEMs to gain access to its worldwide  advanced  technology
facilities including NPI centers,  manufacturing and depot repair facilities. As
a result, OEMs can substantially reduce their overall resource requirements.

Focus  Resources.  The electronics  industry is  experiencing  greater levels of
competition and more rapid  technological  change.  Many OEMs  increasingly  are
seeking to focus their  resources on activities and  technologies  which add the
greatest  value.  By offering  comprehensive  electronics  assembly  and related
manufacturing  services,  Solectron  allows  OEMs to  focus  on  their  own core
competencies such as next-generation product development, sales and marketing.

Access Leading  Manufacturing  Technology.  Electronic  products and electronics
manufacturing  technology have become  increasingly  sophisticated  and complex,
making it difficult for OEMs to maintain the necessary  technological  expertise
to manufacture products internally. OEMs are motivated to work with Solectron to
gain access to its expertise in interconnect, test and process technologies.

Improve Inventory Management and Purchasing Power. Electronics industry OEMs are
faced with  increasing  difficulties  in planning,  procuring and managing their
inventories   efficiently  due  to  frequent   design  changes,   short  product
life-cycles,  large  investments  in  electronic  components,   component  price
fluctuations   and  the  need  to  achieve   economies  of  scale  in  materials
procurement.  OEMs can  reduce  production  costs by  using  Solectron's  volume
procurement  capabilities.  In  addition,  Solectron's  expertise  in  inventory
management can provide  better  control over  inventory  levels and increase the
OEM's return on assets.

Access  Worldwide   Manufacturing   Capabilities.   OEMs  are  increasing  their
international activities in an effort to lower costs and access foreign markets.
Solectron  with worldwide  capabilities  is able to offer such OEMs a variety of
manufacturing location options to better address their objectives including cost
containment,  compliance with local content regulations,  and the elimination of
expensive freight costs, tariffs and time-consuming customs clearances.

Strategy

Solectron's goal is to offer its customers significant competitive advantages of
electronics  outsourcing,  such as  access to design  and  product  improvement,
advanced  manufacturing  technologies,  reduced overall cost,  shortened product
time-to-market,  effective asset utilization,  and refined  end-of-life  product
support services.  To achieve this goal,  Solectron emphasizes the following key
elements:

Quality. Solectron believes that product quality is a critical success factor in
the electronics  manufacturing  market. We strive for continuous  improvement of
our processes and have adopted a number of quality  improvement  and measurement
techniques  to monitor  our  performance.  We have  received  numerous  superior
service and quality awards, including:

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-  Malcolm Baldrige National Quality Award in 1991 and again in 1997;
-  Ranked No. 3 World's Best Performing Information Technology 100 Listing by
   Business Week in 1999;
-  One of the World's 100 Best Managed  Companies named by Industry Week
   in 1999;
-  North  Carolina  National  Team  Excellence  Award in 1999;
-  North Carolina Charlotte-Mecklenburg  Utility  Award  in  1999;
-  Arc  of  Washington  State's Employer of the Year Award in 1999;
-  Mexico  Jalisco  State  Quality  Award in 1999;
-  Best Manufacturing Plant in North America Award from Industry Week in
   1998;
-  Washington  State Quality Award of Merit in 1998; and
-  Other numerous awards from our customers.

All of our manufacturing facilities are certified under ISO-9000 standards which
are international  quality standards for design,  manufacturing and distribution
management systems.

Partnerships.  An  important  element of  Solectron's  strategy is to  establish
partnerships  with major and emerging OEM leaders in diverse segments across the
electronics industry. Our customer base consists of leaders in industry segments
such  as  networking,  telecommunications,   workstations,  personal  computers,
computer peripherals, instrumentation, semiconductor equipment and avionics. Due
to the costs inherent in supporting customer relationships, we focus our efforts
on customers with high potential for long-term business  partnerships.  Our goal
is to deliver a total  product life cycle  solution to our  customers.  We offer
OEMs NPI management  which includes design and layout,  concurrent  engineering,
test  development  and prototype  engineering.  We continue the cycle to provide
solutions in manufacturing and distribution  including  just-in-time delivery on
low- to medium-volume turnkey,  price-sensitive and high-volume production,  and
projects that require more  value-added  services.  Additionally,  we serve OEMs
that need end-of-life services such as product repair and warranty services.

Turnkey  Capabilities.  Another element of Solectron's  strategy is to provide a
complete range of manufacturing  management and value-added services,  including
materials management, board design, concurrent engineering,  assembly of complex
printed  circuit  boards  and other  electronic  assemblies,  test  engineering,
software manufacturing,  accessory packaging and post-manufacturing services. We
believe that as  manufacturing  technologies  become more complex and as product
life-cycles  shorten,  OEMs will  increasingly  contract for  manufacturing on a
turnkey  basis as they seek to reduce their  products'  time-to-market,  capital
asset and  inventory  costs.  A  substantial  portion of our revenue is from our
turnkey  business.  We believe  that our  ability to manage  and  support  large
turnkey projects is a critical success factor. In addition,  we believe that due
to the difficulty and long lead-time required to change  manufacturers,  turnkey
projects generally  increase an OEM's dependence  resulting in greater stability
of our  customer  base and in closer  working  relationships.  We also have been
successful in establishing  sole source positions for certain products with many
of our customers.

Advanced  Manufacturing  Process  Technology.  Solectron  intends to continue to
offer  its  customers  the most  advanced  manufacturing  process  technologies,
including  surface mount  technology (SMT) and ball-grid array (BGA) assembly as
well as  testing  and  emerging  interconnect  technologies.  We have  developed
substantial SMT expertise including advanced,  vision-based  component placement
equipment.  We believe that the cost of SMT assembly facilities and the required
technical  capability  to operate a high-yield  SMT  operation  are  significant
competitive  factors  in the market for  electronic  assembly.  We also have the
capability to manufacture using  tape-automated-bonding,  chip-on-substrate  and
other more advanced manufacturing processes.

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Diverse Geographic  Operations.  An important element of Solectron's strategy is
to establish  production  facilities in areas of high customer  density or where
manufacturing  efficiencies  can  be  achieved.  We  currently  have  operations
throughout  the  Americas,  Europe and Asia.  We believe that our  facilities in
these diverse  geographic  locations  enable us to better address our customers'
requirements   such  as  cost   containment,   compliance   with  local  content
regulations,  and the  elimination  of  expensive  freight  costs,  tariffs  and
time-consuming   customs   clearances.   We  intend  to  expand  our  operations
continually  as  necessary to serve our  existing  customers  and to develop new
business.

International Manufacturing Capability

As Solectron manages the existing operations and expands geographically,  it may
experience  certain   inefficiencies   from  the  management  of  geographically
dispersed  operations.  Additionally,  Solectron's results of operations will be
adversely  affected  if these  new  facilities  do not  achieve  revenue  growth
sufficient  to  offset   increased   expenditures   associated  with  geographic
expansion.

In fiscal 1999,  approximately  36% of  Solectron's  sales were from  operations
outside  of the  United  States.  As a  result  of  continuous  customer  demand
overseas, we expect foreign sales to increase.  Our foreign sales and operations
are subject to risks of doing business  abroad,  including  fluctuations  in the
value of currency,  export duties, import controls and trade barriers (including
quotas),  restrictions  on the  transfer  of  funds,  associate  turnover,  work
stoppages,  longer payment  cycles,  greater  difficulty in accounts  receivable
collection,  burdens of  complying  with a wide  variety of foreign laws and, in
certain parts of the world, political instability. While, to date, these factors
have not materially affected Solectron's results of operations, we cannot assure
that there will not be such an impact in the future.

Americas

Western  United  States.  Solectron's  headquarters  and  largest  manufacturing
operations are located in Silicon Valley,  principally in Milpitas,  California,
in  the  midst  of  one  of  the  largest   concentrations  of  OEM  electronics
manufacturers.  This  facility  offers a full  range of  services  that span the
product life cycle including design consultation,  prototyping,  NPI management,
PCB assembly, build-to-order,  configure-to-order, complex systems assembly, and
end-of-life  support  services.  With our recent asset acquisition in Sunnyvale,
California from Trimble Navigation  Limited,  we have extended our manufacturing
capacities to Global  Positioning  System (GPS) and related radio frequency (RF)
technology products.  Additionally, we have a smaller site strategically located
in Everett,  Washington to help serve our customers in the Pacific Northwest and
elsewhere.

Southwestern  United  States.  Solectron  believes  that its facility in Austin,
Texas, is situated in a geographic region with strong growth of electronics OEMs
that will allow  Solectron  to better  service  its  existing  customers  and to
attract new ones.  This facility was  expanding  and was further  expanded by an
asset  acquisition of IBM's  Electronic Card Assembly and Test in February 1999.
The site offers a wide range of services  across the entire  product  life cycle
including  PCB  design,  NPI  management,  complex  PCB  and  systems  assembly,
distribution, and support services.

Eastern United States.  Solectron's Eastern United States facility is located in
Westborough,  Massachusetts,  near Boston,  in the center of a geographic region
with a large  concentration of electronics  OEMs. We have recently expanded this
facility's  manufacturing  capacity.  This  facility  provides  a full  range of
integrated  solutions  across the entire product life cycle from  pre-production
planning  and  design to  manufacturing,  to  end-of-life  product  service  and
support. This site also includes a NPI center that specializes in quick-

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turn prototype  services.  These two groups work together to shorten  customers'
product  development  and  manufacturing   cycles,   ultimately  reducing  their
products' time-to-market.

Southeastern  United States.  Solectron's  Southeastern United States operations
are located in Charlotte, North Carolina; Columbia, South Carolina; and Suwanee,
Georgia. Its operation in Charlotte,  North Carolina,  which was expanded by the
acquisition of IBM's  Electronic  Card Assembly and Test  manufacturing  assets,
specializes  in low- to  medium-volume,  highly  complex PCB  assembly,  systems
assembly and end-of-life  support services.  This site also has a NPI center. In
addition,  the Charlotte site provides  printed  circuit boards to the Columbia,
South Carolina site, which specializes in customized systems design services and
complex computer systems assembly.  The  manufacturing  facility in Columbia was
recently expanded to meet growing customer demand.

Solectron  previously  had  facilities  in Duluth,  Georgia,  acquired  from NCR
Corporation  and  in  Braselton,  Georgia,  acquired  from  Mitsubishi  Consumer
Electronics  America,  Inc. In September 1999,  these two operations were merged
into a new facility in Suwanee,  Georgia,  to serve as our East Coast center for
medium- to  low-complexity,  medium- to  high-volume  systems  assembly  and NPI
services for PC, server, workstation, telecommunication and networking equipment
customers.  This facility is part of our  build-to-order  systems  division.  We
believe  that  these   facilities   allow  us  to  better  pursue  new  business
opportunities  with  new and  existing  customers,  in  particular,  because  of
Charlotte's  status as a transportation  hub and its relative proximity to major
Southeastern United States electronics markets.

Solectron's subsidiary, Force Computers, Inc. (Force), is a leading designer and
supplier of open,  scalable system- and board-level  embedded computer platforms
for the  communications,  industrial  and command and  control  markets.  Unlike
general purpose computers,  embedded computers are incorporated into systems and
equipment to perform a single or limited  number of critical  control  functions
and  are  generally  integrated  into  larger  automated  systems.  A  processor
independent company,  Force delivers products based on SPARC,  Pentium,  PowerPC
and 68K  technologies and has expertise in system design,  board design,  system
integration and  manufacturing.  Force also provides support  services,  such as
system  configurations,  application  consulting  and training to its customers.
Force further enhances our array of services,  particularly in pre-manufacturing
areas.

To  expand   Solectron's   technology  and  design  service   capabilities   and
infrastructure,  Solectron  signed a  definitive  merger  agreement  with  SMART
Modular  Technologies,  Inc.(SMART) in September  1999.  SMART is a designer and
manufacturer  of memory  modules and memory  cards,  embedded  computers and I/O
products.  The proposed  merger is expected to be completed  prior to the end of
calendar year 1999, subject to various conditions of closing.

Another subsidiary of Solectron, Fine Pitch Technology, Inc., provides extensive
prototype services for electronics OEMs, further enhancing  Solectron's  ability
to address the needs of design teams who require almost  immediate  availability
of highly complex prototype assemblies.

Solectron's  newly  acquired  subsidiary,  Sequel Inc.,  specializes in notebook
computer and liquid  crystal  display  (LCD) repair  services and support.  This
subsidiary  has a hub facility in Memphis,  Tennessee,  which offers  integrated
call  management,  remote failure  diagnostics,  air express  dispatch,  systems
repair, component level repair,  configuration and upgrades,  returns processing
and administration, refurbishment and redistribution services.

Mexico. Solectron's site in Guadalajara,  Mexico began providing a full range of
PCB assembly and systems  build  manufacturing  services in the first quarter

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of fiscal  1998.  This site  offers our  customers  a low-cost  and  high-volume
manufacturing  center for PCB assembly,  build-to-order  and  configure-to-order
systems assembly for the Americas.

Brazil.  Solectron's  operation in Sao Paulo, Brazil, was acquired from Ericsson
Telecom AB's Business Area Infocom Systems (Ericsson) in October 1997. This site
provides a full range of  capabilities  across the product life cycle  including
NPI management, systems build capabilities,  engineering, PCB and flex assembly,
custom packaging and distribution  services, and factory repair support services
primarily  to  multinational  customers  seeking  access to the  Latin  American
market.  The manufacturing  facility in Brazil was recently expanded as a result
of demand growth for electronics manufacturing services in Brazil.

Europe

Solectron has manufacturing operations in Bordeaux, France; Herrenberg, Germany;
Dublin, Ireland;  Timisoara,  Romania; and Dunfermline,  Scotland. Each of these
sites provides a full range of  manufacturing  capabilities  to a  multinational
customer  base.  In  addition,  each  site is  developing  an  area of  specific
expertise to offer to all  customers.  The Germany site offers  design  support,
prototype services and low-volume, high-mix manufacturing services. In addition,
Force's European  headquarters are located in Munich,  Germany. The Romania site
has recently been expanded to serve as  Solectron's  full-service,  high-volume,
low-cost  manufacturing  hub for its rapidly growing European customer base. The
Scotland site specializes in building PCB assemblies,  subassemblies and systems
for  multinational  customers in the European  market.  In  September  1999,  we
further expanded our presence in Scotland through an asset  acquisition of IBM's
Netfinity servers  operations in Greenock,  Scotland.  To support the IBM design
team,  we are  establishing  a new  full-service  NPI  center  in Port  Glasgow,
Scotland.  In  addition,  we have NPI centers in France and Sweden which offer a
full range of electronics  product  development  services,  including design and
layout, concurrent engineering, test development and prototype engineering.

In November  1999,  we announced the signing of memoranda of  understanding  for
Solectron  to acquire the complex  systems  manufacturing  assets of  Ericsson's
telecommunications  infrastructure equipment operations in Longuenesse,  France,
and  Ostersund,  Sweden.  As part of the  agreement,  we will provide a complete
range  of  integrated   supply-chain   solutions  to  Ericsson.   This  includes
supply-base management, early prototyping, NPI management, complex PCB assembly,
configure-to-order  and  build-to-order  complex  systems  assembly  and  Global
Services.  The  transaction  is expected to be completed by the first quarter of
calendar year 2000.  Completion of the  transaction is subject to the applicable
government approvals and various conditions of closing.

Asia

Solectron's  Southeast Asia  manufacturing  operations are located in Penang and
Johor,  Malaysia.  The operations were  established to better serve the needs of
OEMs  requiring  price-sensitive,  high-volume  production  capabilities  and to
provide more efficient  manufacturing services to customers located in Southeast
Asia.  The  facilities   currently  provide  electronics   assembly,   materials
management  and other  services to  customers  located in  Malaysia,  Singapore,
Japan,  the United  States and other  locations.  Our facility in Suzhou,  China
began operations in fiscal 1997. This facility  currently  provides a full range
of  low-cost  high  volume  manufacturing  services.  In April  1999,  Solectron
established  a New Product  Introduction  center just  outside of Tokyo,  Japan,
providing  a complete  range of  electronics  pre-manufacturing  services  which
include design and layout,  testing  capabilities,  prototype  development,  and
concurrent and component engineering.

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New Product Introduction Centers

Solectron, a global supply-chain facilitator, has NPI centers geographically, in
countries  including the U.S., France,  Sweden,  Germany,  Malaysia,  and Japan.
These  NPI  centers  offer  a full  range  of  electronics  product  development
services, including design and layout, concurrent engineering,  test development
and prototype  engineering.  We believe our NPI services will shorten customers'
product  development cycles by offering full design and development  services to
compliment our customers' in-house  capabilities.  We partner with our customers
as early as possible in the new product  development  process to optimize  their
products' design for volume  manufacturing.  To enhance our product  development
capacities,  we are establishing a new, full-service NPI center in Port Glasgow,
Scotland.

Global Services

Our services  don't stop at the end of the assembly  line. We offer a full range
of  integrated  solutions  from the time the  product  is  designed  until it is
removed  from the market.  These  services  include  product  repair,  upgrades,
remanufacturing  and maintenance  through  factory and fast-hub  service centers
located around the world;  help-desk  support through  customer call centers for
end-users;  logistics and parts  management;  returns  processing;  warehousing;
engineering change  management;  and end-of-life  manufacturing.  These services
will give our customers  improved  speed from the service  pipeline by Solectron
taking direct  receipt  responsibility  for returns from the end user and making
sure that various buffer stock and inventory  mechanisms are established.  These
services  also  minimize  shipping  costs and time by  handling  repairs  at our
various  international  locations.  In addition,  our data collection system can
provide  invaluable  information  to analyze  product design  reliability.  As a
result, the OEMs can focus their efforts on developing next-generation products.

Our recently acquired subsidiary,  Sequel Inc., specializes in notebook computer
and liquid crystal display (LCD) repair services and support. This subsidiary is
headquartered  in San  Jose,  California,  and has a hub  facility  in  Memphis,
Tennessee, which offers integrated call management,  remote failure diagnostics,
air express dispatch, systems repair, component level repair,  configuration and
upgrades,    returns   processing   and   administration,    refurbishment   and
redistribution  services. In November 1999, we acquired the repair operations of
IBM's NULOGIX Technical Services,  Inc. in Vaughan,  Canada.  NULOGIX provides a
complete range of technology repair,  remanufacturing and refurbishment services
for a large extent of electronics products. As a result of this transaction,  we
will now be able to provide  the  Canadian  market a full  range of  value-added
support service  solutions.  These services include:  product repair,  upgrades,
remanufacturing  and maintenance  through  factory and fast-hub  service centers
located around the world; help-desk support through customer call-in centers for
end-users;  logistics and parts  management;  returns  processing;  warehousing;
engineering change management and end-of-life manufacturing.

Alliances

In October 1998,  Solectron signed a definitive agreement with Ingram Micro Inc.
under  which the two  companies  entered  into a  strategic  alliance to provide
global  build-to-order  and  configure-to-order  assembly  services for personal
computers,  servers and related products in the United States,  Canada,  Europe,
Asia and Latin America.  The alliance is managed by both companies under a joint
management matrix that includes a sales and marketing staff, program management,
materials  management,  information  technology  resources  and test and process
engineers and, in most cases, uses existing  facilities,  systems and personnel.
Shipments to customers under the arrangement started in April 1999.

                                       10
<PAGE>

In October 1999, Solectron signed a definitive agreement with Acer, Inc. (Acer),
a core unit of the Acer Group,  the world's  third largest PC  manufacturer,  to
form a strategic  alliance to provide global design,  manufacturing  and service
solutions for OEM-branded  personal  computers,  servers and workstations.  As a
result of this  alliance,  it is expected that  customers will be able to access
the extensive  technology,  motherboard  and system level design  services,  and
global supply-base,  manufacturing,  distribution, logistics and Global Services
operations of both  companies to further  streamline  their global supply chain.
Solectron  and  Acer  plan  to  leverage  their  combined  resources,  including
facilities,  systems  and  personnel  to  provide  the  industry's  first  fully
integrated, global and optimized,  end-to-end design, manufacturing and services
solution.  Both  companies  will manage this alliance  under a joint  management
matrix.

Manufacturing

To  achieve   excellence   in   manufacturing,   Solectron   combines   advanced
manufacturing technology, such as computer-aided manufacturing and testing, with
manufacturing  techniques including  just-in-time  manufacturing,  total quality
management,  statistical  process  control and  continuous  flow  manufacturing.
Just-in-time   manufacturing   is  a  production   technique   which   minimizes
work-in-process  inventory and manufacturing cycle time while enabling Solectron
to deliver  products to customers  in the  quantities  and time frame  required.
Total quality  management is a management  philosophy which seeks to impart high
levels of quality in every  operation of Solectron  and is  accomplished  by the
setting of quality objectives for every operation,  tracking performance against
those  objectives,  identifying work flow and policy changes required to achieve
higher  quality  levels and a  commitment  by  executive  management  to support
changes required to deliver higher quality. Statistical process control is a set
of analytical  and  problem-solving  techniques  based on statistics and process
capability  measurements through which we can track process inputs and resulting
quality and determine  whether a process is operating within  specified  limits.
The  goal  is to  reduce  variability  in the  process,  as  well  as  eliminate
deviations that contribute to quality below the acceptable range of each process
performance standard.

In order to successfully  implement these management  techniques,  Solectron has
developed  the ability to collect and utilize  large amounts of data in a timely
manner. We believe this ability is critical to a successful  assembly  operation
and  represents a significant  competitive  factor,  especially in large turnkey
projects.  To manage  this  data,  we use  sophisticated  computer  systems  for
material  resource  planning,  shop  floor  control,  work-in-process  tracking,
statistical process control and activity-based product costing.

Electronics Assembly and Other Services

Solectron's  electronics  assembly activities consist primarily of the placement
and attachment of electronic and mechanical components on printed circuit boards
and flexible  cables.  We also  assemble  higher-level  sub-systems  and systems
incorporating printed circuit boards and complex  electromechanical  components,
in some cases  manufacturing and packaging products for shipment directly to our
customers'  distributors.  In addition, we provide other manufacturing  services
including refurbishment and remanufacturing.  We manufacture on a turnkey basis,
directly procuring some or all of the components necessary for production and on
a consignment  basis, where the OEM customer supplies all or some components for
assembly.

In  conjunction  with our assembly  activities,  we also provide  computer-aided
testing of printed circuit boards,  sub-systems and systems,  which  contributes
significantly  to our ability to deliver high  quality  products on a consistent
basis.  We have  developed  specific  strategies  and routines to test board and
system level assemblies. In-circuit tests verify that all components have been

                                       11
<PAGE>

properly  inserted and that the  electrical  circuits are  complete.  Functional
tests  determine  if the board or system  assembly  is  performing  to  customer
specifications.  We either  design and procure test fixtures and develop our own
test  software  or utilizes  our  customers'  existing  test  fixtures  and test
software.  In addition,  we provide  environmental  stress tests of the board or
system assembly.

We provide turnkey manufacturing management to meet our customers' requirements,
including  procurement and materials management and consultation on board design
and  manufacturability.  Individual  customers may select various  services from
among our full range of turnkey capabilities.

Procurement  and  materials  management  consists of the  planning,  purchasing,
expediting, warehousing, preparing and financing of the components and materials
required to assemble a printed  circuit  board or electronic  system.  OEMs have
increasingly  used  electronic  manufacturing   specialists  like  Solectron  to
purchase  all or  some  components  directly  from  component  manufacturers  or
distributors and to finance and warehouse the components.

Solectron   also  assists  its  customers  in   evaluating   board  designs  for
manufacturability.  We  evaluate  the  board  design  for  ease and  quality  of
manufacture   and,  when   appropriate,   recommend  design  changes  to  reduce
manufacturing  costs or lead  times  or to  increase  the  quality  of  finished
assemblies.  Board  design  services  consist  of  the  engineering  and  design
associated with the arrangement and  interconnection of specified  components on
printed  circuit boards to achieve an OEM's desired level of  functionality.  We
also offer Application  Specific  Integrated  Circuit (ASIC) design services and
our subsidiary, Force Computers, offers product design services for the embedded
computer market.

Sales and Marketing

Sales and  marketing at  Solectron is an  integrated  process  involving  direct
salespersons and project managers, as well as its senior executives. Solectron's
sales  resources  are directed at multiple  management  and staff levels  within
targeted  accounts.  We also use independent  sales  representatives  in certain
geographic areas. We receive  unsolicited  inquiries  resulting from advertising
and public relations  activities,  as well as referrals from current  customers.
These  opportunities are evaluated against our customer  selection  criteria and
are assigned to direct  salespersons or independent  sales  representatives,  as
appropriate. Historically, we have had substantial recurring sales from existing
customers.

Over 98% of Solectron's net sales during fiscal 1999 were derived from customers
which were also customers during fiscal 1998.  Although we seek to diversify our
customer  base, a small  number of customers  currently  are  responsible  for a
significant portion of our net sales.

Solectron's top ten customers accounted for 74% of net sales in fiscal 1999, 69%
of net  sales in fiscal  1998,  and 66% of net  sales in  fiscal  1997.  Several
customers  each  accounted  for more than 10% of net sales  during  these years.
Cisco Systems, Inc. accounted for 12% of net sales in fiscal 1999 and 11% of net
sales in fiscal 1998.  Hewlett-Packard  Company  represented 11% of net sales in
fiscal  1999,  and  14%  of  net  sales  in  both  fiscal  1998  and  1997.  Sun
Microsystems,  Inc.  accounted  for 11% of net  sales  in  fiscal  1998.  Nortel
Networks,  Inc., formerly Bay Networks,  Inc., accounted for 10% of net sales in
fiscal  1997.  No other  individual  customer  accounted  for  more  than 10% of
Solectron's net sales in any of these years.

                                       12
<PAGE>

Backlog

Backlog  consists of contracts or purchase  orders with delivery dates scheduled
within the next  twelve  months.  At August 31,  1999,  Solectron's  backlog was
approximately $1.7 billion. The backlog was approximately $1.3 billion at August
31, 1998. Because customers may cancel or reschedule deliveries,  backlog is not
a meaningful indicator of future financial results.

Competition

The electronic manufacturing services industry is comprised of a large number of
companies,  several of which have achieved  substantial market share.  Solectron
also faces  competition  from current and  prospective  customers  that evaluate
Solectron's   capabilities   against  the  merits  of   manufacturing   products
internally. We compete with different companies depending on the type of service
or geographic area.  Certain of our competitors may have greater  manufacturing,
financial,  research and development and marketing resources than Solectron.  We
believe  that the  primary  basis of  competition  in our  targeted  markets  is
manufacturing technology, quality, responsiveness,  the provision of value-added
services  and  price.  To  remain  competitive,  we  must  continue  to  provide
technologically advanced manufacturing services,  maintain quality levels, offer
flexible delivery  schedules,  deliver finished products on a reliable basis and
compete  favorably on the basis of price.  We currently  may be at a competitive
disadvantage  as to  price  when  compared  to  manufacturers  with  lower  cost
structures,   particularly  with  respect  to  manufacturers   with  established
facilities where labor costs are lower.

Associates

As of August 31, 1999, Solectron employed 37,936 associates worldwide, including
10,465  temporary  associates.  Solectron's  international  operations  employed
20,408 associates.

Patents and Trademarks

Solectron has a number of U.S. patents related to the process and equipment used
in its surface mount technology. Our subsidiary, Force Computers, holds a number
of patents related to Versa Module Eurocard (VME)  technology.  In addition,  as
part of our recent  acquisitions of the IBM-ECAT  manufacturing  assets, we have
access to a number of IBM patents and license  rights.  We also have  registered
trademarks in the United States and many countries  throughout the world.  These
patents and trademarks are considered valuable to Solectron.

Although Solectron does not believe that its trademarks,  manufacturing process,
Force's  technology or the IBM patents and license rights to which it has access
infringe on the intellectual  property rights of third parties, we cannot assure
that third parties will not assert  infringement claims against Solectron in the
future.  If such an assertion were to be made, it may become necessary or useful
for us to enter into licensing  arrangements or to resolve such an issue through
litigation.  However,  we  cannot  assure  that  such  license  rights  would be
available  to  Solectron  on  commercially  acceptable  terms  or that  any such
litigation could be resolved favorably.  Additionally,  such litigation could be
lengthy and costly and could materially harm our financial condition  regardless
of the outcome of such litigation.

On June 23, 1999,  Solectron was served, along with 87 other companies including
SMART Modular  Technologies,  Inc.,  as a defendant in a lawsuit  brought by the
Lemelson  Medical,  Education & Research  Foundation.  The lawsuit  alleges that
Solectron has infringed  certain of the plaintiff's  patents relating to machine
vision and bar-code  technology.  Solectron believes it has meritorious defenses
to these  allegations  and does not expect that this litigation will result in a
material impact on its financial position or results of operations.

                                       13
<PAGE>

ITEM 2:   PROPERTIES

Solectron's manufacturing facilities are located throughout the Americas, Europe
and Asia.  The table below lists the  locations  and square feet owned or leased
for its major operations.

                                   Square Feet           Lease
                             ----------------------   Termination
     Location                  Owned       Leased        Dates
--------------------         ----------  ----------   -----------
Americas:
  Milpitas, California (1)         -      1,522,000   1999 - 2006
  San Jose, California             -        196,000   2001
  Suwanee, Georgia                 -        496,000   2003
  Westborough, Massachusetts       -        168,000   2002 - 2004
  Charlotte, North Carolina     620,000     243,000   2000 - 2002
  Columbia, South Carolina         -        208,000   2000
  Austin, Texas                    -      1,142,000   2002 - 2003
  Everett, Washington              -        179,000   2003
  Memphis, Tennessee               -        100,000   2000
  Vaughan, Canada                  -         77,000   2006
  Guadalajara, Mexico (2)       716,000        -        -
  Sao Paulo, Brazil             327,000        -        -

Europe:
  Bordeaux, France              116,000     211,000   2008
  Herrenberg, Germany            71,000      40,000   2000
  Munich, Germany                  -        168,000   2002
  Dublin, Ireland                42,000      70,000   2004
  Timisoara, Romania (3)        200,000      40,000   2000
  Dunfermline, Scotland         221,000       8,000   2000
  Norrkoping, Sweden               -         43,000   2004

Asia:
  Suzhou, China                 333,000        -        -
  Johor, Malaysia                  -        200,000   2000 - 2001
  Penang, Malaysia              372,000      60,000   2000 - 2001



(1) Includes facilities located nearby in Fremont and Newark, California.

(2) Includes  approximately  37,000  square  feet  leased to a third  party on a
    short-term lease.

(3) Facility  owned  by  Solectron  is  currently  under  construction  at  this
    location.

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

                                       14
<PAGE>

ITEM 3:   LEGAL PROCEEDINGS

On June 23, 1999,  Solectron was served, along with 87 other companies including
SMART Modular  Technologies,  Inc.,  as a defendant in a lawsuit  brought by the
Lemelson  Medical,  Education & Research  Foundation.  The lawsuit  alleges that
Solectron has infringed  certain of the plaintiff's  patents relating to machine
vision and bar-code  technology.  Solectron believes it has meritorious defenses
to these  allegations  and does not expect that this litigation will result in a
material impact on its financial position or results of operations.


ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the fiscal year covered by this report.


                         Executive Officers of Solectron

Solectron's  executive  officers  and their  ages as of August  31,  1999 are as
follows:

             Name               Age            Position
----------------------------  ------   -------------------------------
Koichi Nishimura, Ph.D.         61     President, Chief Executive
                                       Officer and Chairman of the Board

G. Fred Forsyth                 55     Corporate Vice President and
                                       President of Solectron Americas

David Kynaston                  58     Corporate Vice President and
                                       President of Solectron Europe

Daniel Perez                    48     Corporate Vice President and
                                       Chief Administrative Officer

Ken K. N. Tsai                  57     Senior Vice President and
                                       President of Solectron Asia

Susan S. Wang                   48     Senior Vice President, Chief
                                       Financial Officer and Secretary

Walter W. Wilson                55     Senior Vice President, Business
                                       Integration and Information Technology

Saeed Zohouri, Ph.D.            48     Senior Vice President and
                                       Chief Operating Officer

Dr.  Koichi  Nishimura  has served as Chairman  of the Board  since 1996,  Chief
Executive Officer since 1992 and President since 1990. He was Co-Chief Executive
Officer from 1991 to 1992 and Chief Operating  Officer from 1988 to 1991. He was
also a director of the Board since 1991 before serving as Chairman of the Board.
From  1964 to 1988,  Dr.  Nishimura  was with  International  Business  Machines
Corporation (IBM) in various technology and management positions.  Dr. Nishimura
serves as a director on the boards of Merix Corporation,  the Center for Quality
Management  and the  Santa Fe  Institute.  He also  serves  on the Baan  Company
supervisory board, the advisory board of Santa Clara University's  Leavey School
of Business,  and the board of the Santa Clara Valley  Manufacturing  Group. Dr.
Nishimura  serves as a member of the Board of  Directors in the capacity of Vice
President for the Foundation for the Malcolm  Baldrige  National  Quality Award,
Inc.

                                       15
<PAGE>

Mr. G. Fred  Forsyth has served as Corporate  Vice  President  and  President of
Solectron  Americas  since  July  1999.  He joined  Solectron  in March  1999 as
Corporate  Vice  President  and  President of Systems  Engineering  and Services
Division.  Prior  to  joining  Solectron,  Mr.  Forsyth  was  President  of  the
Professional  Products Division at Iomega  Corporation from August 1997 to March
1999. He was Senior Vice President and General  Manager of Power Macintosh Group
from June 1996 to April 1997 and Senior Vice President Worldwide Operations from
June 1993 to June 1996. Mr. Forsyth also held a variety of management  positions
at Digital Equipment  Corporation and General Electric Company. Mr. Forsyth is a
director of Genus Corporation, a semiconductor equipment manufacturer.

Mr. David  Kynaston  has served as Corporate  Vice  President  and  President of
Solectron  Europe since he joined  Solectron in 1996.  Mr.  Kynaston  worked for
Philips Electronics for the previous 15 years in various  capacities,  including
Managing Director of Philips Mullard Ltd.  subsidiary,  Managing Director of the
Business Communications Systems Division and most recently, Managing Director of
the Private Mobile Radio  Division.  Prior to joining Philips  Electronics,  Mr.
Kynaston  held senior  technical  management  positions  at EMI Medical Ltd. and
Cambridge Scientific Instruments Ltd.

Mr. Daniel Perez has served as Corporate Vice President and Chief Administrative
Officer since 1996. Mr. Perez joined Solectron in 1991 as Director of Materials,
and was soon  named Vice  President  of  Materials  for  Solectron's  California
facility.  He became the General  Manager of  Solectron's  Fremont,  California,
printed circuit board assembly operation in 1995 and assumed his current role in
1996. Prior to joining Solectron,  Mr. Perez spent 14 years with IBM Corporation
in various  management  positions  in corporate  administration,  manufacturing,
materials planning,  and acquisition and control.  Most recently,  he was Senior
Manager for Supply and Demand at IBM's disk  storage  business.  Mr.  Perez also
serves as a director  of the Tech Museum of  Innovation,  the  California  State
Center for Quality Education and Development,  the Mexican Heritage Corporation,
the Center for  Training  and  Careers  in San Jose,  California,  and El Teatro
Campesino.

Mr.  Ken K. N.  Tsai has  served as  Senior  Vice  President  and  President  of
Solectron  Asia since May 1995.  Mr. Tsai was Vice  President of Solectron  from
1990 to 1995. He served as Director of Manufacturing  for Solectron from 1989 to
1990 and was in various  manufacturing  and other  positions  from 1984 to 1989.
Prior to joining  Solectron,  Mr. Tsai served in various management and business
planning positions at American Cyanamid Company from 1968 to 1984.

Ms.  Susan S. Wang has  served  as Senior  Vice  President  and Chief  Financial
Officer  of  Solectron  since 1990 and as  Secretary  since  1992.  She was Vice
President,  Finance and Chief  Financial  Officer of Solectron from 1986 to 1990
and  Director  of  Finance  of  Solectron  from 1984 to 1986.  Prior to  joining
Solectron,  Ms. Wang held various  accounting  and finance  positions with Xerox
Corporation.  Ms. Wang also held accounting and auditing positions with Westvaco
Corp. and Price Waterhouse & Co. She is a Certified Public Accountant.

Mr. Walter W. Wilson has served as Senior Vice President,  Business  Integration
and Information Technology since June 1999. He was President, Solectron Americas
from April 1997 to May 1999;  President,  Solectron North America from September
1995 to March 1997; President Solectron  California  Corporation from March 1992
to February 1996; and Senior Vice President of Solectron  since 1990.  From 1989
to 1990,  he served as an  operational  Vice  President of  Solectron.  Prior to
joining  Solectron,  Mr. Wilson held various  management  positions  with IBM in
manufacturing and product  development from 1965 to 1989. Mr. Wilson also serves
as a director on the board of Asyst Technologies and Mylex Corporation.

                                       16
<PAGE>

Dr.  Saeed  Zohouri  has served as Senior  Vice  President  and Chief  Operating
Officer of Solectron since June 1999. He was Chief Technology  Officer from 1994
to May 1999;  President of Solectron  California  Corporation from March 1996 to
August 1998;  and  President,  Solectron  North America  since August 1998.  Dr.
Zohouri joined Solectron in 1980 and held various management positions including
Director of Technology.  His prior experience  includes teaching  chemistry at a
major international university.

There is no family relationship among any of the foregoing individuals.


                                       17
<PAGE>



                                     PART II

ITEM 5:   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

Common Stock Information

The following table sets forth the quarterly high and low per share sales prices
of  Solectron's  common stock for the two-year  period ended August 31, 1999, as
quoted on the New York Stock Exchange under the symbol SLR.

                                                 High         Low
                                               --------     --------

Fiscal 1999
      First Quarter                            34 11/16     19 13/32
      Second Quarter                           47 1/8       32 1/2
      Third Quarter                            57 7/8       40 1/2
      Fourth Quarter                           78 15/16     52 1/4


Fiscal 1998
      First Quarter                            23 23/32     16 31/32
      Second Quarter                           24 13/16     14 7/16
      Third Quarter                            24 9/32      18 7/32
      Fourth Quarter                           26 9/16      17 23/32




Solectron  has not paid any cash  dividends  since  its  inception  and does not
intend to pay any cash dividends in the foreseeable  future.  Additionally,  the
covenants to its financing agreements prohibit the payment of cash dividends. As
of August 31, 1999, there were approximately  1,100 stockholders of record based
on data obtained from our transfer agent.


                                       18
<PAGE>

ITEM 6:   SELECTED FINANCIAL DATA

The following selected  historical  financial  information of Solectron has been
derived from the historical consolidated financial statements and should be read
in conjunction with the consolidated financial statements and the notes included
therein.

                    Five Year Selected Financial Highlights
                     (In millions, except per share data)

Consolidated Statements of Income Data:

                                           Years Ended August 31,
                         ------------------------------------------------------
                            1999       1998       1997       1996       1995
                         ---------- ---------- ---------- ---------- ----------
Net sales                 $8,391.4   $5,288.3   $3,694.4   $2,817.2   $2,065.6
Operating income             438.9      299.0      236.4      175.4      123.4
Income before
  income taxes               432.3      299.0      238.4      173.1      120.5
Net income                   293.9      198.8      158.1      114.2       79.5
Basic net income
 per share (1)                1.19       0.86       0.71       0.56       0.46
Diluted net income
 per share (1)                1.13       0.82       0.69       0.54       0.41


Consolidated Balance Sheet Data:

                                            As of August 31,
                         ------------------------------------------------------
                            1999       1998        1997       1996       1995
                         ---------- ---------- ---------- ---------- ----------
Working capital           $2,880.9   $1,046.7   $  931.7   $  786.4   $  355.6
Total assets               4,834.7    2,410.5    1,876.4    1,452.2      940.9
Long-term debt               922.6      385.5      385.9      386.9       30.0
Stockholders'equity        2,793.1    1,181.3      919.1      700.6      538.1


(1) All net  income  per  share  amounts  have  been  adjusted  to  reflect  the
    two-for-one stock split effective February 24, 1999.


                                       19
<PAGE>

ITEM 7:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS

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

General

Solectron's net sales are derived from sales to electronics  original  equipment
manufacturers  (OEMs).  The majority of our customers compete in the networking,
data and voice  communications,  workstation,  personal  computer  and  computer
peripheral  segments  of  the  electronics   industry.   We  provide  integrated
supply-chain   solutions  that  span  the  entire  product  life  cycle  -  from
technology,  to  manufacturing,  to  global  services.  We offer  our  customers
competitive  outsourcing  advantages  such as access to  advanced  manufacturing
technologies, shortened time-to-market, reduced total cost of ownership and more
effective asset utilization.  A discussion of some of the potential fluctuations
in operating results is included under "Trends and Uncertainties."

Solectron has 23 manufacturing  operations  throughout the world,  including the
Americas,  Europe and Asia. We have program  offices in Japan,  Israel,  Sweden,
Taiwan and the United Kingdom. Our subsidiaries,  Force Computers (Force),  Fine
Pitch Technologies (Fine Pitch) and Sequel, Inc. (Sequel), are all headquartered
in San Jose, California. Force's European headquarters and a significant portion
of  its  operations  are  located  in  Munich,   Germany.  In  addition  to  its
headquarters' locations, Force has sales support offices in various locations in
the United States and internationally.

During 1997, Solectron established a strategic, global manufacturing partnership
with  Ericsson  Telecom  AB's  Business  Area  Infocom  Systems  (Ericsson).  We
established a New Product  Introduction  (NPI) center in Sweden and  transferred
production from certain  Ericsson plants  worldwide to our  manufacturing  sites
around the  world.  In October  1997,  we  acquired  certain  assets,  primarily
equipment and  inventory,  of Ericsson's  printed  circuit board (PCB)  assembly
operation located in Sao Paulo, Brazil.

In April 1998,  Solectron acquired NCR Corporation's (NCR) manufacturing  assets
in Columbia,  South Carolina;  Duluth,  Georgia; and Dublin,  Ireland. Under the
terms of the agreement, NCR will outsource the manufacturing of certain computer
components  to  Solectron  for at  least  five  years.  The site in  Duluth  was
subsequently merged with the Braselton,  Georgia,  site into a newly constructed
manufacturing facility in Suwanee,  Georgia, in October 1999. The Braselton site
was originally acquired from Mitsubishi in October 1998.

In June 1998, Solectron acquired  International  Business Machines Corporation's
(IBM)  Electronic  Card  Assembly  and  Test  (ECAT)   manufacturing  assets  in
Charlotte,  North Carolina, and non-exclusive rights to certain IBM intellectual
property.  Under  the  terms of the  agreement,  we will  provide  PCB  assembly
services to IBM in North America for the next three years. In addition,  IBM has
made  available  to  Solectron  intellectual  property  rights  covering  a wide
spectrum of  technologies  and  capabilities.  IBM also  provided  to  Solectron
failure  analysis  and  characterization   tools  for  process  development  and
manufacturing, including fault detection and isolation.

                                       20
<PAGE>

In October 1998, Solectron acquired the wireless telephone  manufacturing assets
of  Mitsubishi  Consumer  Electronics  America,  Inc.'s (MCEA)  Cellular  Mobile
Telephone  (CMT)  division  in  Braselton,  Georgia.  MCEA was a  subsidiary  of
Mitsubishi Electric Corporation (Mitsubishi).  Under the terms of the agreement,
we will provide  MCEA-CMT with a full range of  manufacturing  services for five
years,  including  NPI  management,  PCB assembly and full systems  assembly for
MCEA's branded and  private-label  cellular  products sold in North America.  In
October  1999,  we combined the  operations of Braselton and Duluth into a newly
constructed manufacturing facility in Suwanee, Georgia.

Also in October 1998,  Solectron signed a definitive agreement with Ingram Micro
Inc. under which the two companies entered into a strategic  alliance to provide
global  build-to-order  and  configure-to-order  assembly  services for personal
computers,  servers and related products in the United States,  Canada,  Europe,
Asia and Latin America.  The alliance is managed by both companies under a joint
management matrix that includes a sales and marketing staff, program management,
materials  management,   information  technology  resources,  test  and  process
engineers,  and in most cases, uses existing facilities,  systems and personnel.
Shipments to customers under the arrangement began in April 1999.

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)  manufacturing  assets in  Austin,  Texas,  and  non-exclusive  rights to
certain IBM  intellectual  property.  Under the terms of the agreement,  for the
next three years we will  provide PCB assembly  for  motherboards  used in IBM's
mobile computer products manufactured worldwide.  This includes physical design,
early prototyping, new product launch, PCB assembly and test, volume production,
end-of-life  support,  field return services and life cycle management.  We will
also  provide  IBM's  worldwide  design  teams a full  range of  integrated  NPI
services  which involve  pre-manufacturing  support,  such as design and layout,
component and concurrent engineering, test development,  prototype,  procurement
and assembly.

In July 1999,  Solectron issued common stock to acquire Sequel,  Inc.  (Sequel).
Sequel was a privately held  corporation  specializing in notebook  computer and
liquid   crystal   display   repair   service  and  support.   We  have  assumed
responsibility  for  Sequel's  business  operations  in  San  Jose,  California;
Memphis,  Tennessee;  and Reading, United Kingdom. We have also assumed Sequel's
ownership in  joint-venture  operations in Japan and Taiwan.  The acquisition is
expected  to enable us to expand our global  support  services  capabilities  by
adding  quick-turn  service  operations,  customer service centers and help-desk
support for the end-users of Solectron-built products.

In  August  1999,   Solectron  acquired  the  manufacturing  assets  of  Trimble
Navigation  Limited  (Trimble)  in  Sunnyvale,   California,  and  assumed  full
manufacturing  responsibility of Trimble's Global  Positioning  System (GPS) and
related  radio  frequency  (RF)  technology  products  for the next three years.
Trimble is a leader in RF products  enabled by GPS technology.  We also acquired
certain intellectual  property rights related to RF technology.  Under the terms
of the agreement,  we will provide  Trimble a full range of integrated  services
across the entire product life cycle including design consultation, prototyping,
NPI management, and volume PCB and systems assembly.

In  September  1999,  Solectron  acquired  the  manufacturing  assets  of  IBM's
Netfinity  server  operations in Greenock,  Scotland.  In addition,  we acquired
certain IBM intellectual  property rights included in the design and manufacture
of PC server motherboards.  Under the terms of the agreement, we assumed NPI and
manufacturing  responsibility  for the PCB  assemblies  used in IBM's  Netfinity
server lines which were formerly  manufactured at IBM's Greenock operations.  We
will provide IBM  full-service  NPI  management  which  includes a full range of
premanufacturing  services,  specifically component and concurrent  engineering,
test development,  prototype,  procurement and assembly. We will also provide to
IBM for the next three years fully integrated PCB assembly services including

                                       21
<PAGE>

early  prototyping,  new product launch,  assembly and test, volume  production,
end-of-life support and life cycle management.  The volume PCB assembly services
will  be  transferred  from  IBM's  Greenock  facility  to our  existing  global
manufacturing  operations.  In addition, we are establishing a new, full-service
NPI center in Port Glasgow, Scotland, to support the IBM design teams.

Also in September  1999,  Solectron  signed a definitive  merger  agreement with
SMART Modular  Technologies,  Inc. (SMART) to exchange  approximately 23 million
shares of  Solectron  common stock for all of the  outstanding  common stock and
stock options of SMART. The transaction was valued at approximately $1.8 billion
based on Solectron's closing sales price on the last full trading day before the
public announcement of the proposed merger. SMART is a designer and manufacturer
of memory modules and memory cards,  embedded computers,  and I/O products.  The
acquisition  is  another  step in  enabling  Solectron  to  expand  its  service
capabilities  and  infrastructure  as it continues  to  transform  itself into a
global supply-chain facilitator.  We will be gaining a manufacturing presence in
Aguada,  Puerto Rico,  and additional  manufacturing  capacity  through  SMART's
facilities  in  Fremont,  California;   Penang,  Malaysia;  and  East  Kilbride,
Scotland.  In  addition,  we will gain design  centers in  Fremont,  California;
Bangalore, India; Boston, Massachusetts;  and Ayr, Scotland. Solectron and SMART
expect to complete the merger by the end of calendar  year 1999.  Completion  of
the merger is  subject  to the  approval  of  SMART's  shareholders,  applicable
government approvals and various conditions of closing.

In October 1999, Solectron signed a definitive agreement with Acer, Inc. (Acer),
a core unit of the Acer Group, the world's  third-largest  PC  manufacturer,  to
form a strategic  alliance to provide global design,  manufacturing  and service
solutions for OEM-branded  personal  computers,  servers and workstations.  As a
result of the alliance, it is expected that customers will be able to access the
extensive technology,  motherboard and system-level design services,  and global
supply-base,   manufacturing,   distribution,   logistics  and  Global  Services
operations of both  companies to further  streamline  their global supply chain.
Solectron  and  Acer  plan  to  leverage  their  combined  resources,  including
facilities,  systems  and  personnel,  to provide  the  industry's  first  fully
integrated,  global and optimized end-to-end design,  manufacturing and services
solution.  The  companies  will manage this  alliance  under a joint  management
matrix.

In November 1999, Solectron acquired NULOGIX Technical Services, Inc. (NULOGIX),
a wholly owned subsidiary of IBM Canada, in its entirety.  NULOGIX is located in
Vaughan,  Canada, and specializes in repair,  remanufacturing and refurbishment.
With this  acquisition,  we will be able to provide the  Canadian  market a full
range of value-added  global service  solutions.  These services include product
repair,  upgrades,  remanufacturing and maintenance through factory and fast-hub
service centers  located around the world;  help-desk  support through  customer
call centers for end-users;  logistics and parts management; returns processing;
warehousing; engineering change management; and end-of-life manufacturing.

Also  in  November  1999,  Solectron  announced  the  signing  of  memoranda  of
understanding for Solectron to acquire the complex systems  manufacturing assets
of  Ericsson's   telecommunications   infrastructure   equipment  operations  in
Longuenesse,  France, and Ostersund, Sweden. As part of the agreement, Solectron
will provide a complete range of integrated  supply-chain solutions to Ericsson.
This includes supply-base management, early prototyping, NPI management, complex
PCB assembly,  configure-to-order  and build-to-order  complex systems assembly,
and global  services.  The  transaction is expected to be completed by the first
quarter of  calendar  year 2000.  Completion  of the  transaction  is subject to
applicable government approvals and various conditions of closing.

                                       22
<PAGE>

Results of Operations

The  electronics  industry  is subject to rapid  technological  change,  product
obsolescence  and  price  competition.  These and other  factors  affecting  the
electronics industry, or any of Solectron's major customers in particular, could
materially   harm   Solectron's   results  of   operations.   See   "Trends  and
Uncertainties" for factors relating to possible fluctuation of operating results
and our competitors.

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
Consolidated Financial Statements and Notes thereto.

                                             Years Ended August 31,
                                         -----------------------------
                                          1999        1998        1997
                                         -----       -----       -----
Net sales                                100.0%      100.0%      100.0%
Cost of sales                             90.7        89.8        88.4
                                         -----       -----       -----
   Gross profit                            9.3        10.2        11.6
Operating expenses:
  Selling, general and administrative      3.7         4.1         4.7
  Research and development                 0.4         0.4         0.4
  Acquisition costs                         -           -          0.1
                                         -----       -----       -----
   Operating income                        5.2         5.7         6.4
Net interest income (expense)             (0.1)        0.0         0.1
                                         -----       -----       -----
   Income before income taxes              5.1         5.7         6.5
Income taxes                               1.6         1.9         2.2
                                         -----       -----       -----
Net income                                 3.5%        3.8%        4.3%
                                         =====       =====       =====

Net Sales

Solectron's net sales have increased  significantly  in each of the past several
years,  reflecting the growing trend toward  outsourcing  within the electronics
industry. For the year ended August 31, 1999, net sales grew to $8.4 billion, an
increase  of 58.7% over  fiscal  1998 net sales.  Fiscal  1998 net sales of $5.3
billion were 43.1%  greater  than fiscal  1997.  The sales growth in fiscal 1999
compared to fiscal 1998 was  attributable to significant  sales volume increases
from our  worldwide  customers  and from our  acquisitions.  The sales growth in
fiscal 1998 over fiscal 1997 was primarily due to significant increases in sales
volume from both existing and new customers worldwide,  including the completion
of the transfer of production from certain Ericsson plants to various  Solectron
locations around the world. Net sales at Solectron's  international  sites, as a
percentage  of  consolidated  net sales,  have grown over the last three  fiscal
years.  International  locations  contributed 36% of  consolidated  net sales in
fiscal 1999, compared to 34% in fiscal 1998 and 27% in fiscal 1997.

                                       23
<PAGE>

Americas - Within the  Americas,  the sales growth in fiscal 1999 was  primarily
due to demand increases and acquisitions of assets from Ericsson,  NCR, IBM ECAT
and Mitsubishi  during fiscal 1999 and 1998.  Sales from the  acquisition of IBM
ECAT in Austin, Texas, were recognized beginning in March 1999 because the Texas
site  consistently  reports its results one month in arrears.  In addition,  the
Mexico site was among the largest  contributors  due to the strong demand growth
in fiscal 1999 as compared to fiscal 1998. The Milpitas,  California,  site also
experienced  sales growth despite the planned transfer of personal  computer PCB
programs  and  computer  peripherals  systems  assembly  programs  to Mexico and
networking  business to Penang. The sales growth from fiscal 1997 to fiscal 1998
was   attributable  to  start-up  and  major  new  programs  at  the  Texas  and
Massachusetts sites and the addition of new sites in Mexico and Brazil in fiscal
1998.  Additionally,  the  acquired  sites  from NCR and IBM  ECAT in  Charlotte
contributed incremental net sales to fiscal 1998 as compared to fiscal 1997.

Solectron's  operations  in  Milpitas,  California,  contributed  a  substantial
portion of Solectron's  net sales and operating  income during fiscal 1999, 1998
and 1997. In recent  years,  management  has  undertaken  deliberate  actions to
achieve improved global load balancing by transferring certain projects from the
Milpitas site to other sites worldwide. However, the performance of the Milpitas
operation  is expected to  continue  to be a  significant  factor in the overall
financial performance of Solectron.  Any adverse material change to the customer
base, product mix,  efficiency or other attributes of this site could materially
harm Solectron's consolidated results of operations.

Europe - Net sales at all of Solectron's European sites increased in fiscal 1999
over fiscal 1998. The increase was  principally  due to overall  business growth
and increased demand from our telecommunications  customers.  Net sales from our
European  operations in fiscal 1998  increased over fiscal 1997 primarily due to
core  business  growth and new  accounts.  Sales growth at the Scotland site was
particularly  strong  due  to the  ramp  up of  major  customers'  PCB  assembly
activities.  The new locations in Sweden also  contributed to the sales increase
in fiscal 1998 compared to fiscal 1997.

Asia - All Asian  sites  contributed  to the sales  increase in fiscal 1999 over
fiscal 1998 primarily due to core business growth.  In particular,  sales growth
at the Penang, Malaysia, site was attributable to increased demand from personal
computer   customers  and  networking   business   transferred   from  Milpitas,
California.  The Johor,  Malaysia,  site also experienced higher product demand.
Net sales from the Asian  manufacturing  locations increased in fiscal 1998 over
fiscal  1997  primarily  as a result of certain  projects  transferred  from the
Milpitas,  California,  site to meet demand growth. Solectron does not currently
anticipate any future decline in sales, but continues to seek diversification of
our customer base among many countries, market segments and product lines within
market segments.

As a result  of  Solectron's  international  sales and  facilities,  Solectron's
operations are subject to the risks of doing business  abroad.  While,  to date,
these dynamics have not materially harmed Solectron's results of operations,  we
cannot  assure that there will not be such an impact in the future.  See "Trends
and  Uncertainties"  for  factors  pertaining  to our  international  sales  and
fluctuations in the exchange rates of foreign currency for further discussion of
potential  adverse  effects in operating  results  associated  with the risks of
doing business abroad.

Net Sales to Major Customers - Several major  customers  accounted for more than
10% of our net sales in fiscal 1999,  1998 and 1997.  The following  table lists
these customers and the percentage of net sales attributed to them.

                                       24
<PAGE>

                                         Years Ended August 31,
                                       -------------------------
                                        1999      1998      1997
                                       ------    ------    ------
    Cisco Systems, Inc. (Cisco)          12%       11%        *
    Hewlett-Packard Company (HP)         11%       14%       14%
    Sun Microsystems, Inc. (Sun)          *        11%        *
    Nortel Networks, Inc. (formerly
     Bay Networks, Inc.)                  *         *        10%
    ---------------------------
    * net sales less than 10%

No other  customers  accounted  for more than 10% of net sales during any of the
years presented.

Solectron's top ten customers accounted for 74% of net sales in fiscal 1999, 69%
of net  sales  in  fiscal  1998  and 66% of net  sales in  fiscal  1997.  We are
dependent upon continued revenues from Cisco, HP, IBM, Sun and 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   Solectron's   results  of
operations.

Solectron  believes  that its ability to continue  achieving  growth will depend
upon growth in sales to existing  customers for their current and future product
generations,  successful  marketing  to new  customers,  and  future  geographic
expansion.  Customer  contracts can be canceled and volume levels can be changed
or delayed.  The timely replacement of delayed,  canceled or reduced orders with
new  business  cannot be  assured.  In  addition,  we cannot  assure that any of
Solectron's  current  customers will continue to utilize  Solectron's  services.
Because of these factors,  we cannot assure that Solectron's  historical revenue
growth rate will continue.  See "Trends and  Uncertainties"  for a discussion of
certain factors affecting the management of growth,  geographic  expansion,  and
potential fluctuations in sales and results of operations.

Gross Profit

The gross margin  percentages  were 9.3%,  10.2% and 11.6% for fiscal 1999, 1998
and 1997,  respectively.  The  reduction in fiscal 1999  compared to fiscal 1998
primarily  reflects  increased  sales derived from systems  build  projects that
generally  yield lower margins than PCB assembly,  high-volume  PCB projects and
green  field  start-up  operations.  Solectron's  net sales from  systems  build
projects contributed 21% of net sales in fiscal 1999, 19% of net sales in fiscal
1998 and 10% of net sales in fiscal  1997.  In  addition,  the  amortization  of
intellectual property resulting from certain acquisitions reduced gross margins.
The decrease in fiscal 1998 from fiscal 1997 was primarily due to a shift toward
higher-volume  projects and systems  build  projects that  typically  have lower
margins and start-up costs associated with our operations in China and Mexico.

For the  foreseeable  future,  Solectron's  gross  margin is  expected to depend
primarily on product mix, production efficiencies,  utilization of manufacturing
capacity,  start-up and integration  costs of new and acquired  businesses,  the
percentage  of sales derived from  systems-build  projects,  pricing  within the
electronics  industry,  and the cost structure at individual  sites.  Over time,
gross margins at the individual  sites and for Solectron as a whole may continue
to fluctuate. We anticipate that a larger percentage of our sales may be derived
from  systems-build  projects in future periods.  Increases in the systems-build
business,  additional  costs  associated  with new  projects,  and price erosion
within the electronics industry could harm our gross margin.

                                       25
<PAGE>

Also, while the  availability of raw materials  fluctuates from time to time and
generally meets our revenue  projections for the foreseeable  future,  component
availability  is still  subject  to lead time and other  constraints  that could
possibly limit our revenue growth. Because of these factors and others discussed
under "Trends and Uncertainties"  below, we cannot assure that Solectron's gross
margin will not fluctuate or decrease in future periods.

Selling, General and Administrative Expenses

In  absolute  dollars,  selling,  general  and  administrative  (SG&A)  expenses
increased  41.8% in fiscal  1999 over  fiscal 1998 and 26.3% in fiscal 1998 over
fiscal 1997.  The dollar  increase in fiscal 1999  primarily  reflects  expenses
associated with sales growth including increased human resources costs necessary
to support business  infrastructure and further development costs of information
systems,  as well as  increased  costs of  acquisition-related  activities.  The
addition of newly acquired sites in fiscal 1999 from  Mitsubishi and IBM ECAT in
Austin,  Texas,  also  contributed to the increase in SG&A expenses.  The fiscal
1998  increase was due to  investment  in  infrastructure  such as personnel and
related  departmental  expenses  at  all  manufacturing  locations  as  well  as
investment in  information  systems to support the increased size and complexity
of our business. Additionally, the sites added in fiscal 1998, including Brazil,
NCR and IBM ECAT in Charlotte,  North  Carolina,  contributed to the increase in
SG&A expenses.

As a percentage of net sales,  SG&A  expenses were 3.7% in fiscal 1999,  4.1% in
fiscal 1998 and 4.7% in fiscal 1997.  The primary reason for the fiscal 1999 and
1998 decrease in SG&A  expenses as a percentage of net sales is the  significant
increase  in the sales  base,  partially  offset by the  costs  associated  with
investments  in our business  infrastructure,  information  systems and start-up
costs for new sites.  We  anticipate  SG&A expenses will continue to increase in
terms  of  absolute  dollars  in the  future  and  may  possibly  increase  as a
percentage of net sales as we continue to develop the  infrastructure  necessary
to support our current and prospective business.

Research and Development Expenses

With the exception of our Force Computers  operation,  Solectron's  research and
development  (R&D) activities have been focused  primarily on the development of
prototype  and  engineering  design  capabilities,  fine  pitch  interconnecting
technologies (which include ball-grid array,  tape-automated bonding,  multichip
modules,   chip-on-flex,   chip-on-board   and  flip   chip),   high-reliability
environmental  stress test technology and the  implementation of environmentally
friendly assembly  processes such as VOC-free and no-clean.  Force's R&D efforts
are  concentrated on new product  development and improvement of product designs
through improvements in functionality and the use of microprocessors in embedded
applications.

In absolute  dollars,  R&D expenses  increased  34.9% in fiscal 1999 over fiscal
1998 and 39.3% in fiscal 1998 over fiscal 1997.  As a  percentage  of net sales,
R&D  expenses  were 0.4% in fiscal  1999,  1998 and 1997.  The  increases in R&D
expenses  were  primarily  due to  Force's  focused  effort on  development  and
improvement  of its  products.  We expect  that R&D  expenses  will  increase in
absolute  dollars in the future and may  increase as a  percentage  of net sales
while  Force and the newly  acquired  IBM sites  continue to invest in their R&D
efforts.  In addition,  certain new R&D projects  will be  undertaken at some of
Solectron's  Asian sites,  particularly at the sites in Malaysia  because of the
tax holiday. (See "Income Taxes.")

                                      26
<PAGE>

Acquisition Costs

A one-time  charge for  acquisition  costs of  approximately  $4.0  million  was
incurred in fiscal 1997 as a result of the  acquisition  of Force  Computers  in
November 1996.

Net Interest Income (Expense)

Net  interest  expense was $6.6  million in fiscal 1999 and zero in fiscal 1998.
Net  interest  income  was $2.0  million in fiscal  1997.  The net  increase  in
interest  expense  in  fiscal  1999 over  fiscal  1998 was  attributable  to the
issuance  of 4% yield  zero-coupon  convertible  senior  notes in January  1999,
partially  offset by lesser interest  expense from the convertible  subordinated
notes which were converted to common stock in March 1999.  The interest  expense
in fiscal 1999 principally related to the zero-coupon  convertible senior notes,
convertible subordinated notes and senior notes.  Additionally,  the fiscal 1999
interest  expense was partially  offset by interest  income earned on undeployed
cash and short-term  investments.  In fiscal 1999, we capitalized  approximately
$3.2  million of  interest  expense  related to the costs of  computer  software
developed for internal use and the facility construction projects at the Brazil,
China,  Mexico and Romania sites. In fiscal 1998, the net zero interest  expense
was  primarily  due to the  interest  expense  related to the  senior  notes and
convertible  subordinated  notes  entirely  offset by interest  income earned on
undeployed  cash  and  short-term  investments.  We  expect  to use  more of our
undeployed  cash  during  future  periods  in order to fund  anticipated  future
growth. See "Trends and Uncertainties" for factors relating to management growth
and potential fluctuations in operating results.

Income Taxes

Income taxes  increased to $138.4  million in fiscal 1999 from $100.2 million in
fiscal 1998 and $80.3 million in fiscal 1997,  primarily due to increased income
before income taxes. Solectron's effective income tax rate decreased slightly to
32.0% in fiscal 1999 from 33.5% in fiscal 1998 and 33.7% in fiscal 1997.

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

Recent Accounting Pronouncements

Effective in the first quarter of fiscal 1999,  Solectron  adopted  Statement of
Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting  Comprehensive
Income," which requires us to report and display certain  information related to
comprehensive  income.  Comprehensive  income  includes  net  income  and  other
comprehensive  income. Other comprehensive income is classified  separately into
foreign currency items,  minimum pension liability  adjustments,  and unrealized
gains and  losses on certain  investments  in debt and  equity  securities.  The
adoption  of SFAS No.  130 had no  impact  on  Solectron's  financial  position,
results of operations or cash flows.

Effective in the first  quarter of fiscal 1999,  Solectron  adopted the American
Institute of Certified Public  Accountants  (AICPA)  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use."  SOP 98-1  provides  guidance  on  accounting  for the  costs of
computer software developed or obtained for internal use and for determining

                                       27
<PAGE>

when specific costs should be capitalized and when they should be expensed.  The
impact  of  adopting  SOP  98-1 was not  significant  to  Solectron's  financial
position, results of operations or cash flows.

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as  incurred.  In  addition,  all  start-up  costs  that were
capitalized in the past must be written off when SOP 98-5 is adopted.  Solectron
expects  that the  adoption  of SOP 98-5 will not have a material  impact on its
financial position,  results of operations or cash flows. We will be required to
implement SOP 98-5 in our first quarter of fiscal 2000.

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 establishes methods of accounting for derivative  financial  instruments and
hedging  activities  related  to  those  instruments  as well as  other  hedging
activities.  Solectron  anticipates  that the  adoption of SFAS No. 133 will not
have a material impact on its financial position,  results of operations or cash
flows. Implementation of this standard has recently been delayed by the FASB for
a 12-month period. We will now adopt SFAS No. 133 in our first quarter of fiscal
2001.

Liquidity and Capital Resources

Working capital was $2.9 billion at August 31, 1999, compared to $1.0 billion at
August  31,  1998.  A major  component  of working  capital at August 31,  1999,
primarily  consisted of  undeployed  cash from the  proceeds of the  zero-coupon
convertible senior notes in January 1999 and the common stock offering in August
1999.

During fiscal 1999, we used  approximately  $125 million of cash and  short-term
investments to fund our asset  acquisitions  including  Mitsubishi in Braselton,
Georgia; IBM's ECAT in Austin, Texas; and Trimble in Sunnyvale,  California.  In
the first quarter of fiscal 2000, we used additional funds for our acquisitions.
As we continue to grow, it is expected that we will require  greater  amounts of
working capital to support our operations.  We believe that our current level of
working capital,  together with cash generated from operations and our available
credit  facilities,  will provide  adequate  working capital for the foreseeable
future.  However,  we may need to raise  additional  funds to finance  our rapid
expansion,   including   establishing  new  locations  or  financing  additional
acquisitions.  We cannot assure that such funds, if needed, will be available on
terms acceptable to us or at all.

Inventory   levels   fluctuate   directly   with  the   volume  of   Solectron's
manufacturing. Changes or significant fluctuations in product market demands can
cause  fluctuations in inventory  levels that may result in changes of inventory
turns and  liquidity.  Historically,  we have been able to manage our  inventory
levels with regard to these fluctuations.  However, should material fluctuations
occur in product demand, we could experience slower turns and reduced liquidity.
The  increase  in  inventory  levels  at  year-end  1999 from  year-end  1998 is
substantially a result of overall growth and the greater number of manufacturing
locations at August 31, 1999, compared to August 31, 1998, as each location must
maintain  a level of  inventory  adequate  to allow the  location  to respond to
customer manufacturing requirements.

Cash  provided by  operating  activities  was $38 million in fiscal  1999,  $150
million in fiscal 1998 and $202 million in fiscal 1997.  The decreases in fiscal
1999 and 1998 were primarily due to increased levels of accounts  receivable and
inventory,  partially  offset  by  increases  in net  income,  depreciation  and
amortization, and current liabilities.

                                       28
<PAGE>

During fiscal 1999,  Solectron  invested  approximately  $426 million in capital
expenditures.  A large portion of these expenditures  related to the purchase of
new  equipment,  primarily  surface mount assembly and test  equipment,  to meet
current and expected  production  levels, as well as to replace or upgrade older
equipment that was retired or sold. Significant  expenditures were also made for
the  acquisition  of  land  and  buildings  for  our  new  manufacturing  sites,
principally in Brazil,  Mexico and Romania.  We expect capital  expenditures  in
fiscal 2000 to be in the range of $500 million to $600 million.

In addition to working  capital as of August 31, 1999,  which  included cash and
cash  equivalents  of $1.3 billion and  short-term  investments of $363 million,
Solectron has available a $100 million unsecured  multicurrency revolving credit
facility  that is subject to financial  covenants  and expires in April 2002. We
also have  approximately  $86 million in available  uncommitted  foreign  credit
facilities.

"Year 2000" Issues

Solectron has developed a comprehensive program to address the issues associated
with  the  programming  code in  existing  computer  systems  as the  year  2000
approaches. The Year 2000 problem is pervasive and complex, as computer systems,
manufacturing  equipment and industrial control systems will be affected in some
way by the  rollover  of the  two-digit  year value to 00.  Systems  that do not
properly  recognize such dates could generate  erroneous  information or cause a
system to fail. The Year 2000 issue creates risk for us from unforeseen problems
in our systems and from third parties with whom we deal on business transactions
worldwide.  Failures of  Solectron's  and/or third  parties'  computer  systems,
manufacturing equipment and industrial control systems could materially harm our
ability to conduct business.

We have  formed a  worldwide  task force and have  implemented  a  comprehensive
program  to  analyze  our  internal  systems  as  well as all  external  systems
(including, without limitation, vendor, customer and banking systems) upon which
we are dependent,  to identify and evaluate any potential Year 2000 issues. This
task force meets regularly and tracks progress against the program, modifying it
as needed to help ensure timely  completion.  We are committed to achieving Year
2000 compliance; however, because a significant portion of the potential problem
is external to us and therefore outside of our direct control,  we cannot assure
that we will be fully Year 2000 compliant.  In addition, as full testing of Year
2000 functionality must occur in a simulated environment, we will not be able to
test full system Year 2000 interfaces and capabilities prior to the year 2000.

As of August 31, 1999, we had completed an  inventory,  assessment,  remediation
and testing of internal systems, hardware, software, manufacturing equipment and
embedded  chips in  industrial  control  instruments.  While we believe that our
testing and evaluation have been entirely  comprehensive,  we cannot assure that
all systems critical to Year 2000 compliance have been  identified,  or that the
corrective actions identified will be completely successful.

As of August  31,  1999,  we had  inventoried  every key  supplier  of goods and
services to us and  considered  the potential  impact on us and our customers of
Year  2000  compliance  by these  suppliers.  Also,  we have  evaluated  the key
suppliers'  responses  to our  mailing  surveys  and have  been  auditing  these
suppliers. We will continue to disqualify potentially noncompliant sources, look
for  alternative  sources and requalify new suppliers to help mediate  potential
business  disruptions.  We are also involved with various  geographic  Year 2000
consortiums worldwide,  with the intent to leverage contacts and information for
commonly  used  suppliers  and  services  such as  utility  companies.  We are a
founding  member of the High Tech Consortium  (HTC) - Year 2000 & Beyond,  which
through  collaborative  efforts has the goal of ensuring  that member  companies
address Year 2000 readiness on a coordinated basis. The

                                       29
<PAGE>

HTC has been  addressing  the risk  associated  with the  interconnected  supply
chain. Detailed supplier audits by the HTC's independent  consultants started in
late March. In addition, we have nearly completed the review of EDI linkages and
data transmission for our customers and suppliers. While we believe that we will
be able to qualify alternative suppliers, we cannot fully evaluate the extent of
potential problems and the costs associated with corrective actions.

We now estimate the cost to complete the current compliance program to be in the
range of $32 million to $36 million.  Of this amount,  approximately $10 million
is for the  replacement  of  capital  equipment,  of  which  approximately  half
comprises  noncompliant  systems that would not otherwise  have been replaced at
this time.  The  variability in these  estimates  depends on the extent to which
supplier requalification is needed and contingency plan implementation costs. We
cannot  assure that actual costs will not be  materially  higher than  currently
anticipated.  A significant portion of these costs is not incremental to us, but
rather represents the redeployment of existing information technology resources.
Certain other information technology projects have been delayed due to the focus
on Year 2000 issues.  The potential  costs of the  redeployment of personnel and
delays in implementing other projects is not known but could be substantial. The
total amount spent on the compliance program this fiscal year through August 31,
1999,  was $27 million,  of which $18 million  principally  pertained to payroll
costs for personnel involved in the program and costs of outside consultants and
$9 million principally pertained to the replacement of capital equipment.  Prior
to fiscal 1999,  costs of software and hardware  applications  incurred for Year
2000  compliance were not material and related payroll costs for the information
systems group were not tracked separately.

We have developed  contingency plans for the replacement and  requalification of
suppliers,   the  possible  stockpiling  of  key  supplies,  the  relocation  of
production  using our  disaster  recovery  plans,  and the purchase of emergency
generators in the event of power outages at any of our worldwide  locations.  We
are unable to determine the extent of the potential  effect on us, our suppliers
or our  customers  due to the  failure  of any  systems  caused by the Year 2000
issues. Any significant failures could materially harm our results of operations
and financial condition.

Trends and Uncertainties

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

A majority of our annual net sales comes from a small  number of our  customers.
Our ten largest  customers  accounted for 74% of net sales in fiscal 1999. Since
we are dependent  upon continued net sales from our ten 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 ten  percent  of our  annual net
sales. We cannot guarantee that we will be able to retain any of our ten 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.

Our long-term contracts do not include minimum purchase requirements.

Although  we have  long-term  contracts  with a few of our  top  ten  customers,
including Ericsson Telecom AB, NCR Corporation and IBM Corporation,  under which
these customers are obligated to obtain services from us, they are not 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,

                                       30
<PAGE>

these customers with whom we have long-term  contracts 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.

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, systems assembly services have lower gross margins
    than PCB assembly services;
-   Our ability to maximize the hours of use of our equipment and facilities is
    dependent on the duration of the production run time for each job and
    customer;
-   The amount of automation  that we can use in the  manufacturing  process for
    cost  reduction  varies  depending  upon the complexity of the product being
    made;
-   Our ability to optimize the ordering of inventory as to timing and amount to
    avoid holding inventory in excess of immediate production; and
-   Fluctuations in demand for our services or the products being manufactured.

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 are  dependent  upon the  electronics  industry  which  continually  produces
technologically  advanced  products  with short life  cycles;  Our  inability to
continually  manufacture such products on a cost-effective  basis would harm our
business.

A majority of our net sales is 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  will 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.

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  because we are unable to purchase  components at the same time
as we agree with our customers on the pricing for the components.

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

We compete  with  different  contract  manufacturers,  depending  on the type of
service we provide or the geographic locale of our operations. These

                                       31
<PAGE>

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.

If we are unable to manage our rapid growth and  assimilate  new operations in a
cost-effective manner, our profitability could decline.

We have experienced rapid growth over the last five fiscal years. Our historical
growth may not continue.  In recent  years,  we have  established  operations in
different places  throughout the world.  For example,  in fiscal 1998, we opened
offices in Taipei,  Taiwan;  Tel Aviv,  Israel;  and  Norrkoping  and Stockholm,
Sweden,  and commenced  manufacturing  operations in  Guadalajara,  Mexico,  and
Timisoara,  Romania.  Also in fiscal 1998, we acquired foreign facilities in Sao
Paulo, Brazil, and Dublin, Ireland. Furthermore,  through acquisitions in fiscal
1998 and 1999,  we  acquired  facilities  in Duluth,  Georgia;  Columbia,  South
Carolina;  and Memphis,  Tennessee,  and enhanced our capabilities in Charlotte,
North  Carolina;  Austin,  Texas;  and  Milpitas,  California.  Also during that
period, we announced a joint venture with Ingram Micro Inc.

In September 1999, we announced the  acquisition of SMART Modular  Technologies,
Inc. During October and November of 1999, we completed the asset  acquisition of
IBM's  Netfinity  server  operations in Greenock,  Scotland,  and acquired IBM's
NULOGIX Technical Services,  Inc. in Vaughan,  Canada, in its entirety.  Also in
October 1999, we signed a definitive  agreement with Acer, Inc.  (Acer),  a core
unit of the Acer Group, the world's  third-largest  PC  manufacturer,  to form a
strategic alliance to provide global design, manufacturing and service solutions
for OEM-branded personal computers,  servers and workstations.  Also in November
1999,  we announced the signing of memoranda of  understanding  for Solectron to
acquire   the   complex    systems    manufacturing    assets   of    Ericsson's
telecommunications  infrastructure equipment operations in Longuenesse,  France,
and Ostersund, Sweden.

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
will decline.

We need to manage integration of our acquisitions to maintain profitability.

In fiscal 1998 and 1999, we completed  acquisitions of manufacturing  assets and
facilities from Ericsson,  NCR, IBM,  Mitsubishi and Trimble  Navigation Limited
and  acquired  all of the  capital  stock of Sequel,  Inc.  We also  continue to
evaluate acquisition  opportunities and 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;
-   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,  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.

                                       32
<PAGE>

Our international  sales are a significant and growing portion of our net sales;
we are increasingly exposed to risks associated with operating internationally.

In fiscal  1999,  approximately  36% of our net sales  came from  outside of the
United States.  As a result of our foreign sales and facilities,  our operations
are subject to a variety of risks that are unique to  international  operations,
including the following:

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

In addition,  we have  operations in several  locations  that have  inflationary
economies or potentially volatile currencies, including Guadalajara, Mexico; Sao
Paulo,  Brazil;  Suzhou,  China; and Timisoara,  Romania.  In the future,  these
factors may harm our results of  operations.  Markets in Southeast  Asia,  Latin
America  and Eastern  Europe  have  recently  experienced  and are  experiencing
currency, economic and political instability. As of August 31, 1999, we recorded
$87.5 million in cumulative  foreign exchange  translation losses on our balance
sheet which were primarily the result of 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 assure 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 assure 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 which is 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
Solectron  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, Solectron's effective income tax rate would likely increase.

We are exposed to fluctuations in the exchange rates of foreign currency.

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 nonfunctional  currencies.  Corresponding
gains and losses on the underlying  transaction  generally  offset the gains and
losses on these foreign currency hedges.

As of August 31,  1999,  all of the  foreign  currency  hedging  contracts  were
scheduled to mature in three months or less and there were no material  deferred
gains or losses. In addition, our international operations in some instances

                                       33
<PAGE>

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 will result in lower sales when  translated  to U.S.  dollars,  operating
expenses will also be lower in these circumstances.  However,  because less than
10% of net sales are denominated in currencies other than the U.S. dollar, we do
not believe our total exposure to be significant.

Fluctuations in the rate of exchange  between the U.S. dollar and the currencies
of countries  other than the U.S. in which we conduct  business could  seriously
harm our business,  operating results and financial  condition.  For example, if
there is an increase in the rate at which a foreign  currency is  exchanged  for
U.S. dollars,  it will 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 will 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 could
result in our prices being uncompetitive in markets where business is transacted
in the local currency.

We have a task force which  evaluates  the effect of the Euro  conversion  on us
from many  perspectives.  We  continue  to evaluate  our tax  positions  and all
outstanding contracts in currencies of the participating  countries to determine
the  effects,  if any,  of the Euro  conversion.  It is  possible  that the Euro
conversion  could  significantly  harm our results of  operations  and financial
position due to competitive and other factors relating to the conversion that we
cannot predict.

We are exposed to fluctuations in interest rates.

The primary  objective of our  investment  activities is to preserve  principal,
while at the same time, maximize yields without  significantly  increasing risk.
To achieve this  objective,  we maintain our portfolio of cash  equivalents  and
short-term investments in a variety of securities, including both government and
corporate  obligations,  certificates  of deposit and money market funds.  As of
August 31,  1999,  approximately  93% of our total  portfolio  was  scheduled to
mature in one year or less, with the remainder  maturing in less than two years.
See Note 2 of Notes to Consolidated Financial Statements.

The following table presents the amounts of our cash  equivalents and short-term
investments that are subject to interest rate risk by year of expected  maturity
and weighted-average interest rates as of August 31, 1999:

                                   2000      2001     Total    Fair Value
                                 --------  --------  --------  ----------
                                         (dollars in millions)
Cash equivalents and short-
  term investments               $1,207.3  $   99.5  $1,306.8    $1,306.8
Average interest rates               5.18%     5.30%

We have  entered  into an interest  rate swap  transaction  under which we pay a
fixed rate of interest  hedging  against the variable  interest rates 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 fact,  such  interest rate swap has fixed
the interest rate for the facility lease, thus reducing interest rate risk.

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<PAGE>

Solectron's  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  subject  to  market  risk  from our debt
instruments. See Note 6 of Notes to Consolidated Financial Statements.

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, Solectron
was served, along with 87 other companies including SMART Modular  Technologies,
Inc., as a defendant in a lawsuit brought by the Lemelson  Medical,  Education &
Research Foundation. The lawsuit alleges that Solectron has infringed certain of
the  plaintiff's  patents  relating to machine  vision and bar-code  technology.
Solectron believes it has meritorious defenses to these allegations and does not
expect that this  litigation  will result in a material  impact on its financial
condition  or results of  operations.  In the future,  third  parties may assert
infringement  claims  against  Solectron  or its  customers.  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
process.  Although we have never sustained any  significant  loss as a result of
noncompliance  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 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 or
  technological  innovation  or new  services;
- Economic  developments  in the electronics  industry  as a whole;
- Political  and  economic  developments  in countries in which we have
  operations; and
- General market conditions.

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.

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<PAGE>

Year 2000 problems may have an adverse  effect on our  operations and ability to
offer products and services without interruption.

The Year 2000 issue is a result of computer  programs  being  written  using two
digits rather than four to define the applicable  year.  Computer  programs that
have this  date-sensitive  software may  recognize a date using "00" as the year
1900  rather  than the year  2000.  This  could  result  in system  failures  or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, order materials or
otherwise engage in normal business activities.

A key to our ability to successfully manage our operations is the responsiveness
of the supply  chain for  electronics  components.  This  supply  chain is often
controlled by computer systems,  which could fail. While Solectron controls some
of these systems, our vendors, our customers, transportation companies and other
service providers that are outside of Solectron's  control operate some of these
computer systems, as well. If any of these computer systems fail, it could delay
our receipt of previously ordered electronics components,  thereby causing us to
delay,  cancel  or  modify  orders  from our  customers,  which  could  harm our
business.

We have  developed a  contingency  plan to address the Year 2000  problem.  This
contingency  plan may still not be  successful in preventing a disruption of our
operations.  Although we have  extensively  tested our equipment and  interfaces
with other  companies,  we cannot be sure that this testing will fully replicate
the actual situation when the year 2000 arrives.

Our  anti-takeover  defense  provisions  may deter  potential  acquirors and may
depress our stock price.

Our certificate of incorporation  and bylaws contain  provisions that could have
the  effect of making it more  difficult  for a third  party to  acquire,  or of
discouraging  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.

                                       36
<PAGE>

ITEM 7A:  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 "Trend and Uncertainties."


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The  information  required  by item 8 of  Form  10-K  is  presented  here in the
following order:
                                                        Page
                                                      --------
Unaudited Quarterly Financial Information                37

Consolidated Balance Sheets                              38
Consolidated Statements of Income                        39
Consolidated Statements of Stockholders' Equity          40
Consolidated Statements of Comprehensive Income          41
Consolidated Statements of Cash Flows                  42-43
Notes to Consolidated Financial Statements             44-60

Independent Auditors' Report                             61


Unaudited Quarterly Financial Information

For each fiscal  quarter  during the two fiscal  years ended August 31, 1999 (in
millions except percentages and per share data):


                            First      Second       Third      Fourth
1999                       Quarter     Quarter     Quarter     Quarter
-------------------       ---------   ---------   ---------   ---------

Net sales                  $1,945.6    $1,908.1    $2,151.5    $2,386.1
Gross profit               $  175.9    $  178.4    $  201.6    $  220.9
Gross margin                    9.0%        9.3%        9.4%        9.3%
Operating income           $   97.2    $   98.6    $  113.3    $  129.8
Operating margin                5.0%        5.1%        5.3%        5.4%
Net income                 $   63.9    $   65.5    $   75.7    $   88.8
Basic net income
  per share (1)            $   0.27    $   0.28    $   0.30    $   0.34
Diluted net income
 per share  (1)            $   0.26    $   0.26    $   0.29    $   0.33

                            First      Second       Third      Fourth
1998                       Quarter     Quarter     Quarter     Quarter
-------------------       ---------   ---------   ---------   ---------

Net sales                  $1,136.8    $1,186.8    $1,278.1    $1,686.5
Gross profit               $  123.7    $  126.1    $  133.1    $  155.3
Gross margin                   10.9%       10.6%       10.4%        9.2%
Operating income           $   67.4    $   73.2    $   72.4    $   86.0
Operating margin                5.9%        6.2%        5.7%        5.1%
Net income                 $   44.9    $   48.8    $   49.2    $   55.9
Basic net income
  per share (1)            $   0.20    $   0.21    $   0.21    $   0.24
Diluted net income
  per share (1)            $   0.19    $   0.20    $   0.20    $   0.23

(1) Adjusted to reflect two-for-one stock split effective February 24, 1999.

                                       37
<PAGE>

                   SOLECTRON CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                     (In millions, except per share data)

                                                  As of August 31,
                                               ----------------------
                                                 1999           1998
ASSETS                                         --------      --------
Current assets:
  Cash and cash equivalents                    $1,325.6      $  225.2
  Short-term investments                          362.8          83.6
  Accounts receivable, less allowances of
   $5.6 and $4.0, respectively                  1,118.3         670.2
  Inventories                                   1,080.1         788.5
  Prepaid expenses and other current assets       107.3         120.0
                                               --------      --------
      Total current assets                      3,994.1       1,887.5
Net property and equipment                        653.6         448.0
Other assets                                      187.0          75.0
                                               --------      --------
      Total assets                             $4,834.7      $2,410.5
                                               ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term debt                              $   21.4      $     -
  Accounts payable                                902.6         666.5
  Accrued employee compensation                    88.9          72.1
  Accrued expenses                                 40.4          34.9
  Other current liabilities                        59.9          67.3
                                               --------      --------
      Total current liabilities                 1,113.2         840.8
Long-term debt                                    922.6         385.5
Other long-term liabilities                         5.8           2.9
                                               --------      --------
      Total liabilities                         2,041.6       1,229.2
                                               --------      --------
Commitments

Stockholders' equity:
  Preferred stock, $.001 par value; 1.2
    shares authorized; no shares issued              -             -
  Common stock, $.001 par value; 400.0
    shares authorized; 271.4 and 235.3
    shares issued and outstanding,
    respectively, adjusted for stock split          0.3           0.1
  Additional paid-in capital                    1,910.1         510.8
  Retained earnings                               971.2         677.4
  Accumulated other comprehensive losses          (88.5)         (7.0)
                                               --------      --------
      Total stockholders' equity                2,793.1       1,181.3
                                               --------      --------
Total liabilities and stockholders' equity     $4,834.7      $2,410.5
                                               ========      ========

 See accompanying notes to consolidated financial statements.

                                       38
<PAGE>

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


                                           Years Ended August 31,
                                       ------------------------------
                                         1999       1998       1997
                                       --------   --------   --------
Net sales                              $8,391.4   $5,288.3   $3,694.4
Cost of sales                           7,614.6    4,750.0    3,266.1
                                       --------   --------   --------
Gross profit                              776.8      538.3      428.3

Operating expenses:
  Selling, general and
   administrative                         309.7      218.4      172.9
  Research and development                 28.2       20.9       15.0
  Acquisition costs                          -          -         4.0
                                       --------   --------   --------
Operating income                          438.9      299.0      236.4
Interest income                            29.9       24.8       28.5
Interest expense                          (36.5)     (24.8)     (26.5)
                                       --------   --------   --------
Income before income taxes                432.3      299.0      238.4
Income taxes                              138.4      100.2       80.3
                                       --------   --------   --------
Net income                             $  293.9   $  198.8   $  158.1
                                       ========   ========   ========
Net income per share:
  Basic                                $   1.19   $   0.86   $   0.71
  Diluted                              $   1.13   $   0.82   $   0.69
Weighted average number of shares:
  Basic                                   246.3      231.7      223.0
  Diluted                                 263.5      253.1      230.6

See accompanying notes to consolidated financial statements.

                                       39
<PAGE>

<TABLE>
                     SOLECTRON CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (In millions)

<CAPTION>
                                                                    Accumulated
                                  Common Stock  Additional             Other           Total
                                  -------------  Paid-In   Retained Comprehensive  Stockholders'
                                  Shares Amount  Capital   Earnings Income(losses)     Equity
                                  ------ ------ ---------- -------- -------------- -------------
<S>                               <C>     <C>    <C>        <C>          <C>         <C>

Balances as of August 31, 1996     210.0   $0.1   $  378.2   $320.5       $  1.7      $  700.5
Net income                            -      -          -     158.1           -          158.1
Foreign currency translation          -      -          -        -         (12.4)        (12.4)
Options exercised                    6.0     -        31.3       -            -           31.3
Stock issued under employee
  purchase plan                      0.7     -         6.8       -            -            6.8
Stock issued in business
  combination                       12.4     -        24.0       -            -           24.0
Tax benefit associated with
  exercise of stock options           -      -        10.8       -            -           10.8
                                  ------ ------ ---------- -------- -------------- -------------
Balances as of August 31, 1997     229.1    0.1      451.1    478.6        (10.7)        919.1
Net income                            -      -          -     198.8           -          198.8
Foreign currency translation          -      -          -        -           3.7           3.7
Options exercised                    5.6     -        39.1       -            -           39.1
Stock issued under employee
  purchase plan                      0.6     -        11.3       -            -           11.3
Tax benefit associated with
  exercise of stock options           -      -         9.3       -            -            9.3
                                  ------ ------ ---------- -------- -------------- -------------
Balances as of August 31, 1998     235.3    0.1      510.8    677.4         (7.0)      1,181.3
Net income                            -      -          -     293.9           -          293.9
Foreign currency translation          -      -          -        -         (80.5)        (80.5)
Unrealized loss on investments        -      -          -        -          (1.0)         (1.0)
Options exercised                    4.6     -        47.7       -            -           47.7
Stock issued under employee
  purchase plan                      0.6     -        17.9       -            -           17.9
Issuance of common stock dividend     -     0.1         -      (0.1)          -             -
Conversion of long-term debt, net   13.6     -       225.4       -            -          225.4
Issuance of common stock, net of
  issuance costs of $32.5           17.0    0.1    1,059.7       -            -        1,059.8
Stock issued in business
  combination                        0.3     -        17.8       -            -           17.8
Tax benefit associated with
  exercise of stock options           -      -        30.8       -            -           30.8
                                  ------ ------  --------- -------- -------------- -------------
Balances as of August 31, 1999     271.4   $0.3   $1,910.1   $971.2       $(88.5)     $2,793.1
                                  ====== ======  ========= ======== ============== =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       40
<PAGE>

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                  (In millions)



                                                   Years Ended August 31,
                                                 --------------------------

                                                  1999      1998      1997
                                                 ------    ------    ------


Net income                                       $293.9    $198.8    $158.1
Other comprehensive income (loss):
Foreign currency translation adjustments,
 net of income tax benefit of $0.4 in 1999        (80.5)      3.7     (12.4)
Unrealized loss on investments, net of
 income tax benefit of $0.6 in 1999                (1.0)       -         -
                                                 ------    ------    ------

Comprehensive income                             $212.4    $202.5    $145.7
                                                 ======    ======    ======


---------------
Accumulated foreign currency translation losses were $87.5 million at August 31,
1999,  $7.0 million at August 31, 1998, and $10.7 at August 31, 1997. For fiscal
year 1999, the foreign  currency  translation  loss primarily  resulted from the
devaluation  of  the  Brazilian  real.  Most  of  Solectron's  foreign  currency
translation  adjustment  amounts  relate to  investments  which are permanent in
nature.  To the  extent  that  such  amounts  relate  to  investments  which are
permanent  in  nature,  no  adjustment  for  income  taxes is made.  Accumulated
unrealized losses on investments were $1.0 million at August 31, 1999.


                                       41
<PAGE>

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

                                            Years Ended August 31,
                                      ---------------------------------
                                         1999        1998        1997
                                      ---------   ---------   ---------
Cash flows from operating activities:
  Net income                           $ 293.9     $ 198.8     $ 158.1
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and amortization        183.2       124.2       104.6
    Non-cash interest                     17.9          -           -
    Tax benefit associated with the
     exercise of stock options            30.8         9.3        10.8
    Gain on disposal of fixed assets      (4.9)       (2.3)         -
    Other                                  5.2        (1.3)       (7.1)
    Changes in operating assets
     and liabilities:
      Accounts receivable               (458.3)     (250.6)      (66.3)
      Inventories                       (288.2)     (164.1)     (115.6)
      Prepaid expenses and other
       current assets                     12.1       (40.4)      (48.9)
      Accounts payable                   233.9       235.8       135.3
      Accrued expenses and other
       current liabilities                12.4        40.3        31.1
                                      ---------   ---------   ---------
Net cash provided by
  operating activities                    38.0       149.7       202.0
                                      ---------   ---------   ---------
Cash flows from investing activities:
  Purchases of short-term investments   (446.1)     (150.5)     (274.1)
  Sales and maturities of short-term
   investments                           166.9       324.8       197.9
  Acquisition of manufacturing
   locations                            (124.7)     (174.9)         -
  Capital expenditures                  (425.8)     (244.4)     (188.2)
  Proceeds from sales of fixed
   assets                                 41.3        60.2        10.6
  Other                                  (31.0)      (14.4)       16.6
                                      ---------   ---------   ---------
Net cash used in investing activities   (819.4)     (199.2)     (237.2)
                                      ---------   ---------   ---------

  (continued)

                                       42
<PAGE>

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

                                            Years Ended August 31,
                                      ----------------------------------
                                         1999        1998         1997
                                      ---------   ---------    ---------

Cash flows from financing activities:
  Net proceeds from bank lines of credit  21.4          -            -
  Net proceeds from issuance of
   long-term debt                        732.1          -            -
  Repayments of long-term debt            (1.2)       (1.2)        (3.1)
  Proceeds from exercise of stock
   options                                65.6        50.4         38.1
  Net proceeds from issuance of
   common stock                        1,059.8          -            -
  Other                                   (0.5)       (2.2)          -
                                      ---------   ---------    ---------
Net cash provided by financing
  activities                           1,877.2        47.0         35.0
                                      ---------   ---------    ---------

Effect of exchange rate changes on
  cash and cash equivalents                4.6        2.6          (3.5)
                                      ---------   ---------    ---------
Net increase (decrease) in cash
  and cash equivalents                 1,100.4         0.1         (3.7)
Cash and cash equivalents at
  beginning of year                      225.2       225.1        228.8
                                      ---------   ---------    ---------
Cash and cash equivalents at
  end of year                         $1,325.6    $  225.2     $  225.1
                                     =========   =========     =========
Cash paid:
  Interest                            $   26.4    $   25.0     $   38.3
  Income taxes                        $   95.0    $   75.8     $   93.4
Non cash investing and financing activities:
  Issuance of common stock upon
   conversion of long-term debt, net  $  225.4    $     -      $     -
  Issuance of common stock for
   business combination, net
   of cash acquired                   $   14.7    $     -      $   24.0

See accompanying notes to consolidated financial statements.


                                       43
<PAGE>

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Summary of Significant Accounting Policies

(a)  Description of Operations and Principles of  Consolidation:  Solectron (the
Company) provides integrated supply-chain solutions that span the entire product
life  cycle  - from  technology,  to  manufacturing,  to  global  services.  The
Company's  primary  services  include  the  manufacturing  and  testing  of  PCB
assemblies  as well as  system-level  assembly  and  testing.  The Company  also
provides  materials  procurement  and  materials  management  in  support of its
manufacturing,  assembly  and  testing  services.  In  addition,  the  Company's
services  include  preproduction  planning  such as product  design and  product
prototyping;  distribution;  and end-of-life  product services involving product
repair and warranty services.  The Company has manufacturing  operations located
in the Americas, Europe and Asia.

The  accompanying  consolidated  financial  statements  include the  accounts of
Solectron and its subsidiaries  after  elimination of intercompany  accounts and
transactions.

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

(b) Cash  Equivalents and Short-Term  Investments:  Cash  equivalents are highly
liquid  investments  purchased  with an  original  maturity  of less than  three
months. Short-term investments are investment-grade  short-term debt instruments
with original maturities greater than three months.

Investments  in debt  securities are  classified as  "available-for-sale."  Such
investments  are recorded at fair value as determined from quoted market prices,
and  the  cost  of  securities   sold  is  determined   based  on  the  specific
identification method. If material, unrealized gains or losses are reported as a
component of comprehensive income or losses, net of related tax effect.

(c) Inventories: Inventories are stated at the lower of weighted average cost or
market.

(d)  Property  and  Equipment:  Property  and  equipment  are  recorded at cost.
Depreciation and amortization are computed based on the shorter of the estimated
useful  lives or the  related  lease  terms,  using  the  straight-line  method.
Estimated useful lives are presented below.

     Machinery and equipment                           2 - 5 years
     Furniture and fixtures                            3 - 5 years
     Leasehold improvements                            Lease term
     Buildings*                                        15-20 years

*Useful  lives for  buildings  in China and  Scotland are 30 years and 50 years,
 respectively.

(e)  Other  Assets:  Other  assets  consist  of  intangible  assets,   including
intellectual  property  rights,  goodwill and debt  issuance  costs.  Intangible
assets are amortized using the straight-line  method,  over the expected life of
the  asset - ten years for  intellectual  property  rights  and  goodwill.  Debt
issuance costs related to the zero-coupon convertible senior notes are amortized
using the  effective  interest  method over seven  years.  Debt  issuance

                                       44
<PAGE>

costs related to the senior notes are amortized using the straight-line  method,
which does not differ  materially from the effective  interest method,  over the
debt term of ten years.

(f) Impairment of Long-Lived  Assets:  Solectron  reviews property and equipment
for impairment  whenever  events or changes in  circumstances  indicate that the
carrying amount of an asset may not be recoverable.  Recoverability  of property
and equipment is measured by comparison  to its carrying  amount,  including the
unamortized  portion of goodwill  allocated to the property  and  equipment,  to
future net cash flows the property and  equipment  are expected to generate.  If
such assets are  considered to be impaired,  the  impairment to be recognized is
measured  by the  amount  by which  the  carrying  amount  of the  property  and
equipment,  including the allocated  goodwill,  if any,  exceeds its fair market
value.  Solectron  assesses the recoverability of  enterprise-level  goodwill by
determining  whether the unamortized  goodwill balance can be recovered  through
undiscounted  future net cash  flows of the  acquired  operation.  The amount of
enterprise-level  goodwill  impairment,  if any, is measured  based on projected
discounted  future net cash flows using a discount rate reflecting the Company's
average cost of funds.  To date,  no  adjustments  to the carrying  value of the
Company's long-lived assets have been required.

(g) Income Taxes:  Solectron  uses the asset and liability  method of accounting
for income taxes.  Deferred tax assets and  liabilities  are  recognized for the
future consequences  attributable to differences between the financial statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases. When necessary, a valuation allowance is recorded to reduce tax assets to
an amount for which  realization  is more likely than not. The effect of changes
in tax rates is recognized in the period in which the rate change occurs.

(h) Net  Income Per Share:  Basic net income per share is  calculated  using the
weighted-average  number of common shares outstanding during the period. Diluted
net income per share is calculated using the  weighted-average  number of common
shares plus  dilutive  potential  common shares  outstanding  during the period.
Potential  common shares  consist of stock  options that are computed  using the
treasury  stock  method and  shares  issuable  upon  conversion  of  Solectron's
outstanding  convertible notes computed using the as-if-converted  method. Share
and per-share  data  presented  reflect the  two-for-one  stock split  effective
February 24, 1999.

(i) Revenue  Recognition:  Solectron recognizes revenue upon shipment of product
to its customers.

(j) Employee Stock Plans:  Solectron accounts for its stock option plans and its
Employee Stock Purchase Plan using the intrinsic value method.

(k) Foreign Currency: For foreign subsidiaries using the local currency as their
functional currency,  assets and liabilities are translated at exchange rates in
effect at the  balance  sheet date and income and  expenses  are  translated  at
average  exchange  rates.  The  effects  of these  translation  adjustments  are
reported in other comprehensive  income.  Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency of the
entity involved and remeasurement  adjustments for foreign  operations where the
U.S.  dollar is the  functional  currency are included in income.  To date,  the
effect of such amounts on net income has not been material.

(l) Derivatives: Gains and losses on foreign currency forward exchange contracts
designated  as  hedges  of  assets  and   liabilities  are  included  in  income
concurrently  with the offsetting  losses and gains on the related balance sheet
items.  Gains and losses on hedges of firm commitments are deferred and included
in the basis of the transaction when it occurs.

                                       45
<PAGE>

(m) Year End:  Solectron's  financial  reporting year ends on the last Friday in
August.  Fiscal years 1999, 1998 and 1997 each contained 52 weeks.  For purposes
of presentation in the accompanying  financial  statements and notes,  Solectron
has indicated its accounting years as ending on August 31.

Solectron's  subsidiaries,  Solectron Texas,  Inc. (Texas) and Solectron Brasil,
Ltda.  (Brazil),  report  their  results  one  month  in  arrears.   Solectron's
consolidated  financial  position  as of August 31,  1999 and 1998,  include the
financial  position of the Texas and Brazil  operations  as of July 31, 1999 and
1998. Similarly,  Solectron's  consolidated results of operations and cash flows
for the years ended August 31, 1999 and 1998,  include the results of operations
and cash flows of the Texas and Brazil  operations for the twelve-month  periods
ended July 31, 1999 and 1998. Solectron's consolidated results of operations and
cash flows for the year ended August 31, 1997, include the results of operations
and cash flows of the Texas operation for the twelve-month period ended July 31,
1997.

(n) Recent Accounting  Pronouncements:  Effective in the first quarter of fiscal
1999,  Solectron  adopted  Statement of Financial  Accounting  Standards No. 130
(SFAS No. 130), "Reporting  Comprehensive Income," which requires the Company to
report  and  display  certain  information  related  to  comprehensive   income.
Comprehensive  income includes net income and other comprehensive  income. Other
comprehensive  income is  classified  separately  into foreign  currency  items,
minimum  pension  liability  adjustments,  and  unrealized  gains and  losses on
certain investments in debt and equity securities.  The adoption of SFAS No. 130
had no impact on Solectron's  financial position,  results of operations or cash
flows.

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

In April 1998,  the AICPA issued SOP 98-5,  "Reporting  on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new operations
must be  expensed  as  incurred.  In  addition,  all  start-up  costs  that were
capitalized in the past must be written off when SOP 98-5 is adopted.  Solectron
expects  that the  adoption  of SOP 98-5 will not have a material  impact on its
financial  position,  results of  operations  or cash flows.  Solectron  will be
required to implement SOP 98-5 in the first quarter of fiscal 2000.

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 establishes methods of accounting for derivative  financial  instruments and
hedging  activities  related  to  those  instruments  as well as  other  hedging
activities.  Solectron  anticipates  that the  adoption of SFAS No. 133 will not
have a material impact on its financial position,  results of operations or cash
flows. Implementation of this standard has recently been delayed by the FASB for
a 12-month period. Solectron will now adopt SFAS No. 133 in the first quarter of
fiscal 2001.

(o)  Reclassifications:  Certain  prior year amounts have been  reclassified  to
conform to the 1999 presentation.

                                       46
<PAGE>

Note 2. Cash, Cash Equivalents and Short-Term Investments

Cash,  cash  equivalents  and  short-term  investments as of August 31, 1999 and
1998, consisted of the following:

                                        Cash and Cash        Short-Term
                                         Equivalents         Investments
                                         -----------         -----------
                                                  (in millions)
1999
--------------------------
Cash                                      $  167.3            $     -
Money market funds                           119.7                 0.7
Certificates of deposit                       55.1                38.8
Market auction securities                     16.2                  -
U.S. government securities                   582.6               226.0
Corporate obligations                        312.3                97.3
Other                                         72.4                  -
                                          --------            --------
  Total                                   $1,325.6            $  362.8
                                          ========            ========
1998
--------------------------
Cash                                      $   91.5            $     -
Money market funds                            74.2                  -
Certificates of deposit                        0.1                11.4
Market auction securities                      0.8                  -
U.S. government securities                    27.8                47.1
Corporate obligations                          6.0                17.5
Municipal obligations                          5.4                  -
Other                                         19.4                 7.6
                                          --------            --------
  Total                                   $  225.2            $   83.6
                                          ========            ========


Short-term  investments  are carried at fair market  value,  which  approximates
cost.  As of August 31,  1999 and 1998,  unrealized  gains and  losses  were not
significant.  Realized  gains and losses for the fiscal  years ended  August 31,
1999, 1998 and 1997 were not significant.  As of August 31, 1999,  approximately
93% of Solectron's  short-term  investments mature in one year or less, with the
remainder maturing in less than two years.

Note 3.  Inventories

Inventories as of August 31, 1999 and 1998, consisted of:

                                             1999             1998
                                           --------         --------
                                                 (in millions)

     Raw materials                         $   789.6        $  577.8
     Work-in-process                           211.1           168.3
     Finished goods                             79.4            42.4
                                            --------        --------
       Total                                $1,080.1        $  788.5
                                            ========        ========

                                       47
<PAGE>

Note 4.  Property and Equipment

Property and equipment as of August 31, 1999 and 1998, consisted of:

                                              1999             1998
                                            --------         --------
                                                  (in millions)

     Land                                   $   24.3         $   23.1
     Buildings and improvements                136.0             94.0
     Leasehold improvements                     61.4             46.6
     Factory equipment                         674.5            519.4
     Computer equipment and software           154.4             81.7
     Furniture, fixtures and other              44.3             36.6
     Construction-in-progress                   92.0             58.4
                                            --------         --------
                                             1,186.9            859.8
     Less accumulated depreciation
      and amortization                         533.3            411.8
                                            --------         --------
     Net property and equipment             $  653.6         $  448.0
                                            ========         ========

Note 5.  Lines of Credit

Solectron has available a $100 million unsecured multicurrency revolving line of
credit that expires April 30, 2002.  Borrowings  under the credit  facility bear
interest,  at  Solectron's  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. This
margin was 0.4% at August 31, 1999. Under the credit agreement, the Company must
meet certain financial covenants.  As of August 31, 1999 and 1998, there were no
borrowings outstanding under this line of credit.

Solectron also has  approximately  $127 million in uncommitted  foreign lines of
credit and other bank facilities. Borrowings are payable on demand. The interest
rates range from the bank's  prime  lending  rate to the bank's  prime rate plus
2.0%. As of August 31, 1999, borrowings and guaranteed amounts under these lines
of credit were $41 million,  which had a weighted-average  interest rate of 5.1%
per annum.

Solectron  had an asset  securitization  arrangement  with a bank under which it
might sell up to $220  million of eligible  accounts  receivable.  There were no
borrowings  outstanding  under  this  arrangement  as of August  31,  1999.  The
securitization  arrangement, at Solectron's discretion, was not renewed upon its
expiration in September 1999.

                                       48
<PAGE>

Note 6.  Long-Term Debt

Long-term debt at August 31, 1999 and 1998, consisted of (in millions):

                                                   1999         1998
                                                 --------     --------
Zero-coupon convertible senior notes
  due 2019, face value $1,656.0,
  fair value of $1,029.9 in 1999                  $767.6          -
6% subordinated notes due 2006, face value
  $230.0, fair value of $333.5 in 1998
  converted into 13.6 shares of common stock          -        $230.0
7 3/8% senior notes due 2006, face value
  $150.0, fair value of $143.8 in 1999
  and $157.7 in 1998                               149.8        149.8
Other, fair value of $5.2 in 1999 and
  $5.7 in 1998                                       5.2          5.7
                                                  ------       ------
 Total long-term debt                             $922.6       $385.5
                                                  ======       ======

In January 1999, Solectron issued 1,656,000 zero-coupon convertible senior notes
to qualified institutional investors in a private placement at an issue price of
$452.89 per note which resulted in gross proceeds of approximately $750 million.
These notes are unsecured and unsubordinated  indebtedness with a maturity value
aggregating $1.656 billion. There will be no interest payment prior to maturity.
Each note has a yield of 4% with a maturity value of $1,000 on January 27, 2019.
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 7.472 shares per note,  adjusted  for the  two-for-one
stock split  effective  February  24,  1999.  Holders may require  Solectron  to
purchase  all or a portion of their notes on January 27,  2002,  and January 27,
2009,  at a price of $510.03  and  $672.97 per note,  respectively.  Also,  each
holder may require  Solectron to  repurchase  all or a portion of such  holder's
notes upon a change in control of Solectron  occurring on or before  January 27,
2002. Solectron,  at its option, may redeem all or a portion of the notes at any
time on or after  January  27,  2003.  In  addition,  Solectron  filed  with the
Securities Exchange Commission a registration statement for resales of the notes
and the common stock issuable upon conversion.  Such registration  statement was
declared effective in June 1999.

In  February  1996,  Solectron  issued  convertible  subordinated  notes  for an
aggregate  principal amount of $230 million.  The notes were in denominations of
and had a maturity value of $1,000 each, payable on March 1, 2006.  Interest was
payable  semiannually at 6%. Each note was convertible at any time by the holder
into  shares  of  common  stock at a  conversion  price of  $16.90  per share as
adjusted for the two-for-one stock split effective  February 24, 1999. The notes
were  redeemable at the option of Solectron  beginning on March 3, 1999.  During
February  and  March  1999,  all  of the  convertible  subordinated  notes  were
voluntarily converted into 13.6 million shares of common stock.

In March 1996,  Solectron  issued $150  million  aggregate  principal  amount of
senior notes.  These notes are in  denominations of and have a maturity value of
$1,000 each and are due on March 1, 2006. Interest is payable  semiannually at a
rate of 7 3/8% per annum. The notes may not be redeemed prior to maturity.

                                       49
<PAGE>

Note 7.  Financial Instruments

Fair Value of Financial Instruments

The fair value of Solectron's  cash, cash equivalents,  accounts  receivable and
accounts  payable  approximates  the carrying amount due to the relatively short
maturity of these items.  The fair value of Solectron's  short-term  investments
(see Note 2) is  determined  based on quoted  market  prices.  The fair value of
Solectron's  long-term  debt (see Note 6) is determined  based on broker trading
prices.

Derivatives

Solectron  enters into  forward  exchange  contracts to hedge  foreign  currency
exposures  on a  continuing  basis for  periods  consistent  with its  committed
exposures.  These  transactions  generally  do not expose  Solectron  to risk of
accounting  loss because gains and losses on these  contracts  offset losses and
gains  on  the  assets,   liabilities  and   transactions   being  hedged.   The
counterparties to these contracts expose Solectron to  credit-related  losses in
the event of nonperformance.  However, the counterparties to these contracts are
substantial  and  creditworthy  multinational  commercial  banks.  The  risk  of
counterparty  nonperformance  associated with these  contracts is remote.  Since
these contracts generally have maturities of less than three months, the amounts
of unrealized gains and losses are immaterial. Foreign currency forward exchange
contracts  outstanding  totaled $66.0 million at the end of fiscal year 1999 and
$31.3 million at the end of fiscal year 1998. These contracts were originated by
Solectron's  international  subsidiaries  primarily for the purchase and sale of
European currencies, U.S. dollar, Malaysian ringgit and Japanese yen to mitigate
foreign currency exposures.

Business and Credit Concentrations

Financial  instruments that potentially  subject  Solectron to concentrations of
credit risk consist of cash, cash equivalents,  short-term investments and trade
accounts   receivable.   Solectron's   cash,  cash  equivalents  and  short-term
investments are managed by recognized  financial  institutions  which follow the
Company's  investment policy. Such investment policy limits the amount of credit
exposure in any one issue and the  maturity  date of the  investment  securities
that  typically   comprise   investment  grade   short-term  debt   instruments.
Concentrations  of credit risk in accounts  receivable  resulting  from sales to
major customers are discussed in Note 13.  Solectron  generally does not require
collateral for sales on credit. The Company also closely monitors  extensions of
credit and has not experienced significant credit losses in the past.

Note 8.  Commitments

Solectron  leases various  facilities  under  operating  lease  agreements.  The
facility  leases expire at various dates through 2008.  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 Milpitas and San Jose, California;
Everett,  Washington;  Suwanee,  Georgia; and Columbia, South Carolina,  provide
Solectron  with an option at the end of the lease term of either  acquiring  the
property at its original cost or arranging for the property to be acquired.  For
these leases,  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  $129 million in total as of August 31,  1999,  in the
event  Solectron  does not purchase the  properties at the end of the respective
lease terms.  Under such agreements,  the Company must also maintain  compliance
with financial  covenants  similar to its credit  facilities.  During  September
1999,  Solectron  entered  into another

                                       50
<PAGE>

similar  facility  lease for  Milpitas,  California,  under which the Company is
contingently  liable up to an additional amount of approximately $21 million for
a decline in market value.

In  addition,   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 is  accounting  for these leases as
operating leases.

Future minimum payments related to lease obligations, including the $129 million
contingent  liability discussed above, are $66.3 million,  $52.7 million,  $89.1
million,  $57.2  million and $67.7 million in each of the years in the five-year
period ending August 31, 2004,  and an aggregate  $3.0 million for periods after
that date.  Rent expense was $83.0 million,  $33.3 million and $22.9 million for
the years ended August 31, 1999, 1998 and 1997, respectively.

Note 9.  Retirement Plans

Solectron has various  retirement  plans that cover a significant  number of its
associates.  The major  pension  plans are  defined  contribution  plans,  which
provide pension benefits in return for services rendered,  provide an individual
account for each  participant,  and have terms that specify how contributions to
the participant's account are to be determined rather than the amount of pension
benefits the participant is to receive.  Contributions  to these plans are based
on varying  percentages of each participant's base salary.  Solectron's  expense
for the defined  contribution plans totaled $9.5 million,  $4.5 million and $3.0
million in 1999, 1998 and 1997, respectively.

Note 10. Income Taxes

The components of income taxes for the fiscal years ended August 31, 1999,  1998
and 1997, were as follows (in millions):

                                       1999         1998         1997
                                      ------       ------       ------
     Current:
       Federal                        $ 68.8       $ 74.2       $ 62.6
       State                            13.0         15.3         10.9
       Foreign                          20.2         14.6          5.9
                                      ------       ------       ------
                                       102.0        104.1         79.4
                                      ------       ------       ------
     Deferred:
       Federal                          (1.3)        (7.8)        (8.8)
       State                             1.8         (1.6)        (1.1)
       Foreign                           5.1         (3.8)          -
                                      ------       ------       ------
                                         5.6        (13.2)        (9.9)
                                      ------       ------       ------
     Charge in lieu of taxes
       attributable to employee
       stock plans                      30.8          9.3         10.8
                                      ------       ------       ------
           Total                      $138.4       $100.2       $ 80.3
                                      ======       ======       ======


                                       51
<PAGE>

The overall  effective  income tax rate  (expressed as a percentage of financial
statement income before income taxes) varied from the U.S.  statutory income tax
rate for the fiscal years ended August 31, 1999, 1998 and 1997, as follows:

                                          1999         1998       1997
                                        -------      -------     ------
     Federal tax rate                     35.0%        35.0%      35.0%
     State income tax, net of federal
      tax benefit                          3.0          3.2        3.1
     Income of international subsidiaries
      taxed at different rates             1.0         (0.9)       0.2
     Tax holiday                          (7.0)        (7.1)      (3.8)
     Other                                  -           3.3       (0.8)
                                          ----         ----       ----
     Effective income tax rate            32.0%        33.5%      33.7%
                                          ====         ====       ====

The tax effects of temporary  differences that gave rise to significant portions
of deferred tax assets and  liabilities as of August 31, 1999 and 1998,  were as
follows (in millions):

                                            1999           1998
                                           ------         ------
     Deferred tax assets:
      Accruals, allowances and reserves    $ 13.5         $ 18.7
      State income tax                        4.4            6.1
      Acquired intangible assets              3.3            1.9
      Net undistributed profits of
       subsidiaries                           2.8            2.2
      Plant and equipment                     4.1            5.9
      Net operating loss carryover            7.2             -
      Other                                   4.1            3.4
                                           ------         ------
     Total deferred tax assets               39.4           38.2
                                           ------         ------
     Deferred tax liabilities:
      Other                                  (2.7)          (0.3)
                                           ------         ------
     Total deferred tax liabilities          (2.7)          (0.3)
                                           ------         ------
     Net deferred tax assets               $ 36.7         $ 37.9
                                           ======         ======

Based on Solectron's historical operating income, management believes it is more
likely than not that the Company  will  realize the benefit of the  deferred tax
assets  recorded.  Accordingly,  Solectron  has not  established  any  valuation
allowance.

Worldwide income before income taxes for the fiscal years ended August 31, 1999,
1998 and 1997, consisted of the following (in millions):

                                        1999        1998        1997
                                       ------      ------      ------
     U.S.                              $287.9      $217.0      $198.0
     Non-U.S.                           144.4        82.0        40.4
                                       ------      ------      ------
        Total                          $432.3      $299.0      $238.4
                                       ======      ======      ======


                                       52
<PAGE>

Cumulative undistributed earnings of the international  subsidiaries amounted to
$336.6 million as of August 31, 1999, of which  approximately  $313.7 million is
intended to be permanently  reinvested.  The amount of income tax liability that
would result had such earnings been repatriated is estimated to be approximately
$76.6 million.

Solectron  has been  granted a tax  holiday  for its  Malaysian  sites  which is
effective through January 31, 2002, subject to certain conditions. Solectron has
also been granted various tax holidays in China, which are effective for various
terms and are subject to certain conditions.

Note 11.  Stockholders' Equity

Issuance of Common Stock

In August 1999,  Solectron sold,  through an underwritten  public  offering,  17
million  shares of common stock which  generated  net proceeds of  approximately
$1.1 billion.

Stock Split

Effective  February  24, 1999,  Solectron  completed a  two-for-one  stock split
effected as a stock  dividend.  All  references to share and per-share data have
been retroactively adjusted to reflect the stock split.

Pro Forma Fair Value Disclosures

Solectron  accounts for its employee  stock plans,  which consist of fixed stock
option plans and an Employee  Stock  Purchase  Plan,  using the intrinsic  value
method under APB No. 25. No compensation expense related to these plans has been
recognized in the Company's financial  statements.  The table below sets out the
pro forma  amounts  of net  income  and net  income  per share  that  would have
resulted for the fiscal years ended August 31, 1999, 1998 and 1997, if Solectron
accounted  for its  employee  stock  plans  under  the  fair  value  recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

                                      1999          1998          1997
                                    --------      --------      --------
                                    (in millions, except per share data)

     Net income      As reported     $293.9        $198.8        $158.1
                     Pro forma       $259.5        $176.9        $145.8

     Net income per share:
     Basic           As reported      $1.19         $0.86         $0.71
                     Pro forma        $1.05         $0.76         $0.65

     Diluted         As reported      $1.13         $0.82         $0.69
                     Pro forma         1.01         $0.74         $0.63

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

                                       53
<PAGE>

                          1999              1998              1997
                      ------------      ------------     -------------
Expected life of
 options               3.5 years           4 years         4.3 years
Expected life of
 purchase rights        3 months          3 months          3 months
Volatility                 48%               44%               40%
Risk-free interest
 rate                 4.5% to 5.7%      5.1% to 5.9%      5.2% to 6.5%
Dividend yield            zero              zero              zero

Options vest over several years and new option  grants are  generally  made each
year.  In  addition,  the pro forma  disclosures  required  by SFAS No.  123 are
effective for options granted after the Company's fiscal year 1995. Accordingly,
the pro forma  amounts  shown above may not be  representative  of the pro forma
effect on reported net income in future years.

Stock Option Plans

Solectron's  stock option plans  provide for grants of options to  associates to
purchase common stock at the fair market value of such shares on the grant date.
The options vest over a four-year period beginning  generally on the grant date.
The term of the options is five years for options  granted prior to November 17,
1993, and seven years for options  granted  thereafter.  In connection  with the
acquisition of Force  Computers,  Inc. in November 1996,  Solectron  assumed all
options  outstanding  under the Force option plan.  Options under the Force plan
generally  vest over a four-year  period  beginning on the grant date and have a
ten-year term. No further options may be granted under the Force plan.

A summary of stock  option  activity  under the plans for the fiscal years ended
August 31, 1999, 1998 and 1997, follows (in millions, except per share data):

                       1999               1998               1997
                 -----------------  -----------------  -----------------
                          Weighted           Weighted           Weighted
                  Number   Average   Number   Average   Number   Average
                    of    Exercise     of    Exercise     of    Exercise
                  Shares    Price    Shares    Price    Shares    Price
                 -------  --------  -------  --------  -------  --------
Outstanding,
 beginning of year 18.9    $13.47     20.5    $ 9.50     18.8    $ 7.41
Granted             6.1    $35.80      5.3    $22.43      6.8    $13.41
Assumed from
 Force plan          -        -         -        -        1.7    $ 1.10
Exercised          (4.6)   $10.59     (5.6)   $ 7.41     (6.0)   $ 4.88
Canceled           (1.0)   $22.01     (1.3)   $14.08     (0.8)   $10.52
                 -------            -------            -------
Outstanding,
 end of year       19.4    $20.64     18.9    $13.47     20.5    $ 9.50
                 =======            =======            =======
Exercisable
 at year-end       10.0    $14.40      9.5    $10.36     10.4    $ 7.93
                 =======            =======            =======
Weighted-average
 fair value of
 options granted
 during the year           $15.16             $ 9.31             $ 5.62



                                       54
<PAGE>

Information  regarding  the stock  options  outstanding  at August 31, 1999,  is
summarized in the table below (in millions, except number of years and per share
data).

                          Outstanding                   Exercisable
                ---------------------------------  ---------------------
                             Weighted
                              Average    Weighted               Weighted
   Range of                  Remaining   Average                Average
   Exercise     Number of   Contractual  Exercise   Number of   Exercise
    Prices       Shares        Life       Price      Shares      Price
-------------   ---------   -----------  --------   ---------   --------
$ 0.66-$ 2.57*        0.2    6.62 years    $ 2.05         0.1     $ 1.94
$ 6.66-$ 9.50         3.8    2.58 years    $ 8.44         3.7     $ 8.42
$10.19-$11.97         3.5    3.40 years    $11.56         2.5     $11.52
$12.25-$21.91         4.8    4.81 years    $18.64         2.3     $18.10
$23.38-$26.59         4.6    5.97 years    $25.80         1.0     $25.65
$33.13-$52.13         2.2    6.34 years    $43.02         0.4     $40.41
   $72.19             0.3    6.88 years    $72.19          -      $72.19
                ---------                           ---------
$ 0.66-$72.19        19.4    4.62 years    $20.64        10.0     $14.40
                =========                           =========

--------------
*Options  in this range of exercise  prices  represent  the  options  assumed in
connection with the acquisition of Force.

A total of 32.0  million  shares of common  stock  remain  reserved for issuance
under the plans as of August 31, 1999.

On December 1, of each year,  each  independent  member of Solectron's  Board of
Directors  is granted an option to purchase  6,000 shares of common stock at the
fair market value on such date. These options vest over one year.

Employee Stock Purchase Plan

Under Solectron's  Employee Stock Purchase Plan (the Purchase Plan),  associates
meeting specific  employment  qualifications are eligible to participate and can
purchase shares quarterly through payroll  deductions at the lower of 85% of the
fair  market  value of the  stock  at the  commencement  or end of the  offering
period.  The Purchase Plan permits eligible  associates to purchase common stock
through payroll deductions for up to 10% of qualified compensation. As of August
31, 1999,  3.7 million  shares remain  available for issuance under the Purchase
Plan.

The  weighted-average  fair value of the purchase rights granted in fiscal 1999,
1998 and 1997 was $9.67, $4.99 and $2.96, respectively.

Note 12. Segment and Geographic Information

Solectron  provides  integrated  supply-chain  solutions  that  span the  entire
product life cycle - from technology, to manufacturing,  to global services. The
Company has 23 manufacturing facilities in the Americas, Europe and Asia regions
to  serve  these   similar   customers.   Solectron   is  operated  and  managed
geographically. Each region 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  Solectron's
resources on a geographic basis.  Intersegment adjustments are related primarily
to  intersegment  sales that are generally  recorded at prices that  approximate
arm's length  transactions.  Certain  corporate  expenses are allocated to these
operating   segments  and  are  included  for   performance   evaluation.   Some
amortization  expenses are also allocated to these operating

                                       55
<PAGE>

segments,  but the related  intangible assets are not allocated.  The accounting
policies  for the  segments  are the  same as for  Solectron  taken  as a whole.
Solectron has three  reportable  operating  segments:  the Americas,  Europe and
Asia. Information about the operating segments for the fiscal years ended August
31, 1999, 1998 and 1997, was as follows:

                                   1999          1998           1997
                                 --------      --------       --------
                                            (in millions)
Net sales:
  Americas                       $6,258.5      $3,698.5       $2,751.7
  Europe                          1,215.6         909.9          572.0
  Asia                            1,077.0         708.6          412.0
  Intersegment adjustments         (159.7)        (28.7)         (41.3)
                                 --------      --------       --------
                                 $8,391.4      $5,288.3       $3,694.4
                                 ========      ========       ========

Depreciation and amortization:
  Americas                       $  113.6      $   73.4      $    65.2
  Europe                             24.4          22.8           18.7
  Asia                               35.6          21.8           19.0
  Corporate                           9.6           6.2            1.7
                                 --------      --------       --------
                                 $  183.2      $  124.2       $  104.6
                                 ========      ========       ========

Interest income:
  Americas                       $   18.6      $   14.2       $    7.4
  Europe                              2.8           3.7            1.6
  Asia                                1.9           1.1            0.7
  Corporate                          37.8          23.8           28.1
  Intersegment adjustments          (31.2)        (18.0)          (9.3)
                                 --------      --------       --------
                                 $   29.9      $   24.8       $   28.5
                                 ========      ========       ========

Interest expense:
 Americas                        $   26.5      $   13.6       $    6.0
 Europe                               7.2           6.1            3.5
 Asia                                 0.1           0.2            0.1
 Corporate                           33.8          22.9           26.4
 Intersegment adjustments           (31.1)        (18.0)          (9.5)
                                 --------      --------       --------
                                 $   36.5      $   24.8       $   26.5
                                 ========      ========       ========

Pre-tax income:
  Americas                       $  392.7      $  236.1       $  219.0
  Europe                             36.8          27.7            8.6
  Asia                               78.7          54.1           24.8
  Corporate                        ( 75.9)        (18.9)         (14.0)
                                 --------      --------       --------
                                 $  432.3      $  299.0       $  238.4
                                 ========      ========       ========


                                       56
<PAGE>

                                   1999          1998           1997
                                 --------      --------       --------
Capital expenditures:
  Americas                       $  268.4      $  137.0       $  104.4
  Europe                             47.2          46.2           26.4
  Asia                               80.7          50.6           50.5
  Corporate                          29.5          10.6            6.9
                                 --------      --------       --------
                                 $  425.8      $  244.4       $  188.2
                                 ========      ========       ========

Total assets:
  Americas                       $2,492.8      $1,545.0       $  982.6
  Europe                            491.7         464.5          307.3
  Asia                              480.1         331.6          229.1
  Corporate                       2,317.9         659.9          593.3
  Intersegment adjustments         (947.8)       (590.5)        (235.9)
                                 --------      --------       --------
                                 $4,834.7      $2,410.5       $1,876.4
                                 ========      ========       ========

The following  enterprise-wide  information is provided in accordance  with SFAS
No. 131.  Geographic  net sales  information  reflects  the  destination  of the
product shipped. Long-lived assets information is based on the physical location
of the asset. For major customer  information,  the Company's operating segments
contributed  various  percentages  aggregating up to 10% or more of consolidated
net sales for such customers identified in Note 13.

                                   1999           1998          1997
                                 --------       --------      --------
                                             (in millions)
  Net sales derived from:
    PCB assembly                 $6,643.0       $4,283.5      $3,325.0
    Systems build                 1,748.4        1,004.8         369.4
                                 --------       --------      --------
                                 $8,391.4       $5,288.3      $3,694.4
                                 ========       ========      ========
  Geographic net sales:
    United States                $5,766.0       $3,838.9      $2,862.9
    Europe                        1,675.4        1,067.2         580.5
    Asia and other                  950.0          382.2         251.0
                                 --------       --------      --------
                                 $8,391.4       $5,288.3      $3,694.4
                                 ========       ========      ========
  Long-lived assets:
    United States                $  467.5       $  269.6      $  208.8
    Europe                           87.9           82.8          59.5
    Asia and other                  285.2          170.6         108.5
                                 --------       --------      --------
                                 $  840.6       $  523.0      $  376.8
                                 ========       ========      ========


                                       57
<PAGE>

Note 13.  Major Customers

Net sales to major customers as a percentage of  consolidated  net sales were as
follows:

                                        1999      1998      1997
                                       ------    ------    ------
    Cisco Systems, Inc. (Cisco)          12%       11%        *
    Hewlett-Packard Company (HP)         11%       14%       14%
    Sun Microsystems, Inc. (Sun)          *        11%        *
    Nortel Networks, Inc. (formerly
     Bay Networks, Inc.)                  *         *        10%
    ---------------------------
    * net sales less than 10%

Solectron  has  concentrations  of  credit  risk due to sales to these and other
Solectron's  significant  customers.  In  particular,   Hewlett-Packard  Company
accounts for approximately 10% of total accounts  receivable at August 31, 1999.
The  concentration  of  credit  risk is  intensified  because  the  majority  of
Solectron's  customers  are in the same  industry.  The  Company  considers  its
concentrations  of credit risk in  establishing  the  reserves  for bad debt and
believes that such reserves are adequate.

Note 14. Purchase of Assets

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

In February 1999,  Solectron  acquired IBM's  Electronic  Card Assembly and Test
(ECAT)   manufacturing   assets,   primarily   inventory,   in  Austin,   Texas.
Additionally,  Solectron  acquired the  non-exclusive  rights to use certain IBM
intellectual  property for approximately  $53 million.  The total purchase price
for the manufacturing assets and intellectual  property rights was approximately
$83 million,  subject to  adjustment.  The  transaction  was  accounted for as a
purchase of assets,  and the purchase price was allocated to the assets acquired
based on the  relative  fair  values of the  assets at the date of  acquisition.
Under  the  terms  of  the  agreements,  Solectron  will  provide  assembly  for
motherboards used in IBM's mobile computer products  manufactured  worldwide for
the next three years. Solectron will also provide IBM's worldwide design teams a
full range of integrated NPI services.

In  August  1999,  Solectron  acquired  the  manufacturing   assets,   primarily
inventory, of Trimble Navigation Limited (Trimble) in Sunnyvale, California, and
assumed full manufacturing responsibility of Trimble's Global Positioning System
(GPS) and related radio  frequency (RF)  technology  products for the next three
years.  Additionally,  Solectron acquired certain  intellectual  property rights
related to RF technology for approximately $11 million. The total purchase price
for the transaction was  approximately $27 million,  subject to adjustment.  The
acquisition  was accounted for as a purchase of assets,  and the purchase  price
was  allocated to the acquired  assets based on the relative  fair values of the
assets at the date of acquisition.

                                       58
<PAGE>

Note 15. Business Combinations

In July 1999, Solectron issued  approximately  260,000 shares of common stock to
acquire all of the outstanding capital stock of Sequel, Inc. (Sequel). Sequel is
a  privately  held  corporation  specializing  in notebook  computer  and liquid
crystal display repair service and support.  This  transaction was accounted for
under the purchase method of accounting.  The consolidated  financial statements
include the operating results of Sequel from the date of acquisition.  The total
purchase price was  approximately  $17.8 million,  subject to  adjustments.  The
acquisition was accounted for as a purchase of a business  resulting in goodwill
of approximately  $4 million.  Pro forma results of operations are not presented
because the effect of this acquisition is not significant.

Note 16. Net Income per Share

The following  table sets forth the  computation of basic and diluted net income
per share.

                                              Years Ended August 31,
                                          ------------------------------
                                            1999       1998       1997
                                          --------   --------   --------
                                                   (in millions
                                              except per share data)

Net income - basic                         $293.9     $198.8     $158.1

 Interest expense from convertible
  subordinated notes, net of taxes            5.0        9.6        -
                                           ------     ------     ------
Net income - diluted                       $298.9     $208.4     $158.1
                                           ======     ======     ======

Weighted average shares - basic             246.3      231.7      223.0

  Common stock equivalents-stock options     10.3        7.8        7.6
  Common shares issuable upon assumed
   conversion of convertible subordinated
   notes                                      6.9       13.6         -
                                           ------     ------     ------
Weighted average shares - diluted           263.5      253.1      230.6
                                           ======     ======     ======

Net income per share - basic               $ 1.19     $ 0.86     $ 0.71
                                           ======     ======     ======

Net income per share - diluted             $ 1.13     $ 0.82     $ 0.69
                                           ======     ======     ======

When the  exercise  price of an option to purchase  common stock is greater than
the average fair market price of the period, such option is not included for the
calculation because the effect would have been antidilutive. During fiscal 1999,
the exercise  prices for 1.3 million  options were greater than the average fair
market value of $46.02.  During fiscal 1998, the exercise prices for 4.2 million
options were greater than the average fair market value of $21.26. At August 31,
1997, the exercise  prices for 0.9 million options were greater than the average
fair market value of $14.80.

                                       59
<PAGE>

In addition,  the calculation for the year ended August 31, 1999 did not include
the 12.4 million  common  shares  issuable upon  conversion  of the  zero-coupon
senior notes as they would have been antidilutive.  The calculation for the year
ended August 31, 1997, did not include the 13.6 million  common shares  issuable
upon  conversion of the convertible  subordinated  notes as they would have been
antidilutive.

Note 17. Subsequent Events

In September 1999,  Solectron  signed a definitive  merger  agreement with SMART
Modular Technologies,  Inc. (SMART) to exchange  approximately 23 million shares
of  Solectron  common  stock for all of the  outstanding  common stock and stock
options of SMART.  SMART is a designer and  manufacturer  of memory  modules and
memory  cards,  embedded  computers  and I/O  products.  Under  the terms of the
agreement,  the  shareholders  of SMART will  receive  0.51 shares of  Solectron
common stock for each share of SMART stock.  The  transaction  is expected to be
accounted for under the pooling of interests method.  Solectron and SMART expect
to  complete  the merger by the end of  calendar  year 1999.  Completion  of the
merger is subject to the approval of SMART's shareholders, applicable government
approvals and various conditions of closing.

                                       60
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Solectron Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets of  Solectron
Corporation  and  subsidiaries  as of August 31, 1999 and 1998,  and the related
consolidated  statements of income,  stockholders' equity,  comprehensive income
and cash flows for each of the years in the  three-year  period ended August 31,
1999. In connection with our audits of the consolidated financial statements, we
also have  audited the  financial  statement  schedule as listed in the Index at
Item 14(a)(2).  These consolidated  financial statements and financial statement
schedule are the responsibility of the Company's management.  Our responsibility
is to  express  an  opinion  on  these  consolidated  financial  statements  and
financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  Solectron
Corporation and  subsidiaries as of August 31, 1999 and 1998, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended August 31, 1999, in conformity with generally  accepted  accounting
principles.  Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.

                                                    KPMG LLP

Mountain View, California
September 13, 1999

                                       61
<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE

          Not applicable.



                                    PART III


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The  information  required by Item 10 regarding our directors is incorporated by
reference  from the  information  under the caption  "Election of  Directors" in
Solectron's  definitive  Proxy  Statement.  The information  required by Item 10
regarding our executive officers appears immediately following Item 4 under Part
I of this Report.


ITEM 11:   EXECUTIVE COMPENSATION

The information required by item 11 of Form 10-K is incorporated by reference to
the  information   contained  in  the  section  captioned   "Executive   Officer
Compensation"  of  Solectron's  definitive  Proxy  Statement  (Notice  of Annual
Meeting of Stockholders) for the fiscal year ended August 31, 1999 to be held on
January 11, 2000 which we will file with the Securities and Exchange  Commission
within 120 days after the end of the fiscal year covered by this report.


ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT

Information  regarding  this item is  incorporated  herein by reference from the
section  entitled   "Security   Ownership  of  Certain   Beneficial  Owners  and
Management" in Solectron's  definitive Proxy Statement (Notice of Annual Meeting
of Stockholders) for the fiscal year ended August 31, 1999.


ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  with respect to this item is incorporated  herein by reference from
the  section  entitled  "Certain  Relationships  and  Related  Transactions"  in
Solectron's   definitive   Proxy   Statement   (Notice  of  Annual   Meeting  of
Stockholders) for the fiscal year ended August 31, 1999.

                                       62
<PAGE>

                                     PART IV

ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
           FORM 8-K

(a) 1.   Financial  Statements.  The financial  statements  listed in Item 8:
         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, above are filed as part of
         this Annual Report on Form 10-K, beginning on page 37.

    2.   Financial  Statement  Schedule.  The financial  statement Schedule II -
         VALUATION  AND  QUALIFYING  ACCOUNTS  is filed  as part of this  annual
         report on Form 10-K, at page 65.

    3.   Exhibits.  The exhibits listed in the accompanying Index to
         Exhibits are filed as part of this Annual Report on Form 10-K.

(b)      Reports on Form 8-K.

         On  July  30,  1999,  Solectron  filed a  Current  Report  on Form  8-K
         regarding  an  Underwriting  Agreement  entered  with  Merrill,  Lynch,
         Pierce, Fenner & Smith Incorporated ("Merrill Lynch") providing for the
         sale of up to $1,200,000,000 of shares of Solectron's Common Stock.


                                       63
<PAGE>

SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                           SOLECTRON CORPORATION
                                           (Registrant)

Date: November 19, 1999                     By  /s/  Koichi Nishimura
                                            ----------------------------
                                           (Koichi Nishimura, President,
                                           Chief Executive Officer and
                                           Chairman of the Board)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.

Name                         Title                   Date
--------------------------   ---------------------   -----------------

 /s/ Koichi Nishimura        President, Chief
 Koichi Nishimura, Ph.D.     Executive Officer,
                             and Chairman of the
                             Board                    November 19, 1999

 /s/ Susan Wang              Chief Financial
 Susan S. Wang               Officer (Principal
                             Financial and
                             Accounting Officer),
                             Senior Vice President
                             and Corporate Secretary  November 19, 1999

/s/ Winston H. Chen          Director                 November 19, 1999
Winston H. Chen, Ph.D.

/s/ Richard A. D'Amore       Director                 November 19, 1999
Richard A. D'Amore

/s/ Charles A. Dickinson     Director                 November 19, 1999
Charles A. Dickinson

/s/ Heinz Fridrich           Director                 November 19, 1999
Heinz Fridrich

/s/ Philip V. Gerdine        Director                 November 19, 1999
Philip V. Gerdine, Ph.D.

/s/ William A. Hasler        Director                 November 19, 1999
William A. Hasler

/s/ Kenneth E. Haughton      Director                 November 19, 1999
Kenneth E. Haughton, Ph.D.

/s/ Paul R. Low              Director                 November 19, 1999
Paul R. Low, Ph.D.

/s/ Osamu Yamada             Director                 November 19, 1999
Osamu Yamada


                                       64
<PAGE>

                     SOLECTRON CORPORATION AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                  (in millions)


                                    Amounts
                        Balance at  Charged                  Balance at
                        Beginning      To                       End
Description             of Period  Operations  (Deductions)  Of Period
----------------------  ---------  ----------  ------------  ----------

Year ended August 31, 1999:
Allowance for doubtful
  accounts receivable      $4.0        $2.1        $(0.5)        $5.6


Year ended August 31, 1998:
Allowance for doubtful
  accounts receivable      $4.0        $2.3        $(2.3)        $4.0



Year ended August 31, 1997:
Allowance for doubtful
  accounts receivable      $3.0        $2.3        $(1.3)        $4.0



                                       65
<PAGE>

INDEX TO EXHIBITS

Exhibit
Number       Description
-----------  -------------------------------------------------------------------
2.1    [B]   Agreement and Plan of Reorganization, by and among the
             Company, Force Acq. Corp. and Force Computers, Inc. as
             amended.
3.1    [I]   Certificate of Incorporation of the Company.
3.2    [I]   Bylaws of the Company.
10.1   [A]   Preferred Stock Purchase Agreement dated September 29,
             1983,  together with amendments thereto dated February 28, 1984 and
             June 23, 1988.
10.2   [H]   Form of  Indemnification  Agreement between the Company and its
             officers, directors and certain other key employees.
10.3   [D]   1983 Incentive Stock Option Plan, as amended August 13, 1991.
10.4   [E]   1988 Employee Stock Purchase Plan, as amended October 1992.
10.5   [C]   Amended and Restated 1992 Stock Option Plan.
10.6   [F]   Stock Acquisition Agreement dated August 28, 1993, between
             the Company and Solectron California Corporation.
10.7   [G]   Lease Agreement between BNP Leasing Corporation, as
             Landlord, and the Company, as Tenant, Effective September 6, 1994.
10.8   [G]   Purchase Agreement,  by and between the Company and BNP Leasing
             Corporation, dated September 6, 1994.
10.9   [G]   Pledge and Security  Agreement,  by and between the Company, as
             Debtor,  and BNP  Leasing  Corporation,  as  Secured  Party,  dated
             September 6, 1994.
10.10  [G]   Assignment and  Assumption  Agreement  between the Company and
             Solectron California Corporation, dated November 9, 1994.
10.11  [G]   Custodial  Agreement  by  and  between  the  Company,   Banque
             Nationale De Paris and BNP Leasing Corporation,  dated September 6,
             1994.
10.12  [H]   Modification  Agreement (First Amendment to Purchase  Agreement
             and Second Amendment to Lease Agreement) by and between the Company
             and BNP Leasing Corporation, dated May 1, 1997.
10.13  [H]   Credit Agreement between the Company and Bank of America
             National Trust and Savings Association, as Agent and
             Issuing Bank, dated April 30, 1997.
10.14a [I]   Amended  and  Restated  Lease  Agreement  between  BNP Leasing
             Corporation and Solectron Washington, Inc., dated July 1, 1998.
10.14b [I]   Amended and  Restated  Purchase  Agreement  between BNP Leasing
             Corporation and Solectron Washington, Inc., dated July 1, 1998.
10.14c [I]   Amended and Restated  Guaranty from  Solectron  Corporation  in
             favor of BNP Leasing Corporation, effective as of July 1, 1998.
10.15a [I]   Amended  and  Restated  Lease  Agreement  between  BNP Leasing
             Corporation and Force Computers, Inc., dated July 16, 1998.
10.15b [I]   Amended and  Restated  Purchase  Agreement  between BNP Leasing
             Corporation and Force Computers, Inc., dated July 16, 1998.
10.15c [I]   Amended and Restated  Guaranty from  Solectron  Corporation  in
             favor of BNP Leasing Corporation, effective as of July 16, 1998.
10.16a [I]   Lease Agreement  between BNP Leasing  Corporation and Solectron
             Georgia Corporation, dated October 20, 1998.
10.16b [I]   Purchase   Agreement  between  BNP  Leasing   Corporation  and
             Solectron Georgia Corporation, dated October 20, 1998.
10.16c [I]   Guaranty  from  Solectron  Corporation  in favor of BNP Leasing
             Corporation, effective as of October 20, 1998.

                                       66
<PAGE>

EXHIBITS (Continued)


Exhibit
Number       Description
-----------  -----------------------------------------------------------
10.17  [J]   Agreement and Plan of Reorganization, dated as of September 13,
             1999,  by  and  among   Solectron   Corporation,   SM   Acquisition
             Corporation and SMART Modular Technologies, Inc.
10.18  [J]   Stock Option Agreement,  dated as of September 13, 1999, by and
             between Solectron Corporation and SMART Modular Technologies.
21.1         Subsidiaries of the Registrant.
23.1         Consent of Independent Auditors.
27.1         Financial Data Schedule



Footnotes:

[A]         Incorporated by reference to the Exhibits to the Company's
            Registration Statement on Form S-1 (File No. 33-22840).
[B]         Incorporated by reference to the Exhibits to the Company's
            Registration Statement on Form S-4 as amended, filed
            November 20, 1996.  (File No. 333-15983).
[C]         Incorporated by reference to the Exhibits to Company's  Registration
            Statement on Form S-8 filed April 7, 1999 (File No. 333-75813).
[D]         Incorporated by reference to the Exhibits to Company's
            Registration Statement on Form S-8 (File No. 33-46686).
[E]         Incorporated by reference to the Exhibits to Company's Form 10-K for
            the year ended August 31, 1992.
[F]         Incorporated by reference to the Exhibits to Company's Form 10-K for
            the year ended August 31, 1993.
[G]         Incorporated by reference to the Exhibits to Company's Form 10-K for
            the year ended August 31, 1994.
[H]         Incorporated by reference to the Exhibits to Company's Form 10-K for
            the year ended August 31, 1997.
[I]         Incorporated by reference to the Exhibits to the Company's Form 10-Q
            for the quarter ended February 26, 1999.
[J]         Incorporated   by  reference  to  the  Exhibits  to  the   Company's
            Registration Statement on Form S-4 filed October 14, 1999.

                                       67