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Flextronics reinvents itself

August 27, 2015, 4:32 PM UTC
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HONG KONG - JUNE 30: Bodybuilders flex their muscles for the judges on stage at the Hong Kong Bodybuilding Championships at the Queen Elizabeth Stadium Arena on June 30, 2013 in Hong Kong, China. (Photo by Victor Fraile/Getty Images)
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Perhaps because I work for one, I’m obsessed with the challenges big companies face trying to reinvent themselves. I knocked Intel (INTC) recently for not having gotten there yet and praised Cisco for being on the right path. On Wednesday I visited Flex (FLEX), the contract manufacturer formerly known as Flextronics International. It also is trying to refashion itself. It wants to be known as a “sketch-to-scale” engineering design shop that develops independent intellectual property both on its own and on behalf of the companies whose products it makes. (Alcatel-Lucent (ALU), Cisco (CSCO), and Apple (AAPL) are some of Flex’s biggest customers.)

From my brief look, I’d say Flex’s reinvention looks promising. The company has a venture arm, Lab IX, so it can invest in some of the startups that buy its services. Its innovation lab in Milpitas, Calif., is a facility where customers can look at Flex’s offerings, including sensors embedded in fabric for dazzling new “wearable” applications. The company also has highly secured, confidential work areas so customers can pursue top-secret projects without anyone, including all but approved Flex employees, knowing what’s up.

Deciding what belongs and what doesn’t also is a critical role for established companies. Flex developed software for its own use that maps and organizes important information from the company’s vast supply chain. It liked the software so much it decided to create a separate company, with venture-capital investors, on the theory that others, including Flex competitors, would buy its wares. The startup is called Elementum, and it aims to fill a void it thinks Oracle (ORCL) and SAP (SAP) left in the market. “The capabilities we created weren’t unique to Flex,” says CEO Mike McNamara. “They were unique to supply chains.”

Spinning out a valuable creation—as EMC (EMC) has done and Dell is considering—is a smart move, as is making one’s offering richer in pursuit of higher margins. Flex’s margins are still small, as Bloomberg BusinessWeek recently described, but they are moving in the right direction.

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