Flextronics, which makes products ranging from printers sold by Hewlett-Packard to copy machines sold by Xerox, said it would pay $3.6bn for Solectron, which specialises in higher-end telecoms and computer products.
The cash and stock deal comes amid a period of turmoil in the industry, as the companies that build computers, mobile phones and other electronics equipment on behalf of name-brand clients grapple with fierce price competition and a glut of overcapacity.
Michael McNamara, chief executive of Flextronics, said the purchase of Solectron would allow the company to extend its reach and cut costs.
"It made sense to consolidate the industry," he said. "We have a very strong position right now. We have positive momentum so we are in a position to do something. We viewed Solectron as being very strong operationally with a strong customer base."
The acquisition continues a string of recent transactions by Flextronics. Last year, it bought International DisplayWorks, a maker of liquid crystal displays for mobile phones, for $300m.
In March it sold an 85 per cent stake in Flextronics Software Systems, a software subsidiary, to a consortium of private equity groups led by Kohlberg Kravis Roberts for $900m in cash.
The company has also moved jobs to India and Ukraine to cut costs.
The deal with Flextronics comes as Solectron hunts for a new chief executive following the departure of Michael Cannon in February. Mr Cannon left to lead a new global supply chain organisation at Dell, the world's second-biggest personal computer maker.
Shares in Solectron jumped 15 per cent Monday to $3.88 on news of the Flextronics deal. Flextronics' shares dipped 1.3 per cent to $11.55. They had fallen from a high of $12.16 in January.
The fall came in spite of strong revenue growth at the company.
Flextronics reported sales of $18.9bn last year, an increase of 23 per cent over the year before.
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