Mobile Handset Outsourcing

Market analysis and forecasts 2006-2011

Publication Date	March 2006
Publisher	Visiongain
Product Type	Report
Pages	149
ISBN Number	not applicable
Product Code	VIS00057

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Summary

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The outsourcing of mobile handset manufacture is a growing industry trend that sees traditionally shy outsourcers such as Nokia and LG looking to increase their reliance on contract manufacturers. In 2006, over 35% of all handset production is outsourced to contract manufacturers. As this market area develops, ensure you understand the implications of these dynamics by purchasing visiongain's second report on this topic.

Tier 1 OEMs are all outsourcing some part of handset production to contract manufacturers, with greater moves in this direction on their roadmap. This is driven by subscriber growth in emerging markets and increasing demand for low margin ultra low-cost handsets. The trend towards greater customisation will also have an impact upon the manufacturing side of the industry. OEMs need to re-assess their relationships with operators and become more accommodating in terms of cross branding and customisation, or risk losing market share. This report will tell you how you can better realign your strategy.

The report answers key questions, including:

The positioning of the main OEM players - what are their outsourcing strategies and what is their in-house manufacturing capability?
What kind of production capacity do contract manufacturers have?
What sort of relationship do they enjoy with OEMs and mobile operators?
Exactly what models are outsourced and to whom?
What are the recent major deals in this space?
What percentage of mobile phones shipped globally will be outsourced by 2011?
Who stands to gain and lose most from the shifting dynamics?
Which regions produce the most handsets and how will this change in the future?

This 140+ page report examines the market for handset outsourcing and contract manufacturing, comparing it to in-house handset design and production. It looks at the current state of the market and the changing relationship dynamics between mobile operators, OEMs, ODMs and contract manufacturers. The study analyses the major players within the marketplace and their manufacturing capacity, expansion plans and strategy in this field, as well as detailing which handset models are outsourced to whom. In addition, key trends that will affect the market's development throughout the forecast period are looked at.

Why you should buy this report:

Understand the strategies undertaken by both OEMs and ODMs and how these will evolve through to 2011
Find out how much production the major OEMs actually outsource
Learn which ODMs and EMS providers manufacture handsets for which OEMs
Discover which handset models are outsourced
Gain insight into how ODMs differentiate their products
Find out how operators and third parties can pursue customised and signature handsets

Content

1 Executive Summary
- 1.1 Outsourcing Prevalent in Mobile Handset Manufacturing
- 1.2 Current Market
- 1.3 Shifting Dynamics
2 2 Introduction
- 2.1 What is Outsourcing?
- 2.2 Key Definitions
  - 2.2.1 Defining an OEM
  - 2.2.2 Defining an ODM
  - 2.2.3 Defining EMS
  - 2.2.4 ODM and EMS - Blurring Boundaries
- 2.5 Methodology
- 2.6 Focus of this report
3 Mobile Outsourcing Overview
- 3.1 History of Outsourcing
- 3.2 Why Outsource?
  - 3.2.1 Drivers for Outsourcing
    - 3.2.1.1 Reduce and Control Operating Costs
    - 3.2.1.2 Improve Company Focus
    - 3.2.1.3 Gain Access to World Class Capabilities
    - 3.2.1.4 Free Resources for Other Purposes
    - 3.2.1.5 Resources Not Available Internally
    - 3.2.1.6 Reduce Time to Market
    - 3.2.1.7 Accelerate Re-engineering Benefits
    - 3.2.1.8 Function Difficult to Manage
    - 3.2.1.9 Share Risks
  - 3.2.2 Outsourcing Challenges
    - 3.2.2.1 Loss of Control
    - 3.2.2.2 Proprietary Information
    - 3.2.2.3 Need for Tight Management Practices
    - 3.2.2.4 Long Distances for Travel and Communication
    - 3.2.2.5 Time Difference and Language Barriers
    - 3.2.2.6 Need to Match EMS provider with OEM needs
    - 3.2.2.7 Political Risks
- 3.3 Outsourcing Decision Making Considerations
  - 3.3.1 Cost
  - 3.3.2 Direct Benefits
  - 3.3.3 Indirect Benefits
  - 3.3.4 Risk
- 3.4 Achieving Success with Outsourcing
  - 3.4.1 Selecting a Vendor
- 3.5 Outsourcing in the Mobile Industry
- 3.6 Advantages of Outsourcing in the Mobile Industry
  - 3.6.1 Cost Savings
  - 3.6.2 Time to Market
  - 3.6.3 Manufacturing Expertise
  - 3.6.4 Spreading the Risk
- 3.7 Disadvantages of Outsourcing in the Mobile Industry
  - 3.7.1 Proprietary Risks
  - 3.7.2 Not the Focus of Attention
  - 3.7.3 Lack of Specialist Production
4 OEM Strategies
- 4.1 OEM Landscape
  - 4.1.2 OEM Market Share
- 4.2 Nokia Outsourcing Analysis
  - 4.2.1 Nokia Profile
  - 4.2.2 Nokia Outsourcing Strategy
    - 4.2.2.1 Nokia: Traditionally Reluctant to Outsource
  - 4.2.3 Nokia Outsourcing Contracts
    - 4.2.3.1 Nokia in Asia
  - 4.2.4 Nokia Joint Ventures
  - 4.2.5 Nokia's Overseas Factories
  - 4.2.6 Nokia: Future Outsourcing?
  - 4.2.7 Nokia Outsourcing Summary
- 4.3 Motorola Outsourcing Analysis
  - 4.3.1 Motorola Profile
  - 4.3.2 Motorola Outsourcing Strategy
    - 4.3.2.1 Motorola: Outsourcing Commodity Technology
  - 4.3.3 Motorola Outsourcing Contracts
    - 4.3.3.1 Motorola Overseas R&D
  - 4.3.4 Motorola Outsourcing Future
- 4.4 Samsung Outsourcing Analysis
  - 4.4.1 Samsung Profile
  - 4.4.2 Samsung Outsourcing Strategy
  - 4.4.3 Samsung Outsourcing Future - Changing Policy?
- 4.5 Sony Ericsson Outsourcing Analysis
  - 4.5.1 Sony Ericsson Profile
  - 4.5.2 Sony Ericsson Outsourcing Strategy
    - 4.5.2.1 Sony Ericsson: Equal Share
    - 4.5.2.1.1 Manufacturing Synergy
  - 4.5.3 Sony Ericsson Outsourcing Deals
  - 4.5.4 Sony Ericsson Outsourcing Future
- 4.6 LG Outsourcing Analysis
  - 4.6.1 LG Profile
  - 4.6.2 LG Outsourcing
- 4.7 BenQ-Siemens Outsourcing Analysis
  - 4.7.1 BenQ-Siemens Profile
  - 4.7.2 BenQ-Siemens Outsourcing Strategy
    - 4.7.2.1 BenQ: ODM / OEM conflict
  - 4.7.3 BenQ Siemens Outsourcing Future
- 4.8 OEM Outsourcing Summary
5 ODM/EMS Provider Strategies
- 5.1 ODM Landscape: Emerging Markets Presenting Further Opportunity
  - 5.1.1 Operator Opportunities
  - 5.1.2 Global Outsourcing Market
    - 5.1.1.1 Eroding Margins
  - 5.1.2 Top ODMs and EMS Providers
  - 5.1.3 Importance of the Outsourced Mobile Handset Market
- 5.2 Flextronics
  - 5.2.1 Flextronics Profile
  - 5.2.2 Flextronics in the Mobile Handset Industry
    - 5.2.2.1 The Importance of Sony Ericsson
    - 5.2.2.2 Alcatel and Kyocera Deals: Attracting Smaller Companies
  - 5.2.3 Manufacturing Base: A Global Operation
    - 5.2.3.1 Industrial Parks
    - 5.2.3.2 Flextronics' Business Model
  - 5.2.5 Flextronics' Future in Mobile Outsourcing
- 5.3 Foxconn (Hon Hai)
  - 5.3.1 Foxconn Profile
  - 5.3.2 Foxconn in the Mobile Handset Industry
    - 5.3.2.1 FIH Major Customers
    - 5.3.2.2 Attracting More Customers
  - 5.3.3 FIH's Manufacturing Capability
  - 5.3.4 FIH Future in Mobile Handset Manufacture
- 5.4 Arima Communications
  - 5.4.1 Arima Profile
  - 5.4.2 Arima's Customers
    - 5.4.2.1 Arima to Receive BenQ Orders?
  - 5.4.3 Arima's Manufacturing Capability
  - 5.4.4 Arima's Mobile Manufacturing Future
- 5.5 Compal Group
  - 5.5.1 Compal Profile
  - 5.5.2 Compal Customers
  - 5.5.3 Compal Manufacturing Capability
  - 5.5.4 Compal's Mobile Manufacturing Future
- 5.6 High Tech Computer (HTC)
  - 5.6.1 HTC Profile
  - 5.6.2 HTC Customers
    - 5.6.2.1 HTC Relationship with Operators
  - 5.6.4 HTC Mobile Manufacturing Future
- 5.7 Lite-On Technology
  - 5.7.1 Lite-On Profile
  - 5.7.2 Lite-On: Example of the problems for ODMs in the Handset Industry?
- 5.8 Quanta Computer
  - 5.8.1 Quanta Profile
  - 5.8.2 Quanta's Customers
  - 5.8.3 Quanta Mobile Handset Manufacturing Future
- 5.9 Chi Mei Communications (CMCS).
  - 5.9.1 CMCS Profile
  - 5.9.2 CMCS Customers
  - 5.9.3 CMCS Mobile Handset Manufacturing Future
- 5.10 Elcoteq SE
  - 5.10.1 Elcoteq Profile
  - 5.10.2 Elcoteq Customers
  - 5.10.3 Elcoteq's Manufacturing Bases
    - 5.10.3.1 Elcoteq as Manufacturing Pioneers
  - 5.10.4 Elcoteq's Mobile Manufacturing Future
- 5.11 Cellon
  - 5.11.1 Cellon Profile
  - 5.11.2 Cellon Customers
  - 5.11.3 Cellon - Differentiation through Design
  - 5.11.4 Cellon Mobile Manufacturing Future
- 5.12 ODM/EMS Provider Summary
6 Major Regions for Handset Manufacture
- 6.1 China and Taiwan
  - 6.1.1 China
    - 6.1.1.1 Chinese Handset Production
    - 6.1.1.2 Chinese Manufacturers
    - 6.1.1.2.1 Ningbo Bird
    - 6.1.1.2.2 Lenovo
    - 6.1.1.3 Chinese Manufacturing Attributes
    - 6.1.1.3.1 Labour: More than Cost Effectiveness
    - 6.1.1.3.2 Chinese Handset Manufacturing Areas - Supply Chain and Infrastructure
    - 6.1.1.3.2.1 Northern China
    - 6.1.1.3.2.1.1 Tianjin
    - 6.1.1.3.2.1.2 Beijing
    - 6.1.1.3.2.2 Eastern China
    - 6.1.1.3.2.3 Southern China
  - 6.1.2 Taiwan
    - 6.1.2.1 The Majority of ODMs, Not the Majority of Handset Shipments
- 6.2 India
  - 6.2.1 Why Handset Manufacture in India?
    - 6.2.1.1 Emerging Market
    - 6.2.1.2 Government Schemes
    - 6.2.1.3 Labour Force
    - 6.2.1.4 Location
- 6.3 Telecoms Companies - Relocating to India?
- 6.4 Disadvantages in Outsourcing to India
  - 6.4.1 Poor Existing Infrastructure
  - 6.4.2 Poor Electronic Component Supply
- 6.5 Handset Shipments by Region
7 Handset Customisation
- 7.1 Why Customisation?
  - 7.1.1 Definition of Customisation
  - 7.1.2 The Trend for Customisation
    - 7.1.2.1 Shifting Market Dynamics Due to New Technology
  - 7.1.3 Advantages of Customisation for Operators
    - 7.1.3.1 Easy to Use Services
    - 7.1.3.2 Better ARPU
    - 7.1.3.3 Less Churn
    - 7.1.3.4 Differentiation
    - 7.1.3.5 Branding and Market Segmentation
    - 7.1.3.6 Controlling the Mobile Ecosystem
- 7.2 The impact of Customisation for Operators on the Mobile Handset Outsourcing Industry
  - 7.2.1 The Outsourcing / Customisation Circle
  - 7.2.2 The Impact upon Manufacturers
    - 7.2.2.1 Impact on OEMs
    - 7.2.2.2 Impact on ODMs / EMS Providers
- 7.3 Operator Customisation in the Handset Industry
  - 7.3.1 Vodafone - Growing its Brand Strength through Own-Brand Handsets?
    - 7.3.1.1 Examples of Other Operator Branded Handsets
- 7.4 Third Party Entrants
  - 7.4.1 Market Entry for Microsoft
  - 7.4.2 Niche Market - ESPN Mobile
  - 7.4.3 Other Third Party Handsets
    - 7.4.3.1 Dolce & Gabbana (D&G) Handset
    - 7.4.3.2 Vodafone Ferrari Handset
    - 7.4.3.3 Aston Martin Handsets
    - 7.4.3.4 Elle Glamphone
- 7.5 Customisation Requirements for Handset Manufacturers
- 7.6 Opportunity in the Customised Model
8 Analysis and Forecasts
- 8.1 The Mobile Handset Market - Drivers for Increased Outsourcing
  - 8.1.1 Emerging Markets
  - 8.1.2 Handset Customisation
    - 8.1.2.1 Operator Customisation
    - 8.1.2.2 Third Party Customisation
- 8.2 Outsourcing Future for OEMs
- 8.3 Outsourcing Future for ODMs and EMS Providers
9 Conclusions and Recommendations
- 9.1 Conclusions
- 9.2 Recommendations
List of Tables
- Table 3.1: Outsourcing Challenges
- Table 2.1: EMS and ODM Comparison
- Table 3.2: Considerations for Outsourcing Decision Making
- Table 3.3: Typical Cost Savings from Outsourcing
- Table 4.1: Nokia Key Financial Indicators, 2005
- Table 4.4: Nokia's Joint Ventures
- Table 4.5: Motorola Financial Figures, Q4 2005
- Table 4.7: Outsourced Motorola Handsets in 2005
- Table 5.1: Flextronics Fast Facts
- Table 5.8: Sony Ericsson Handsets Manufactured by Arima, Q1 2006
- Table 5.15: Elcoteq's Overseas Manufacturing Plants
- Table 5.7: Arima in 2005
- Table 5.5: Hon Hai Turnover 2005
- Table 5.13: CMCS Handsets for Motorola
- Table 5.10: HTC's Palm Products
- Table 5.2: Flextronics' Main Handset OEM Customers, 2005
- Table 5.6: FIH's Manufacturing Facilities
- Table 5.14: Elcoteq Fast Facts
- Table 5.9: Motorola Handsets Manufactured by Compal
- Table 5.4: Flextronics' Industrial Parks
- Table 5.12: HTC Shipments by Market Segment in Thousands
- Table 5.11: HTC Handset Production for OEMs
- Table 5.3: Flextronics Operations in India
- Table 4.8: Sony Ericsson 2005 Financial Facts
- Table 4.3: Nokia's LCD Panel Manufacturers
- Table 4.6: Motorola Outsourcing Strategy
- Table 4.5: Nokia's Overseas Factories
- Table 4.2: Nokia's Potential ODM Deals
- Table 6.1: Average Manufacturing Costs in China, US and UK, 2004
- Table 7.1: The Mobile Ecosystem
- Table 7.2: OEMs vs. ODMs on Customisation
- Table 8.2: SWOT Analysis for Handset Manufacturing ODMs and EMS Providers
- Table 7.3: HTC Operator Branded Handsets
- Table 8.1: SWOT Analysis for Outsourcing Handset Manufacturing
- Table 7.4: Key Elements for Customised Handsets
- Table 6.2: Yangtze Delta Advantages
List of Charts
- Chart 2.1: Top Seven Handset Manufacturers by Shipments, 2005
- Chart 3.1: Reasons for Outsourcing
- Chart 3.2: Top Factors for Achieving Success with Outsourcing
- Chart 3.3: Top Factors in Selecting an Outsourcing Vendor
- Chart 3.4: Average Global Handset Prices
- Chart 4.1: Mobile Handset Shipments, 2003-2007
- Chart 4.2: % Increase of Handset Sales 2005
- Chart 4.3: Mobile Handset Shipments, 2005
- Chart 4.4: Mobile Handset Market Share, 2005
- Chart 4.5: Nokia Handset Production, Outsourced vs In-house Levels, 2005
- Chart 4.6: Nokia vs. Motorola Operating Margins, 2005
- Chart 4.7: Nokia's Falling Operating Margins, 2003 and 2005
- Chart 4.8: Nokia's Handset Manufacturing Outsourcing as % of Total Output, 2006-2011
- Chart 4.9: Motorola's Q4 2005 Handset Production by Region
- Chart 4.10: Motorola's ODM Production as % of Total, 2006-2011
- Chart 4.11: Samsung Market Share Stagnation 2004-2005
- Chart 4.12: Samsung Outsourcing as % of Total Production Forecast, 2006-2011
- Chart 4.13: Sony Ericsson's Manufacturing Production
- Chart 4.14: Sony Ericsson Outsourcing as % of Total Production Forecast, 2006-2011
- Chart 4.15: Proportion of Leading OEM Handsets Outsourced by % of Total Production, 2006
- Chart 5.1: Revenue Growth Rate of the Outsourcing Industry
- Chart 5.2: Average Value of Outsourcing Contracts, 2004-2005
- Chart 5.3: Global EMS Market Value, 2004-2006
- Chart 5.4: Average ODM and EMS Profit Margins, 2005
- Chart 5.5: Top Five EMS Providers (All Industries), 2005
- Chart 5.6: Top Five ODMs (All Industries), 2005
- Chart 5.7: Flextronics Net Income, Q3 2005 vs 2004
- Chart 5.8: Handset Manufacturing as a % of Flextronics Total Revenue
- Chart 5.9: Flextronics Biggest Customers, 2005-2006
- Chart 5.10: Flextronics' Revenue from Handsets Forecast, 2006-2011
- Chart 5.11: Flextronics' Handset Shipments Forecast, 2006-2011
- Chart 5.12: FIH Handset Customers by % of Revenues
- Chart 5.13: Proportion of Arima Total Output for Sony Ericsson
- Chart 5.14: Arima Handset Shipments Forecast, 2005-2007
- Chart 5.15: Compal Group Handset Shipments, 2005
- Chart 5.16: Compal Handset Shipments Forecast
- Chart 5.17: HTC Handset Shipments Forecast, 2006-2011
- Chart 5.18: Quanta Handset Shipments Growth, 2004-2007
- Chart 5.19: CMCS Handset Shipments Growth, 2004-2007
- Chart 5.20: Elcoteq's Major Customers by Sales, 2005
- Chart 5.21: Cellon Handset Shipments Forecast. 2006-2011
- Chart 6.1: % of Handsets Manufactured in China by Vendor
- Chart 6.2: Handset Market Share in China by %, 2005
- Chart 6.3: Ningbo Bird Handset Shipments, 2004-2005
- Chart 6.4: Indian EMS Industry Value Forecast, 2004-2008
- Chart 6.5: Indian Handset Shipments Forecast, 2005-2008
- Chart 6.6: Handset Shipments by Region, 2006
- Chart 6.7: Handset Shipments by Region, 2011
- Chart 7.1: Decline in European Operator's ARPU
- Chart 8.1: Forecast % of Handsets Outsourced Globally, 2006-2011
Appendices
- Appendix A Lead author's profile
- Appendix B About visiongain
- Appendix C Report evaluation form Alcatel
Companies Listed
- Amoi
- Apple
- Arima Communications
- Aston Martin
- BenQ-Siemens
- BT
- Catcher Technology
- Cellon
- Chi Mei Communication Systems
- Compal Communications
- Compal Electronics
- Dbtel
- Dolce & Gabbana
- Elcoteq
- ESPN
- Ferrari
- Flextronics
- Formula 1
- Foxconn Electronics
- Foxlink (Cheng Uei Precision Industry)
- France Telecom
- Gradiante
- GSM Association
- HTC
- Huawei Technologies
- iMate
- Taiwan Green Point
- T-Mobile
- Toppoly Optoelectronics
- TechFaith Wireless Communication Technology
- Jabil Circuit
- Konka
- Kyocera Wireless
- Langchao Group
- Lenovo
- LG Electronics
- Lite-On
- Microsoft
- Motorola
- Ningbo Bird
- Nokia
- Orange
- Palm
- Pan International Industrial
- Panasonic
- Quanta
- QTEK
- Royal Philips Electronics' Mobile Display Systems
- Samsung SDI
- Sanyo
- Sharp
- Silitech
- Sony Ericsson
- Virgin Mobile
- Vodafone