Mobile Handset Outsourcing: Market Analysis and Forecasts 2006-2011

• 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.

• 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

Chapter 1 Executive Summary

1.1 Outsourcing Prevalent in Mobile Handset Manufacturing

1.2 Current Market

1.3 Shifting Dynamics

Chapter 2 2 Introduction

Chart 2.1: Top Seven Handset Manufacturers by Shipments, 2005

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

Table 2.1: EMS and ODM Comparison

2.5 Methodology

2.6 Focus of this report

Chapter 3 Mobile Outsourcing Overview

3.1 History of Outsourcing

3.2 Why Outsource?

Chart 3.1: Reasons for Outsourcing

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

Table 3.1: 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

Table 3.2: Considerations for Outsourcing Decision Making

3.3.1 Cost

3.3.2 Direct Benefits

3.3.3 Indirect Benefits

3.3.4 Risk

3.4 Achieving Success with Outsourcing

Chart 3.2: Top Factors for Achieving Success with Outsourcing

3.4.1 Selecting a Vendor

Chart 3.3: Top Factors in Selecting an Outsourcing Vendor

3.5 Outsourcing in the Mobile Industry

3.6 Advantages of Outsourcing in the Mobile Industry

3.6.1 Cost Savings

Table 3.3: Typical Cost Savings from Outsourcing Chart 3.4: Average Global Handset Prices

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

Chapter 4 OEM Strategies

4.1 OEM Landscape

Chart 4.1: Mobile Handset Shipments, 2003-2007 Chart 4.2: % Increase of Handset Sales 2005

4.1.2 OEM Market Share

Chart 4.3: Mobile Handset Shipments, 2005 Chart 4.4: Mobile Handset Market Share, 2005

4.2 Nokia Outsourcing Analysis

4.2.1 Nokia Profile

Table 4.1: Nokia Key Financial Indicators, 2005

4.2.2 Nokia Outsourcing Strategy

4.2.2.1 Nokia: Traditionally Reluctant to Outsource

Chart 4.5: Nokia Handset Production, Outsourced vs In-house Levels, 2005

Chart 4.6: Nokia vs. Motorola Operating Margins, 2005

4.2.3 Nokia Outsourcing Contracts

Table 4.2: Nokia's Potential ODM Deals

Table 4.3: Nokia's LCD Panel Manufacturers

4.2.3.1 Nokia in Asia

4.2.4 Nokia Joint Ventures

Table 4.4: Nokia's Joint Ventures

4.2.5 Nokia's Overseas Factories

Table 4.5: Nokia's Overseas Factories

4.2.6 Nokia: Future Outsourcing?

Chart 4.7: Nokia's Falling Operating Margins, 2003 and 2005

4.2.7 Nokia Outsourcing Summary

Chart 4.8: Nokia's Handset Manufacturing Outsourcing as % of Total Output, 2006-2011

4.3 Motorola Outsourcing Analysis

4.3.1 Motorola Profile

Table 4.5: Motorola Financial Figures, Q4 2005

4.3.2 Motorola Outsourcing Strategy

Chart 4.9: Motorola's Q4 2005 Handset Production by Region

4.3.2.1 Motorola: Outsourcing Commodity Technology

Table 4.6: Motorola Outsourcing Strategy

4.3.3 Motorola Outsourcing Contracts

Table 4.7: Outsourced Motorola Handsets in 2005

4.3.3.1 Motorola Overseas R&D

4.3.4 Motorola Outsourcing Future

Chart 4.10: Motorola's ODM Production as % of Total, 2006-2011

4.4 Samsung Outsourcing Analysis

4.4.1 Samsung Profile

4.4.2 Samsung Outsourcing Strategy

4.4.3 Samsung Outsourcing Future - Changing Policy?

Chart 4.11: Samsung Market Share Stagnation 2004-2005

Chart 4.12: Samsung Outsourcing as % of Total Production Forecast, 2006-2011

4.5 Sony Ericsson Outsourcing Analysis

4.5.1 Sony Ericsson Profile

Table 4.8: Sony Ericsson 2005 Financial Facts

4.5.2 Sony Ericsson Outsourcing Strategy

4.5.2.1 Sony Ericsson: Equal Share

Chart 4.13: Sony Ericsson's Manufacturing Production

4.5.2.1.1 Manufacturing Synergy

4.5.3 Sony Ericsson Outsourcing Deals

4.5.4 Sony Ericsson Outsourcing Future

Chart 4.14: Sony Ericsson Outsourcing as % of Total Production Forecast, 2006-2011

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

Chart 4.15: Proportion of Leading OEM Handsets Outsourced by % of Total Production, 2006

Chapter 5 ODM/EMS Provider Strategies

5.1 ODM Landscape: Emerging Markets Presenting Further Opportunity

5.1.1 Operator Opportunities

5.1.1.1 Eroding Margins

Chart 5.4: Average ODM and EMS Profit Margins, 2005

5.1.2 Global Outsourcing Market

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

5.1.2 Top ODMs and EMS Providers

Chart 5.5: Top Five EMS Providers (All Industries), 2005 Chart 5.6: Top Five ODMs (All Industries), 2005

5.1.3 Importance of the Outsourced Mobile Handset Market

5.2 Flextronics

5.2.1 Flextronics Profile

Chart 5.7: Flextronics Net Income, Q3 2005 vs 2004

Table 5.1: Flextronics Fast Facts

5.2.2 Flextronics in the Mobile Handset Industry

Chart 5.8: Handset Manufacturing as a % of Flextronics Total Revenue

Table 5.2: Flextronics' Main Handset OEM Customers, 2005

5.2.2.1 The Importance of Sony Ericsson

Chart 5.9: Flextronics Biggest Customers, 2005-2006

5.2.2.2 Alcatel and Kyocera Deals: Attracting Smaller Companies

5.2.3 Manufacturing Base: A Global Operation

Table 5.3: Flextronics Operations in India

5.2.3.1 Industrial Parks

Table 5.4: Flextronics' Industrial Parks

5.2.3.2 Flextronics' Business Model

5.2.5 Flextronics' Future in Mobile Outsourcing

Chart 5.10: Flextronics' Revenue from Handsets Forecast, 2006-2011

Chart 5.11: Flextronics' Handset Shipments Forecast, 2006-2011

5.3 Foxconn (Hon Hai)

5.3.1 Foxconn Profile

Table 5.5: Hon Hai Turnover 2005

5.3.2 Foxconn in the Mobile Handset Industry

5.3.2.1 FIH Major Customers

Chart 5.12: FIH Handset Customers by % of Revenues

Table 5.6: FIH's Manufacturing Facilities

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

Table 5.7: Arima in 2005

5.4.2 Arima's Customers

Chart 5.13: Proportion of Arima Total Output for Sony Ericsson

Table 5.8: Sony Ericsson Handsets Manufactured by Arima, Q1 2006

5.4.2.1 Arima to Receive BenQ Orders?

5.4.3 Arima's Manufacturing Capability

5.4.4 Arima's Mobile Manufacturing Future

Chart 5.14: Arima Handset Shipments Forecast, 2005-2007

5.5 Compal Group

5.5.1 Compal Profile

Chart 5.15: Compal Group Handset Shipments, 2005

5.5.2 Compal Customers

Table 5.9: Motorola Handsets Manufactured by Compal

5.5.3 Compal Manufacturing Capability

5.5.4 Compal's Mobile Manufacturing Future Chart 5.16: Compal Handset Shipments Forecast

5.6 High Tech Computer (HTC)

5.6.1 HTC Profile

5.6.2 HTC Customers

Table 5.10: HTC's Palm Products

5.6.2.1 HTC Relationship with Operators

Table 5.11: HTC Handset Production for OEMs

5.6.4 HTC Mobile Manufacturing Future

Table 5.12: HTC Shipments by Market Segment in Thousands

Chart 5.17: HTC Handset Shipments Forecast, 2006-2011

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

Chart 5.18: Quanta Handset Shipments Growth, 2004-2007

5.9 Chi Mei Communications (CMCS).

5.9.1 CMCS Profile

5.9.2 CMCS Customers

Table 5.13: CMCS Handsets for Motorola

5.9.3 CMCS Mobile Handset Manufacturing Future

Chart 5.19: CMCS Handset Shipments Growth, 2004-2007

5.10 Elcoteq SE

5.10.1 Elcoteq Profile

Table 5.14: Elcoteq Fast Facts

5.10.2 Elcoteq Customers

Chart 5.20: Elcoteq's Major Customers by Sales, 2005

5.10.3 Elcoteq's Manufacturing Bases

Table 5.15: Elcoteq's Overseas Manufacturing Plants

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

Chart 5.21: Cellon Handset Shipments Forecast. 2006-2011

5.12 ODM/EMS Provider Summary

Chapter 6 Major Regions for Handset Manufacture

6.1 China and Taiwan

6.1.1 China

6.1.1.1 Chinese Handset Production

Chart 6.1: % of Handsets Manufactured in China by Vendor

6.1.1.2 Chinese Manufacturers

Chart 6.2: Handset Market Share in China by %, 2005

6.1.1.2.1 Ningbo Bird

Chart 6.3: Ningbo Bird Handset Shipments, 2004-2005

6.1.1.2.2 Lenovo

6.1.1.3 Chinese Manufacturing Attributes

6.1.1.3.1 Labour: More than Cost Effectiveness

Table 6.1: Average Manufacturing Costs in China, US and UK, 2004

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

Table 6.2: Yangtze Delta Advantages

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

Chart 6.4: Indian EMS Industry Value Forecast, 2004-2008

6.2.1 Why Handset Manufacture in India?

6.2.1.1 Emerging Market

Chart 6.5: Indian Handset Shipments Forecast, 2005-2008

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

Chart 6.6: Handset Shipments by Region, 2006

Chart 6.7: Handset Shipments by Region, 2011

Chapter 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

Chart 7.1: Decline in European Operator's ARPU

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

Table 7.1: 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

Table 7.2: OEMs vs. ODMs on Customisation

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

Table 7.3: HTC 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

Table 7.4: Key Elements for Customised Handsets

7.6 Opportunity in the Customised Model

Chapter 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

Chart 8.1: Forecast % of Handsets Outsourced Globally, 2006-2011

Table 8.1: SWOT Analysis for Outsourcing Handset Manufacturing

8.3 Outsourcing Future for ODMs and EMS Providers

Table 8.2: SWOT Analysis for Handset Manufacturing ODMs and EMS Providers

Chapter 9 Conclusions and Recommendations

9.1 Conclusions

9.2 Recommendations

Appendix A Lead author's profile

Appendix B About visiongain

Appendix C Report evaluation form

Key Companies

Alcatel

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

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

Taiwan Green Point

TechFaith Wireless Communication Technology

T-Mobile

Toppoly Optoelectronics

Virgin Mobile

Vodafone