iSuppli predicts limited Outsourcing for mobile-phone OEMs

Although mobile-phone OEMs are expected to outsource a significant portion of their production to contract manufacturers over the next few years, they still will keep the majority of manufacturing in house, according to research from iSuppli Corp.'s new Global OEM Manufacturing Analysis (GOMA) service.

By 2009, mobile handset OEMs will outsource 44 percent of their production to Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, up from 34 percent in 2005, iSuppli predicts.

The figure below and attached presents iSuppli's forecast of mobile-phone production broken down by the percentage of OEM and contract manufacturing.

Source: iSuppli Corp. November 2005

While this rise represents a major shift in mobile-phone production in favor of the EMS/ODM providers, the fact that more than 50 of unit output will remain in house in 2009 indicates that the handset OEMs are loathe to outsource most or all of their manufacturing. This contrasts sharply with the PC market, where most manufacturing is outsourced.

"It is unfeasible that the percentage of outsourced manufacturing for mobile phones will be as high as that for PCs," said Jeffrey Wu, analyst, EMS and ODM services for iSuppli.

Wu said that dynamics in the mobile-phone market - combined with limitations in the design services offered by EMS and ODM providers - will restrict the amount of outsourcing in the industry.

"Many leading mobile-phone OEMs are expanding their production capacity, and consequently will attempt to keep manufacturing in house in order to ensure high utilization," Wu said.

"Furthermore, the wireless handset industry is driven by constant technological evolution. Given the immense R&D resources needed to develop new-generation mobile phones, only global OEMs have deep enough pockets to pioneer the newest technologies and platforms. While the design capabilities of contract manufacturers are gradually improving, they may not be sufficient to drive the latest technological advancements."

The OEMs' manufacturing strategies and outsourcing approaches will limit the role of ODMs in the handset industry to serving product niches, such as smart phones and third-generation phones, or to focusing only on commoditized product categories, Wu said. On the other hand, EMS providers, with their cost competitiveness, operational efficiency and global footprint, are likely to be incorporated more broadly into OEMs' supply chains in the long run.

The degree of outsourcing varies widely between different OEMs. For example, Sony Ericsson presently makes the greatest use of contract manufacturing among the top mobile-phone brands, with nearly 66 percent of its production outsourced. At the other end of the spectrum are the South Korean OEMs, which produce nearly all of their mobile phones in house.

-- What dictates OEMs' outsourcing decisions?
-- How are OEMs deploying their manufacturing capacity?
-- Which contract manufacturers are the leading mobile-phone OEMs using? What is their share split?
-- Why are some contract manufacturers more successful than others in the mobile-phone market?
-- Which manufacturers' components are specific mobile-phone makers using?

Find the answers to these questions and many more in iSuppli's new report, entitled: Global OEM Manufacturing Analysis - Wireless Handset Module, from iSuppli's new GOMA service.

The Wireless Handset Module examines outsourcing strategies and manufacturing-related issues for leading handset OEMs, contract manufacturers, component suppliers and independent design houses. The report also examines factors that determine outsourcing decisions and studies why some companies are better positioned in this area than others.

www.isuppli.com