The fine line between OEMs and ODMs

ODMs could account for 40% of cellphone shipments by 2006 Finnish company Microcell SA creates handsets for some of the world’s best-known phonemakers, such as Siemens and Sony Ericsson, which then market the models under their own brand names. As competition in the industry intensifies and growth slows, the big phonemakers are relying increasingly on companies like Microcell - known as original design manufacturers, or ODMs - to do the behind-the-scenes work for new models."There’s pressure on the industry, both from a results point of view and to get more models out in a shorter period of time, with phones having a shorter life span," Microcell’s CEO Anders Torstensson said in an interview with Dow Jones Newswires. "That’s put pressure on the (main manufacturers) to increase their R&D or to outsource," said Torstensson, a former Telefon AB LM Ericsson executive who took over at Microcell in late 2001. Many major phone makers have turned to ODM partners, though they often keep quiet about such relationships for fear of blurring their own brand names. Unlike subcontractors that simply manufacture phones for well-known companies, ODMs can handle the entire production process, from designing phones to delivering them to their customers’ customers. Of the 400 million phones sold worldwide last year, Microcell estimates that ODMs designed and manufactured around 40 million. Torstensson predicts that number could reach 80 million this year and that ODM-made phones could account for 40% of the industry’s shipments by 2006 - a threshold Lindkvist says could be reached by 2005. The new demand is likely to come from existing phonemakers, as well as retailers and others that want to sell phones but lack experience in the business, Torstensson said. For example, Microsoft turned to High Tech Computer Corp. of Taiwan to produce the first smartphone to carry its software, for France’s Orange SA. Microcell’s customers include Chinese electronics retailer Panda, as well as Siemens and Sony Ericsson, for which it made the T66 handset last year. Torstensson says there are others he can’t name. The ODM phenomenon hasn’t escaped the attention of Nokia, although the company, which supplies more than one of every three mobile phones sold worldwide, has largely kept outside the trend. It struck a small ODM deal with South Korean manufacturer Telson Electronic Co. Ltd. to produce phones for the local market but recently abandoned it, saying it would rely on its own models there. As in the computer market, where Taiwanese ODMs make the majority of the world’s laptops, Asian companies dominate the ODM market for mobile phones. Most of them focus on entry-level phones, but Microcell is positioning itself as a supplier of mid- to high-end phones. It expects to benefit as color screens and cameras become important features of new phones, Torstensson said. Privately-held Microcell, which began in 1997 as a consultancy and only moved full-force into the ODM market last year, hasn’t released full-year results for 2002, but said nine-month sales increased to _171 million from _17 million a year earlier. In mid-2002 it said it had made 1 million phones so far that year, but hasn’t provided an update on volumes. For the moment, the company is employee-owned, with founder and Chairman Jyrki Hallikainen - a former Nokia employee - holding the largest stake. Source: Dow Jones Newswires