Cell phone contract manufacturers to face tough year, iSuppli reports
Following a year that upended their longstanding business models and dealt them unprecedented losses, the top 10 contract manufacturers of cell phones will experience a difficult 2010, according to market researchers at iSuppli Corp.
Staff -- EDN, April 16, 2010
Following a year that upended their longstanding business models and dealt them unprecedented losses, the top 10 contract manufacturers of cell phones will experience a difficult 2010, according to market researchers at iSuppli Corp.
The El Segundo, CA-based company predicts that overall cell phone shipments for the Top 10 Original Development Manufacturers (ODM) and Electronic Manufacturing Services (EMS) providers will rise by 3.4% to 204.2 million units this year, up from 197.5 million in 2009, said Jeffrey Wu, senior analyst for EMS and ODM at iSuppli.
At the same time, this slight increase is no cause for celebration viewed from the perspective of an industry accustomed to double-digit growth, Wu pointed out.
“The relatively flat growth anticipated in 2010 by the top contract manufacturers for wireless handsets is unimpressive when juxtaposed against the steep 30 percent plunge recorded by the group last year,” he said in a statement.
At that time, shipment levels fell from 280.9 million units in 2008, iSuppli said.
The persisting challenges for the wireless handset contract manufacturers represent a carryover of the upheavals in 2009, when a fall in the global wireless handset market forced key strategic shifts throughout the industry supply chain, Wu continued. Responding to reduced demand, many mobile handset firms adjusted their overall manufacturing and outsourcing strategies, in the process impacting ODMs and EMS providers alike. As such, prospects remain gloomy in 2010 for the group, he said.
Among OEMs using the services of the contract manufacturers—outsourcing strategies are being adjusted in the face of the recession, and OEMs remain cautious about reengaging contract manufacturers in case the market does not recover as quickly as expected.
Nonetheless, the overall wireless handset market will bounce back this year, not only growing 12.8% to 1.5 billion units but also expanding at a Compound Annual Growth Rate of 6.8% from 2009 to 2014—suggesting that recovery could be around the corner even for the Top 10.
iSuppli said one example of the severe blow absorbed by contract manufacturers is exemplified in the 2009 decision by Nokia Corp. to bring in-house previously outsourced orders. iSuppli estimates that Nokia’s overhaul of its old business model translated into revenue losses among contract manufacturers reaching up to $5 billion. Sharing similar concerns about internal capacity utilization, other OEMs contemplating a ramp-up in contract manufacturing services then either reduced the size of their outsourcing programs or halted outsourcing considerations altogether.
In addition to the pullback from these companies, the market-share losses of Motorola Inc. and Sony Ericsson—two major Tier 1 OEMs that relied on contract manufacturers heavily—rippled through the chain, impacting the manufacturing partners of the two giants down the line, the company said.
Demonstrating the difficulties for wireless handset contract manufacturers, shipments effectively halved in 2009 for some major players, such as Foxconn International Holdings, Flextronics International Ltd., Compal Communications Inc., Arima Communications Corp. and Elcoteq SE.
Wu observed that while expanding into manufacturing for the smart-phone segment allowed big-name contract manufacturers to obtain new orders from Tier 2 OEMs, those gains could not offset the larger losses that slipped away from the pullback of bigger customers such as Nokia and Sony Ericsson.
“Ultimately, it is only when robust growth is attained in the wireless handset market and confidence restored among firms that contract manufacturers can expect to revitalize their pipeline,” Wu concluded.
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Easy credit and low interest rates encourage unsustainable business expansions leading to losses or reduced profits. This means less income to sharehoders (general public), reduced tax collection and increased government deficits and all the problems which result from that. Then more of the same follows as government tries to fix that.
Haresh C Patel - 2010-20-4 08:00:00 PDT
