Outsourcing to Produce 38% of All Handsets in 2007

According to a new report from Strategy Analytics, 26% of cellular handsets worldwide will be made by contract manufacturers (outsourced production) in 2002. This will rise steadily to 38% in 2007, as first and second-tier handset vendors seek lower costs, production flexibility and economies of scale.

Neil Mawston, Senior Analyst with the Global Wireless Practice, notes, "Contract manufacturers are desperate to get their hands on orders for some of the 396 million cellular phones manufactured worldwide in 2002. The industry is much leaner now, as device manufacturers have effectively improved internal cost efficiencies, and we believe that the lion's share of the shift to outsourced manufacturing occurred in 2001. Contract electronics manufacturers (CEM) and original design manufacturers (ODM) have over-built production, and are aggressively searching out new customers in Japan and other Asia Pacific countries to fill under-utilized capacity. This could fuel the proliferation of a growing mass of third-tier reference design handset vendors."

Other key findings from this report include the conclusion that Flextronics will be the world's largest contract handset manufacturer in 2002, with an estimated 42% share in 2002. Flextronics is currently the world's 3rd largest handset manufacturer after Nokia and Motorola.

"Handset manufacturing is splitting into two camps; those who believe in-house production allows manufacturers to maximize control and minimize risk, such as Nokia and Samsung, and those who believe outsourced production allows manufacturers to exploit economies of scale and output flexibility, such as Sony Ericsson and Alcatel," said David Kerr, Vice President of Strategy Analytics.'"

Posted to the site on 3rd October 2002