Handset outsourcing
Published: June 19 2007 12:26 | Last updated: June 19 2007 19:48
Nokia is rightly proud of its latest handsets, those “artful fusion(s) of materials and technology”. But at least some of the glory must go to the lesser known Hon Hai, the world’s largest contract electronics maker.
Taiwan, home to the Hon Hai group, has attracted hordes of manufacturers of PCs and electronic gadgets. Cost is naturally a big factor: consultancy Visiongain believes companies can shave 10-20 per cent off materials costs, which comprise the lion’s share of the bill, and a further 5-10 per cent off labour. But there are other advantages, including expertise and speed in getting handsets to market. Making it cheaper to develop a broader range of models means being less vulnerable to flops. And manufacturers’ global reach makes them perfect partners for global players – particularly as the latter sell more into emerging markets.
Handset outsourcing continues to move further up the value chain: into design, component procurement and research and development. That partly reflects margin pressure at the big handset makers, and partly the growing competence of the manufacturers. It also illustrates the trend towards selling into emerging markets, where handsets tend to be cheaper and more readily outsourced. Visiongain estimates that almost half of all handsets will be outsourced by 2010, from 30 per cent now.
There are a few clouds on the horizon, including Taipei’s restrictions on investment in mainland China – Taiwanese manufacturers typically use factories in China to make their numbers stack up. At least there are ways around this, such as setting up subsidiaries in Hong Kong. More worrying for groups such as Nokia is the manufacturers’ push into branded goods in China. Given the latter’s efficiency and scale, they would prove formidable competitors in some of the world’s fastest growing markets. As for investors, it pays to be a geek and take a peek beneath the cover. While Nokia’s share price has risen an impressive 35 per cent in the past 12 months, Hon Hai is up 67 per cent.
Copyright The Financial Times Limited 2007
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