Abstract

Growing Linkage Between Customer and Chipset Solutions

As Motorola and EMP begin to offer handset technology IP (Intellectual Property) to other companies, the linkage between customer and chipset solutions are growing in importance. GVC has adopted EMP's GPRS handset technology platform IP for Sony Ericsson contracts. Software and hardware design is provided by EMP, baseband production is outsourced to TI, and RF (Radio Frequency) module production is outsourced to Infineon, which acquired Ericsson Microelectronics. However, in the future EMP will be collaborating with Philips following the sale of Ericsson Microelectronics to Infineon. Consequently, GVC is gradually assuming the role similar to that of an EMS (Electronic Manufacturing Services) provider.

Toshiba, Arima's main customer, has been moving into the European market with GPRS handsets that feature an i-mode browser. Arima utilizes a TTP Com solution for GPRS handset technology IP and protocol stack. The strategic alliance that TTP Com has formed with ADI and Hitachi has ultimately affected Arima's choice of chipset.

BenQ and Compal-C, which ship to Motorola, have both announced the adoption of the i250 platform. Motorola provides the Taiwanese makers with complete system solutions, while Motorola's SPS (Semiconductor Products Sector) division provides the primary chipsets. Although this arrangement will enable BenQ and Compal-C to secure orders for GPRS handsets in the short term, the two companies will also have to gain familiarity with the i250 platform, and their purchasing cost structures will be controlled by Motorola. In the long term, this reliance on other companies will likely hinder Taiwanese manufacturers' efforts to strengthen hardware R&D capability.

The Likelihood of Nokia Outsourcing Production

Nokia's decisions to outsource production simply derive from weighing outsourcing and in-house production costs. The company's annual in-house production volume is roughly 100 million handsets. In addition to Nokia's huge production volume, Nokia's single platform, multiple models product strategy ensures that the company enjoys an advantage over competitors in procurement. In contrast to the losses posted by the mobile phone divisions of Motorola and Sony Ericsson in 2001, Nokia managed to maintain profit margins of at least 20% every quarter of 2001. Following a stream of manufacturers that have flowed into the Beijing's StarNet International Industrial Park, Nokia currently has a low-inventory production facility capable of assembling handsets within four hours. As Nokia will be focusing mostly on maintaining a high capacity utilization rate in the company's in-house production facilities, there is not expected to be an immediate need for Nokia to outsource production to Taiwanese manufacturers.  

In the third quarter of 2002, Taiwanese handset makers accounted for 21.3% and 11.3% of the production volumes of Motorola and Sony Ericsson, respectively. As a result, Motorola regained profitability, while Sony Ericsson reduced losses from US$ 87 million in the second quarter of 2002 to US$ 53 million in the third quarter. Thus, the contributions of Taiwanese manufacturers have grown in importance to these two handset vendors in the supply of medium-range and value-line handsets.

In March and April 2002 Nokia was restructured into nine profit centers. The Mobile Entry Products Unit is responsible for entry-level GSM handsets and collaborates with operators in developing nations such as China, India, and Russia. In 2003 Nokia will be promoting handsets with color display, digital camera modules, and Java games. Faced with competition from value-line models manufactured in Taiwan, the Mobile Entry Products Unit is expected to decide soon on whether outsource production to Taiwan.

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