Nokia, Samsung, LG Growth Is Key to Lifting ODMs' Bottom Lines

Nokia, Samsung and LG Electronics are among the wireless manufacturers that saw their fortunes turning in the fourth quarter of 2009, after a hit from the global recession. Original development manufacturers are depending on brightened handset sales to once again enjoy double-digit growth.

Shipments of cell phones from the industry's top 10 ODMs (original development manufacturers) and EMSes (electronic manufacturing services) are expected to rise 3.4 percent in 2010, up to 204.5 million units, from 2009's 197.5 million units, market research firm iSuppli reported April 14.
Despite the growth, it won't be a year of celebrations, said analyst Jeffery Wu, explaining that they're a group that's more accustomed to double-digit bumps.
"The relatively flat growth anticipated in 2010 by the top contract manufacturers for wireless handsets"-which include iPhone maker Foxconn, Flextronics, Compal, Arima and Elcoteq SE-"is unimpressive when juxtaposed against the steep 30 percent plunge recorded by the group last year," Wu said in a statement.
Challenges facing the industry are said to be carry-over issues from 2009, during which mobile handset companies faced reduced demand and so lowered orders. Nokia, for example, reportedly brought some previously outsourced orders in-house, which translated to a revenue loss among contract manufacturers of approximately $5 billion.
Market share losses from Motorola and Sony Ericsson also "rippled through the chain, impacting the manufacturing partners of the two giants down the line," iSuppli reported.
While the changes enabled the contract manufacturers to find new business with Tier 2 OEMs, Wu wrote, it wasn't enough to offset larger losses, such as those suffered by pullbacks from Nokia and Sony Ericsson.
Still, the iSuppli forecast isn't for all dark skies.
"Nonetheless, the overall wireless handset market will bounce back this year, not only growing 12.8 percent to 1.5 billion units but also expanding at a compound annual growth rate of 6.8 percent from 2009 to 2014," states the report, "suggesting that recovery could be around the corner, even for the Top 10."
In the fourth quarter of 2009, Nokia saw its best performance since the first half of 2008, shipping 126.9 million handsets, Strategy Analytics reported Jan. 29. Samsung and LG Electronics also performed very well during the quarter, shipping record-high numbers of handsets-69 million and 33.9 million, respectively.
On March 11, Broadpoint AmTech reported on the first quarter of 2010, noting that Samsung continued to show excellent progress, particularly in the China market, and was likely to have a strong year ahead of it.
"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," said iSuppli's Wu.