Tech Hardware Supply Chain - Gazhoo

Bhavin Shah
(852) 2800-8538
bhavin.a.shah@jpmorgan.com
China, and so far, it is limited to a few components for Samsung and ODM for LG.
We expect these two companies to scale back their original manufacturing
outsourcing plans in 2009 as: (1) the significantly weak Won appears to be offsetting
cost advantages in outsourcing; and (2) fulfilling their own production capacity
should be a priority in view of a weak unit shipment outlook.
Table 51: EMS/mechanical component outsourcing opportunities from major handset players
Vendor EMS/mechanical component outsourcing potential
Nokia PCBA: Limited opportunity as Nokia is expanding own PCBA capacity.
Module assembly: All module assembly has been outsourced.
System assembly: Final system assembly will remain in-house in the near future, but could open up in the future.
Overall opportunity comes from allocation reshuffle from less efficient clusters to more efficient ones. ODM opportunity mostly in CDMA.
Motorola The outsourcing ratio is already high for EMS and ODM
Sony Ericsson Limited room for outsourcing growth. Flextronics, Arima Comm, and FIH are already the key EMS partners.
Samsung Started outsourcing casing / keypad from FIH / BYD / Silitech. No immediate plans for assembly outsourcing.
LG Only outsources selected low-end models to ODMs, limited EMS opportunity.
ZTE/Huawei ZTE: Limited EMS opportunity due to in-house assembly capacity, but components are largely outsourced.
Huawei: Both component and assembly are outsourced from three vendors—FIH, BYD, and Flextronics.
Source: J.P. Morgan.
Table 52: ODM partnerships
Asia Pacific Equity Research
20 April 2009
Pure ODMs could find it difficult to sustain due to competition from EMS
Pure ODM companies, such as Compal Communications and Arima
Communications, are facing competition from FIH and BYD, which also provide
ODM services. The weakness of Motorola and Sony Ericsson further accelerates the
fall-out of these two companies.
Vendor ODM partner Comments
Nokia FIH, BYD Electronic FIH does CDMA ODM and BYD is starting to ramp up. Compal Comm may
also get some CDMA orders.
Motorola FIH, Compal Communications Compal Comm remains the key ODM. FIH (Chi-Mei Comm) also has good
shares.
Samsung No ODM in the near future
LG Arima Comm Unlikely to add another ODM partner in the near future
Sony Ericsson
Source: J.P. Morgan.
FlH, Arima Communication Could give more ODM orders to FIH
Factors affecting the supply chain
The dynamics at top handset makers tend to affect the Asian supply chain
significantly. Most of the Taiwan supply chain is heavily exposed to Nokia,
Motorola and Sony Ericsson. As a result, any handset vendor gaining market share
could result in a “make-or-break” situation for the suppliers. Of late, huge currency
swings have also affected the profitability of these companies, as most of their sales
are foreign currency denominated.
Taiwan supply chain: Mostly exposed to a struggling customer base
The Taiwan handset supply chain is largely exposed to Nokia/Motorola/Sony
Ericsson (Table 53), and has relatively little exposure to smartphone brands or the
whitebox market. As the former group is under pressure and we expect the top five
OEMs to show a revenue decline, the Taiwan supply chain may come under severe
pressure.
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