Taipei, Taiwan -- Ericsson has reached an agreement to outsource some of its mobile phone production to Taiwan's GVC Corp.
GVC said that it would make high-speed GPRS handsets on an ODM (original design manufacturing) basis, meaning it would develop and manufacture products for Ericsson. Details of the arrangement's size and quantity weren't made available.
The company is benefiting as leading handset makers speed up to outsource their production to suppliers in Taiwan or other parts of Asia to slash costs. As recent as this week, Ericsson, Stockholm, said that it will exit mobile phone production and outsource most of its production to Singapore-based Flextronics International Inc.
Taiwan is playing an increasingly important role in the world's handset supply chain. In 2001, the island is expected to make 30 million units -- or about 20 percent of the global output -- rising from 11 million last year, according to a forecast by Primasia Securities Co. in Taipei. At least two-thirds of Taiwan's output this year is shipped to worldwide leaders such as Ericsson and Motorola Inc., Primasia said.
For GVC, the partnership with Ericsson would generate sales of as much as $160 million by delivering a total of 2 million handsets, forecast George Wu, who tracks the telecom industry for Primasia.
The Taipei company reached the agreement after a unit of Arima Computer Corp., also based in Taipei, failed to deliver the products that met qualifications of Ericsson.
In the fourth quarter of last year, Arima's unit won the contract at a surprisingly low $65 per unit, way below the $100 expected by analysts. Given the price, the unit wasn't able to produce the right products, analysts said.
The margins for making handsets have been declining, in part because Arima, Quanta Computer Inc. and Compal Electronics Inc. have aggressively expanded from their notebook PC business.
"This handset market is getting tougher and tough," Primasia's Wu said. He expected the gross margins of Taiwan's cell phone makers would slide to about 5% in this quarter, down from 5% to 10% in the previous three months.
GVC, which entered the mobile phone market in 1999, was established about two decades ago. It suffered after-tax losses of $29.4 million in 1998 and $176 million in 1999, as demand for its PCs and PC peripherals was slim. In the first nine months of last year, the company earned $12.3 million.