Months after Sweden's LM Ericsson revealed plans to remove its cell phone business from Elcoteq Network Corp., the Finnish EMS company is still searching for a replacement customer.
Ericsson will have its cell phones made instead by Singapore's Flextronics International Ltd., a blow to Elcoteq, which recently sent packing more than 1,200 temporary employees in Pecs, Hungary, and Tallinn, Estonia.
Ericsson is continuing to use Elcoteq for some of its wireless infrastructure needs, and the EMS company plans to rely less on making cell phones and more on producing telecom infrastructure equipment, according to Christer Harkonen, a group vice president.
Three-quarters of Elcoteq's current business is cell phones, with the rest equally divided between telecom infrastructure and industrial equipment.
A month ago, the EMS provider signed an agreement to make the Cellport 3000 Universal Hands-Free System for wireless phone use in automobiles. The system en-ables motorists to use their cell phones without having to hold the device.
The product is designed by Cellport Systems Inc., Boulder, Colo., which specializes in wireless voice and data technology. The system is being put together at Elcoteq's Monterrey, Mexico, plant.
"We chose Elcoteq because of its global footprint and agility in the wireless market," said Pat Kennedy, Cellport's chairman and chief executive. "Other [EMS] companies we interviewed were large and global, but they didn't understand the importance of being global for a wireless product."
About 400 million cellular handsets were produced last year, at a market value of $80 billion, Kennedy said. Of that, only 15 million were hands-free cell phones, but Kennedy expects that number to dramatically increase in the next two years as the devices become required for use in autos.
Bans boost demand
Already, about 20 countries, including Israel and Singapore, and two New York State counties have passed laws banning motorists from holding cell phones as they drive. And that is just the beginning of such legislation, Kennedy believes.
"Hands-free units will go from 15 million last year to 45 million by 2005," he said "That means [global] sales can grow from $3 billion currently to $9 billion."
Hands-free phones could ring up more sales for Elcoteq's wireless infrastructure business and help establish a healthier bottom line, company executives said. Last year, Elcoteq generated sales of $2 billion. "We grew revenue 200% last year," said Ilkka Pouttu, president of the EMS company's North American region. "We expect to grow this year, but modestly, in the double digits."
Elcoteq, which has 12,000 employees, is continuing to restructure its operations. The company recently decided to merge manufacturing activities at one of its plants in Helsinki with two plants in Lohja, Finland.
Elcoteq plans to close its Konala plant in Helsinki within the next six months and move jobs and production from there to the two Lohja plants. The move, Pouttu said, will help the company reduce costs.
"The merger will enable better use of [our] total expertise in industrial electronics," said Markku Leinonen, an Elcoteq group vice president, in a statement. "It will also improve customer service and capacity utilization."
Elcoteq executives claim they are glad they've maintained a cautious attitude toward acquisitions. That approach, they say, along with consistent high-quality manufacturing services, has served them well.
"We strategize about where we want to be located and don't grab every plant up for sale," Pouttu said. "We would rather be more flexible for our customers than have many big factories."