Kyocera Outsorces to Flextronics
* Kyocera Wireless announced that Flextronics would now manufacture all of Kyocera Wireless' phones and the deal also included transferring the company's cell-phone making equipment to Flextronics.
* Kyocera Wireless yo-yos between profitability one quarter and losses the next.
* It is either the world's seventh-largest or 10th-largest cell phone maker, depending on which market research firm you ask, Strategy Analytics or IDC.
* If nothing else, Kyocera Wireless' business has been steady, with the company selling about 12 million phones a year, half of them in the United States.
* The six largest cell phone makers – Nokia, Motorola, Samsung, LG, Siemens and Sony Ericsson – sell 70 percent of the world's handsets. The 140 other cell phone makers divvy up the other 30 percent of the market. "Kyocera is in that camp of 140 cell phone makers that have to struggle for that tiny sliver of the pie."
Outsourcing to Cost Jobs Here, But Save Money
By Kathryn Balint
San Diego Union-Tribune
May 8, 2005
signonsandiego.com
Cell phone manufacturing has become brutally competitive, with razor-thin profit margins, in the past year. And no one knows that better than San Diego cell phone maker Kyocera Wireless.
Last week, the company announced plans to outsource the manufacturing of its phones, resulting in the layoff of nearly 1,600 employees in San Diego and Tijuana.
It's an aggressive move that Kyocera Wireless hopes will help the company keep up with the competition.
It will result not only in cheaper labor costs, but also in lower prices for raw materials and more flexibility to ramp up, or scale down, as the market dictates, spokesman John Chier said.
"This very much levels the playing field," Chier said.
Kyocera, a Japanese conglomerate that makes everything from dental implants to solar panels, entered the U.S. cell phone market five years ago when it bought Qualcomm's money-losing business.
Qualcomm started making cell phones in San Diego out of necessity. At the time, the company was trying to persuade wireless companies to use its code-division multiple access, or CDMA, technology, so it needed cell phones that ran on the technology.
But manufacturing candy-bar-style cell phones was never Qualcomm's core business.
When Kyocera took over, it planned to turn the business around.
To a certain extent, Kyocera Wireless has done that.
It came out with sleek new cell-phone designs, such as its slider style, that particularly appeal to 18-to 29-year-olds and customers in Latin America.
It made the phones simple to use.
And it came out with technological innovations, such as the first "smart phone," a combined handheld computer and cell phone, in North America.
But even with its successes, Kyocera Wireless has never managed to come up with a game-changing phone that would put its name at the front of the pack of the 700 million cell phones sold each year.
Kyocera Wireless yo-yos between profitability one quarter and losses the next.
It is either the world's seventh-largest or 10th-largest cell phone maker, depending on which market research firm you ask, Strategy Analytics or IDC.
If nothing else, Kyocera Wireless' business has been steady, with the company selling about 12 million phones a year, half of them in the United States.
Albert Lin, an analyst with American Technology Research, said the six largest cell phone makers – Nokia, Motorola, Samsung, LG, Siemens and Sony Ericsson – sell 70 percent of the world's handsets.
The 140 other cell phone makers divvy up the other 30 percent of the market.
"Kyocera is in that camp of 140 cell phone makers that have to struggle for that tiny sliver of the pie," Lin said.
One limiting factor for Kyocera is that it only makes phones that use Qualcomm's CDMA technology.
About one in four phones worldwide use CDMA, leaving a large portion of the market that can't use Kyocera phones.
In addition, Kyocera Wireless competes in the most superheated segment of the market – low-cost phones that are provided free or sell for under $50 by cellular companies in the United States.
"Competition has intensified in the industry over the last year," said Eddie Tapiero, a wireless analyst with Strategy Analytics. "Kyocera remains at the entry tier, where the battle is going on. If Kyocera is to succeed in the market, they have to use the best practices, have the best ways of operating."
Toward that end, Kyocera Wireless realized it needed to cut its costs.
At first, most of its phones were made in San Diego, an expensive market for labor compared with those used by its competitors.
Two years ago, Kyocera Wireless contracted with sister company Kyocera Mexicana to make 60 percent of the phones at a maquiladora just south of the border.
And in January, Kyocera Wireless announced plans to have Kyocera Mexicana make nearly all its phones. At that time, the company announced the layoff of 718 employees, nearly a third of its work force, mostly those who repaired or manufactured cell phones.
But by last Wednesday, Kyocera Wireless had a new plan.
It announced that Flextronics, a Singapore company that also makes phones for Sony Ericsson and Siemens, would now manufacture all of Kyocera Wireless' phones. Kyocera Wireless said the deal also included transferring the company's cell-phone making equipment to Flextronics.
As a result, between 150 and 175 workers at Kyocera Wireless in San Diego and 1,400 workers at Kyocera Mexicana in Tijuana will be laid off over the next three months. The 1,100 remaining employees at Kyocera Wireless will design and sell phones.
Analysts were surprised by the company's abrupt change of plans. Yet the company's decision to contract with a manufacturer is in keeping with the direction of the industry.
"That's the route other manufacturers have followed for years," said Brad Akyuz, a wireless analyst with Current Analysis in San Diego. "It definitely makes sense for Kyocera to move operations overseas, where the labor costs are way cheaper compared to the U.S. and even Mexico."
Still, for Kyocera Wireless to hit it big, hip new designs are critical, Tapiero said.
Motorola was able to reinvigorate its cell phone brand with its Razr design.
LG Mobile Phones, a San Diego latecomer to the cell phone market, turned heads with a fold-up phone that includes a digital screen on the outside, and catapulted to No. 4 spot of the world's biggest cell phone makers last year.
Tapiero said that Kyocera Wireless is beginning to reposition itself in the marketplace with phones that have the latest features.
"We've seen that with Kyocera, the pressure has been getting to them, and now they have some new models out," he said. "Right now, Kyocera isn't the only one feeling the pressure. You see a lot of cell phone makers looking at ways to differentiate themselves."
Chier, the spokesman for Kyocera Wireless, said the company is at a turning point.
"If you had to characterize us, I think we are in a very nice position right now for the future," he said. "I think our phone portfolio is as strong or stronger than it's ever been. The phones we'll be launching over the course of the summer are compelling, consumer-driven phones, and I really think you're going to see great things from Kyocera Wireless." <<
- Eric - |
