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MANUFACTURING: Finally, It Gets Its Booster

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VoicenData Bureau
New Update

Things are moving fast for Indian telecom thanks to the mobile revolution in

the country. Cellular has outstripped fixed services in terms of growth (both

value as well as volume) and will outstrip fixed line base by the end of 2004.

In terms of additions, the country has added around 19.75 million cellular lines

and only 2.12 million fixed lines in FY 2004, i.e., nine mobiles per fixed line

connection. The above numbers are not going to come down, but will only move up.

Newer opportunities in the mobile space will emerge with service providers (all

integrated ones plus Hutch) readying aggressive plans.

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First phase of the mobile revolution started in India with the commercial

launch of mobile service in Kolkata on 31 July 1995. And after nine years, India

will witness the second phase when mobile manufacturing starts in the country.

Elcoteq, Europe's leading electronics manufacturing services (EMS) provider

and global number two in mobile phones, will set up India's first mobile

manufacturing base in Bangalore. And this will open up new opportunities for EMS

providers in the country, which were untouched for a very long time.

The India Timing



Elcoteq, like any EMS provider, has been actively watching the Indian mobile
market for a long time. Even for Nokia, the worldwide market leader in mobile

space, the focus is on BRIC countries (Brazil, Russia, India, and China) as it

feels that future mobile growth will be driven by these economies. For Elcoteq-Nokia

and Ericsson are two key clients as they contribute around 70 percent of its

revenues and so the company has aligned its strategy accordingly and is the

first EMS company offering manufacturing services to infrastructure and handset

OEMs in India.

The company started looking at the Indian market seriously only during the

last 18 months. The Indian market had been showing signs of good growth, but it

had more than its fair share of concerns-the legal battle between cellular and

fixed service providers. But with the coming of unified access service, Elcoteq

was convinced that growth was unquestionable. On the other hand, India's

economy was also growing at a good pace, and a large Indian population, still

without any communication devices, gave Elcoteq further confidence that it is

worthwhile to spend in India.

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The company did a feasibility study and a business case was presented to the

board. Seeing the enthusiasm in India, the board gave its approval for setting

up manufacturing operations in the country. Elcoteq's announcement coinciding

with the formation of a new government at the center was purely coincidental,

says Henry Gilchrist, director (business development and marketing), Elcoteq

Asia.

Elcoteq's

Global Footprint
Plant Country Founded/acquired Area

(m2)
Personnel

1-May-04
Services

Europe

Espoo Finland 2004 4,000 195  Low-

to medium-volume production
Lohja Finland 1991 8,700 250  NPI

Center, low- to medium-volume production
Tallinn Estonia 1992 31,000 2,755  NPI

Center, high-volume production
St

Petersburg
Russia 1997 2,500 190  Medium

to high-volume production
Pecs Hungary 1998 46,000 2,595  High-volume

production, after-sales services
Uberlingen Germany 2000 5,200 181  NPI

Center, low- to medium-volume production
Offenburg Germany 2003 14,500 335  NPI

Center, low- to medium-volume production
Total

(Europe) Asia-Pacific
    111,900 6,501  
Dongguan China 1999 13,000 1,238  High-volume

production
Beijing China 2000/2003 28,000 1,960  High-volume

production, NPI Center
Shenzhen China 2003 8,800 661  High-volume

production
Bangalore India 2004 25,000 NA  High-volume

production
Total

(Asia-Pacific) the Americas
    74,800 3,859  
Monterrey Mexico 1999 18,300 1,212  High-volume

production, NPI Center
Total     180,000 12,285  

The company has already announced that it will expand its operations in

Bangalore during 2004, and in doing so, it will become the first EMS company to

offer manufacturing services to infrastructure and handset OEMs in India. This

will help in encouraging hardware manufacturing in the country, a good sign for

India's equipment industry, which has been undergoing a bad patch for a long

time.

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Manufacturing Base



Elcoteq's Bangalore manufacturing operations will replicate its China's
manufacturing operations. Even the manufacturing base is comparable to that of

China. The unit will be a big one and its expansion will depend on how quickly

the company is able to rope in customers, says Gilchrist, who is overseeing the

India operations.

The company has already shortlisted locations for its manufacturing

operations and will finalize it at the earliest. The company is initially

looking at 25,000 to 50,000 square feet of space and is looking at an investment

to the tune of a few tens of million euros, depending upon the customer

requirement, says Gilchrist. Investment will also depend on the number of

assembly lines that the company opts for in the future.

In terms of the number of people, Elcoteq plans to recruit around 1,000

people in the next 2—3 years. All this will be driven by the customers'

requirements. Out of the 1,000 people, 15 percent will be graduates (electrical

and mechanical) and 85 percent will be operators and technicians. Elcoteq will

recruit employees for design, production, SMT, and quality.

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As per the plans, Gilchrist will implement the manufacturing setup within 6—9

months. So, in all probability, it is expected to be ready by the end of this

year or the first quarter of next year. The nature and degree of manufacturing

will depend upon the agreement that Elcoteq sign up with its customers.

Product Portfolio



In India, Elcoteq plans to focus both on terminal products and network

equipment. On the terminal front, the company is looking at both GSM and CDMA

product offerings. The terminal products include high-volume wireless

communications products. These include mobile phone and accessories, smart

phones, PDAs and accessories, wireless modules, and home communication products.

For terminals, Elcoteq provides services covering the entire value chain from

design, new product introduction (NPI), and manufacturing. Design services

include complete and partial product design, software design, and product

verification services. 

On the network equipment front, the company manufactures cellular networks,

WLANs (Wi-Fi), and broadband networks. It covers base station and base-station

controller modules, plug-in units for mobile base stations, tower-top

amplifiers, base station antennas and broadband access multiplexers, routers,

and optical devices. In these cases, the company provides NPI and manufacturing

services.

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In both the product categories, the company has been providing design as a

part of the value proposition.

The company also offers reference design or design modifications for mobile

phones. Also on offer are base platforms and modifications of the base platform

chips. Sufficient skill sets and competencies to develop and utilize indigenous

design services are available in Bangalore, where the company plans to set up

its manufacturing base.

"In Asia Pacific, we design these competencies and so we are planning to

develop these competencies" says Gilchrist," and added, "It is

not possible in day one, but we are trying to develop that expertise in

India."

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The Clients



Elcoteq is in talks with all existing and potential customers for manufacturing
of terminals products and network equipment from its Bangalore base. Chinese

brands have also shown interest for the terminals as well as equipment.

"The response has been significant for localizing supply of products, be it

handset manufacturing or partial handset manufacturing," says Gilchrist.

The company is planning to localize our global customer and globalize our local

customer, he added.

On the terminal front, Elcoteq's key customers are Motorola, Nokia,

Philips, Sony Ericsson, and Sumitomo. Whereas, on the equipment front, its

customers include Andrew, Ericsson, Huawei, Kathrein, Marconi, Nokia, Siemens,

and Tellabs. Presently, the company is not divulging its key customers and will

announce them once the manufacturing process starts.

Many Challenges



Being the first mover, Elcoteq will face lots of challenges, like conversion

from SKD or semi knocked downs to CKD or completely knocked downs, supply-chain

management, and localization. The company has to replicate its Chinese-style of

manufacturing operations for its India operations too. Most of the products for

its China unit are sourced locally. But the challenge will be the speed with

which it can start sourcing a majority of the products from the Indian market.

First, it needs to convince local component manufacturers for manufacturing of

components and second, it should be able to convince multinationals to set up

shop in India. Since fab units are not currently available in India, silicon

could be sourced from Asia Pacific.

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On the supply chain part, the company can get some support in Bangalore, from

companies like Molex and MyPro. But the company needs to sign more such

agreements. Sourcing products locally is good for everybody-both OEMs and

suppliers. OEMs also have to play a role and make a strong commitment to local

manufacturing in India, as it will benefit them in terms of freight and

logistics costs.

Initially, Elcoteq plans to go for an SKD model. It will later move to a CKD

model subject to customer requirements.

Pravin Prashant

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