NEC Outsources Mobile Phone Production

As part of a broader plan to reorganize its mobile phone handset business, NEC Corp. announced on Thursday the sale of a plant in the U.K. to electronics contract manufacturer Celestica Inc. as well as outsourcing contracts with two Taiwanese manufacturers.

NEC said it will sell to Celestica all shares in Telford, England-based mobile phone-making subsidiary NEC Technologies (UK) Ltd., for an undisclosed amount. Toronto-based Celestica will retain the plant's 460 manufacturing staff, while NEC will keep the unit's research and development team. As part of the agreement, Celestica will supply NEC with handsets to be sold under the NEC brand, the Tokyo-based company said in a statement.

In addition, NEC also announced that it has signed outsourcing agreements with two Taiwan-based manufacturers, Acer Communications & Multimedia Inc. and Arima Communication Corp.

Beginning in next year's first quarter the Acer unit will start supplying NEC with WAP (Wireless Application Protocol)-enabled GSM (Global System for Mobile Communications) handsets, with GPRS (General Packet Radio Service) handsets to follow in next year's second quarter.

Arima Communication, an affiliate of notebook PC maker Arima Computer Corp., will manufacture GSM/GPRS handsets and EDGE (Enhanced Data Rates for Global Evolution) mobile terminals designed and developed by NEC, with shipments scheduled to start in next year's third quarter.

Financial terms of the agreements were not disclosed.

With the deals, NEC joins a growing number of major mobile phone vendors that are outsourcing significant parts of their production to contract manufacturers. Motorola Inc., for example, last week also announced an outsourcing agreement with Celestica, while L.M. Ericsson Telephone Co. earlier this year signed a similar deal with Arima.

By outsourcing production, the vendors are aiming to lower costs to better be able to compete in the rapidly growing global mobile phone market.

NEC, for example, said that the value of its worldwide shipments of mobile terminals amounted to around 310 billion yen (US$2.75 billion) in its fiscal 1999, ended March 2000. The company expects to expand this to 1 trillion yen in fiscal 2005, by which time it aims to have a 15-percent share in the mobile Internet market outside Japan, as well as a 15-percent share in the worldwide market for third-generation W-CDMA (Wideband-Code Division Multiple Access) handsets.

By next year, NEC said, it will start shipping to overseas markets its Internet-enabled, fold-up handsets, which feature larger screens and have proved popular among Japanese consumers. The first shipments will be to Europe and China, NEC said.