Flextronics buys Swiss cellphone firm

Industry analysts say the new Xelibri line of "fashion phones" from Siemens will be made by ODMs such as Microcell. Siemens AG (Munich/Berlin)

Singapore-based Flextronics has announced it has acquired the five-year-old Microcell Group, an up-and-coming manufacturer of mobile phones based in Zug, Switzerland.

Flextronics will pay $80 million in cash and assume $120 million of Microcell’s debt.

Founded in Finland by a large team of researchers and developers that parachuted out of Nokia, Microcell has made a name for itself as developer and manufacturer of wireless terminals.

It is known as an original development manufacturer (ODM). All the big brands use ODMs, including Motorola, Ericsson, Siemens, and Panasonic, although they generally are not too keen to let customers know it.

“Some of the operators are trying it out too,” says Mika Martikainen, a senior consultant at technology consultants Northstream. Orange’s new smartphone would be typical of this type of operator-branded phone.

ODMs are typically based in Taiwan and South Korea, but Microcell brought the Taiwanese outsourcing model to Europe, commented Nordic Wireless Watch editor, Ilya Porpuda.

Cellular terminals

Over 300 engineers work for Microcell. It is especially good at creating the high end, smartphone type of cellular terminals. Most other ODMs make low-end or entry level phones

“It is encouraging to see that an ODM model can be practised even in an expensive country such as Finland,” says another industry observer.

The company was founded by a former Nokia R&D executive, Jyrki Hallikainen. It earned profits from day one by doing development work on a contract basis for big name terminal vendors.

Operations include product creation centres in Finland and Denmark, administrative offices in Switzerland and the United States, and a manufacturing operation through a joint venture in Nanjing, China.

The acquisition will strengthen Flextronics’ mobile phone ODM capabilities. The two firms have been working together for the past two years.

Big break

Microcell’s big break came when it won an EricssonSony contract to take over the manufacturing work for the T66 phone. It became an ODM overnight.

Under the leadership of a new chief executive, Anders Torstensson, recruited from the upper echelons of EricssonSony, the firm acquired an R&D unit from Ericsson in Finland, as well as the Ericsson portion of a joint venture with Chinese retailer, Panda.

Revenues grew from $15 million in 2001 to about $220 million in 2002. According to the press release, it had some $120 million in debt.

Microcell has only a handful of employees in Switzerland. Basing its headquarters in canton Zug has little to do with high tech and more to do with a favourable tax environment, comments Max Burger Calderon of Apax Partners, one of the Europe’s oldest venture capital firms.

Flextronics has a subsidiary in Solothurn that provides design and manufacturing for the region. It specialises in outsourced telecommunications, RF, bitstream, healthcare, wrist and laser/optical devices.

by Valerie Thompson