Profits generated from the production of ODM smartphones have been diminishing rapidly to a level comparable to the manufacture of feature phones, meaning ODMs have to ramp up economies of scale, while also stepping up efforts to reduce costs and improve efficiency, according to industry sources.
The top-3 Taiwan-based handset ODMs – Compal Communications, Arima Communications and Foxconn International Holdings (FIH) – have all been migrating to the production of smartphones with 90% of their combined shipments to be smartphone models in 2013, the sources indicated.
Due to the high R&D costs for the development of smartphones and low profit margins for OEM production, the profitability of ODM smartphones is approaching a level comparable to that for feature phone, commented Stephen Lee, chairman of Arima Communications.
Arima is optimizing its core platform for the production of feature phones to venture into the smartphone segment, which enables it to save R&D costs, while easily adjusting its production lines for smartphones or feature phones, Lee stated.
Facing declining profitability, ODMs are urged to ramp up production by targeting sub-US$150 models so that they can reach a production scale that will help bring down production costs and improve profitability, said the sources.
Article translated by Steve Shen
