In a new sign of consolidation in the mobile phone business, electronics contract manufacturer Flextronics International Ltd. is buying a leading mobile phone original design manufacturer, Microcell Group.
Singapore-based Flextronics, which runs 1,400 injection molding presses at production sites around the globe, has agreed to pay US$80 million cash for privately owned Microcell of Zug, Switzerland. In addition, Flextronics agreed to assume Microcell's liabilities of $120 million.
The deal, which is still subject to Microcell shareholder and regulatory approvals, is expected to be closed in October, the firms said in a joint announcement.
Microcell, formed in Finland in 1997, is especially strong in the product creation area, employing more than 300 phone product creation engineers, centered in Finland and Denmark. Last year it switched its headquarters from Oulu, Finland, to Switzerland.
The company also has a manufacturing joint venture, Nanjing Microcell Panda Mobile Terminals Co Ltd., in Nanjing, China, that includes injection molding machines.
Microcell bought into the venture last year when it purchased Ericsson AB's 65 percent stake in the existing venture with Nanjing Panda Electronics Ltd. The venture has capacity to produce 3.5 million mobile phones annually.
Microcell entered the venture, not only to add manufacturing capacity, but also to enter the Chinese mobile phones market with its huge growth potential. Last year the market was estimated to total 65 million phones, Microcell Chief Executive Officer Anders Torstensson said in August.
``Our reasons for going into the joint venture were to obtain a business license in China and also to take advantage of the small production facilities in Nanjing,'' said Microcell spokesman Jan Ahrenbring. The venture employs 300. Ahrenbring would not reveal the number of injection presses, but confirmed it had increased in the past year.
For some time, Flextronics has provided a major part of Microcell's manufacturing capacity, including the supply of molded plastics phone components, Ahrenbring said.
``The two companies have had a close working relationship for the past few years,'' said Flextronics CEO Michael Marks. ``This long-standing relationship gave us unique insight into [Microcell's] management team, customer relationships and technical capabilities while we evaluated this potential combination.''
Another one of Microcell's supply partners is injection molder Eimo Oyj of Lahti, Finland, which announced recently that it is negotiating with an unnamed company interested in buying the company. There is widespread industry speculation that the potential buyer is Flextronics.
Flextronics declined to confirm or deny acquisition discussions with Eimo's owners. ``In general, we are always in discussions with potential partners in all areas including design, plastics, assembly and logistics, even when to market is down.
``On the assembly side, our footprint is right. Generally, we are looking for a company that gives us an advantage,'' said Jutta Devenish, Flextronics' European marketing director.
Flextronics stressed its interest in Microcell was primarily to acquire its design capabilities. The manufacturing capacity is small and will come with it if the deal goes through.
The Singapore-based group said it has no plans to cut back the Microcell operations ``for the time being.'' But there may be some consolidation on the design side before the transaction is sealed following earlier Microcell plans to cut back this side of its activities, Devenish said.
Both Microcell and Flextronics have been working with Siemens AG on phone production. In November 2002, Microcell revealed it would design, develop and manufacture new Siemens mobile phones based on Ericsson mobile platforms technology.
Flextronics recently signed a new contract with Siemens to produce its mobile phone handsets at a plant in Zalaegerszeg, Hungary.