Thanks to Europe’s fairly generous insolvency laws, Elcoteq will likely survive having run out of cash (which isn’t easy for a $1.5 billion company to do). But the industry will be reminded — again — of the danger of having too few eggs in a given basket.
Elcoteq fared beautifully for years as Nokia’s primary EMS supplier. At one point, Ericsson and Nokia made up 92% of Elcoteq’s annual sales. Revenues almost doubled in 1999, then tripled in 2000. As the saying goes, it seemed like a good idea at the time.
But Elcoteq did not anticipate that the 20-year relationship with Nokia might be undermined by emerging markets and their concurrent price pressures. Nokia, saddled with innovation-debt and fierce competition, fell victim to the market share chase and effectively bolted to Foxconn and Jabil. Years of acquisitions had taken their toll on Elcoteq’s cash, which ran frightfully low during the 2009 recession. A deal with Shenzhen Kaifa Technology, which would have brought in much-needed cash, failed to materialize.
Despite turning a profit last year — its first since 2006 — cash from operations was just 9.4 million euros. You know things are bad when you are left to asking Hungarian banks for money.
As of today, Elcoteq employs 7,000 workers across all major regions. A year from now, I’m guessing it will be half that. The company simply hasn’t proved it can build a sustainable business without the generosity of a major patron.