SAN FRANCISCO - Manufacture in-house or out? That's the decision OEMs constantly face and of late it appears the top makers of handsets will continue to opt for the former.

While SonyEricsson outsources production to Flextronics and has been gaining market share, other leading OEMs are expanding internal operations. Capacity expansions in Mexico and India by Nokia and others are the latest in a series of anecdotal evidence that gives merit to the in-house crowd. And that means less business for EMS companies.

Fourth quarter unit sales of the top tier handset OEMs grew 33% year-on-year, vs. 8% for the rest of the industry.  

Nokia outsources some production to Jabil and Elcoteq and contracted with BenQ for an ODM phone in January. But the Finnish company last month revealed plans to invest $100 million to $150 million in a new manufacturing facility in India. Another top tier player, LG, has broken ground on its second plant there, and Indian officials claim that Samsung and Motorola are close to finalizing plans too.

For its part, Motorola, which outsources about 20% of its phones, suggested to DB that it is not planning to increase the percentage of phones it outsources in the near future.

However, SonyEricsson's shipments increased 56% in 2004, nearly twice the industry average of 29%. "We believe SonyEricsson's recent success speaks volumes to the benefits of the outsourced model- and provides hope that the top tier may eventually adopt an outsourced model," Whitmore said.  

"[I]t is imperative that EMS vendors like Flextronics, Solectron and Jabil, who are targeting the handset industry for growth, convince Top Tier handset manufacturers to move to a more outsourced model," Whitmore said.