SAN JOSE -- Outsourcing of cellphone manufacturing will increase about 10 points over the next four years. However, the majority production will remain in-house, says research firm iSuppli.

The fast pace of R&D changes in cellphones will limit the ability of ODMs to convince OEMs to outsource their design work, the firm said.
In a press statement, iSuppli analyst Jeffrey Wu said, "Many leading mobile phone OEMs are expanding their production capacity and consequently will attempt to keep manufacturing in-house in order to ensure high utilization," he said.

"While the design capabilities of contract manufacturers are gradually improving, they may not be sufficient to drive the latest technological advancements."

As a result, handset production outsourcing to EMS providers and ODMs will rise 10 points to 44% by 2009, iSuppli said.

ODMs will be limited, iSuppli said, to product niches such as smart phones and 3G phones or to focusing only on commoditized product categories.

Of the top tier cellphone OEMs, Sony Ericsson is the leader in outsourcing, at 66% outsourced. South Korean OEMs, by contrast, produce nearly all of their mobile phones themselves.

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