Competitive intelligence in the handset business is, in a sense, an open secret. Everyone is engaged in it to some degree, yet it is rarely discussed publicly.
Industry players not only keep their own work secret, they don’t want to tip their hand on their interest in their competitors’ work.
Most of the large handset vendors, network operators and component makers pursue competitive intelligence to keep tabs on how rivals are putting together the latest handset and the suppliers they draw on. Everyone in the industry has their own angle: today, intense interest from financial analysts tracking component vendors, their relationships and margins is contributing to growth at the teardown firms. And mobile handsets, though a large and growing focus for teardown firms, are but one subject for firms that tackle the hardware mysteries presented by the gamut of consumer electronics, as well as wireless infrastructure and medical and military hardware.
Tearing apart a handset can reveal new or improved component technologies, design wins, relationships between players and component costs and profit margins. But time pressures and the need for expert help often send industry players to the teardown firms, where electrical and mechanical engineers provide a comprehensive, precise list of components, vendors and costs for a bill of materials-they take the guesswork out of breaking things apart.
Legitimate teardown specialists include Portelligent Inc. of Austin, Texas, and iSuppli Corp. of El Segundo, Calif., which both emphasize that the process only begins with the lawful acquisition of the latest products-even if that means having allies ship them from all over the globe, or standing in line overnight. Though, in one source’s words, “stuff is floating around out there”-i.e., some handsets, shy of launch time, are obtained by nefarious or illegal means-legitimate firms will not risk their credibility and clients’ trust by engaging at that level.
“There’s no gray area to this business,” said Howard Curtis, COO and co-founder at Portelligent. “It’s completely ethical and legal. What we do supports competitive intelligence. But it’s a tenet of our business model that customer engagement is confidential. Customers don’t want others to know what they know or what they’re interested in.”
Portelligent omits even generic customer testimonials from its Web site. Instead, it posts provocative overviews, photographs and diagrams of its findings in various device categories.
After periods of work ranging from hours to weeks, depending on the challenge, client interest and the cost-benefit ratio, firms such as Portelligent and iSuppli can determine the role, origin and cost of hundreds of components from hundreds of suppliers encased within one handset. They identify, quantify and place into context every single one roughly a thousand parts. Both firms use their experience to maintain extensive databases that reflect trends in the various component spaces, from which they can draw reports of interest to myriad parties. Clients often request teardowns on specific products, but they also depend on the teardown firm to stay abreast of the latest, whether it be an entry-level handset or the greatest thing since sliced bread. Full-scale reports can run in the thousands of dollars.
CSI: The device
“It’s like peeling an onion,” said David Carey, president of Portelligent. “Our strength is our ability to get to the core. When we see something we haven’t seen before, there’s a forensic element to our work. We use system context to make inferences and eliminate possibilities. We work very hard at getting un-stumped.”
Portelligent may strip a chip of its packaging to determine the manufacturer, which sometimes leaves microscopic clues as to their identity. Portelligent counts every “discrete and passive”-generic components-for a fact-based analysis.
Portelligent was established in 2000, a spinoff of an Austin-based consortium known as the Microelectronics and Computer Technology Corp., which developed the core analytical methodologies now in use. In-house experts are augmented by “a network of friends and affiliates.”
“We have agents and affiliates in most geographies who can help us” procure the latest device or identify hard-to-analyze parts, Carey said.
Carey declined to describe the exact size of privately held Portelligent, but said “we’re still small and highly focused.”
At iSuppli-a 150-person firm established in 1999-senior director and principal analyst Eric Pratt said that teardown is but a slice of its business, although a growing one. Originally focused on supply chain management, iSuppli diversified to market research and, after buying Stanford Research, which specialized in consumer electronics displays, it got into teardown as well. ISuppli can produce a bill of materials along with actual manufacturing costs, Pratt said.
So, what happens to those handsets when they hit the bench?
The experts at iSuppli will photographically document the product, measure its power consumption for various functions (call time, sleep mode, multimedia) then proceed to carefully dismantle it in “destructive analysis.”
“We’re much better at taking things apart than putting them together,” Pratt said, chuckling. “Teardown requires intensive organization to be effective.”
The process for a handset can take as little as 24 hours with “all hands on deck,” Pratt said, while a base station might take months.
What’s getting the treatment next? Both firms acknowledged that mobile TV handsets and the iPhone, would be logical candidates. Both already have appraised the iPhone from afar.