MindTree enters ODM business

Fresh off its $6 million acquisition of Kyocera Wireless Corp.’s Indian facility, MindTree Ltd. said it will enter the Original Design Manufacturing (ODM) business with Kyocera as its first customer, at a time when the market is stabilizing following a disastrous first quarter.
Called N!Mo (Next in Mobility), the new business will make white-labeled mobile handsets for wireless operators and original equipment manufacturers (OEMs). The company already has a contract to make products for Kyocera and aims to secure contracts with other customers as well, said Joe King, chief marketing officer at MindTree. “Our focus is going to continue to be on the U.S. market.” Kyocera devices have had a strong presence with second-tier wireless carriers in the United States. MindTree also will try to gain customers in Japan, China and the rest of the Asia Pacific region. King said the acquisition was a way for MindTree to grow the business faster than growing the business organically, noting Kyocera has sold more than 45 million devices. For its part, Kyocera said the sale was a way to reduce expenses.
MindTree could be entering the market just as it begins to stabilize. Research from iSuppli Corp. said revenues for the top electronics contract manufacturers increased 1.6% in the second quarter, following a 25% drop in the first quarter.
“The year 2009 could not have started any worse for contract manufacturers,” said Adam Pick, director and principal analyst for EMS/ODM at iSuppli. “However, during the second quarter, senior managers at EMS and ODM companies hinted that performance was stabilizing as demand firmed, cost structures adjusted and inventory decreased. iSuppli’s research confirms that the market did regain its footing in the second quarter. Despite these positive signs, it’s still too early to celebrate an electronics manufacturing recovery. Several factors continue to cloud the outlook for EMS/ODM.”
Warren, N.J.-based MindTree is a public company that trades on the Indian stock exchange and reported $269 million in revenues this year. The 10-year-old company focuses on Internet and emerging technologies, but restructured earlier this year to further build out its business and decided mobility needed to be a component of its growth going forward, King said. The company plans to be a $1 billion-dollar services business by 2014. Nearly all of MindTree’s 7,500 employees are based in Bangalore, India, including the 600 employees who were part of the Kyocera acquisition, King said.
Many, if not most, handset makers outsource the actual manufacturing of their devices to third parties. However, it appears OEM companies took back some that outsourcing business this year as a way to control costs during the recession, according to iSuppli. Some OEMs, including Nokia and NCR, “are taking back manufacturing operations from their outsourcing providers.” iSuppli said Nokia has reclaimed as much as $5 billion of spending from its EMS/ODM partners. For its part, Ericsson has acquired assets from its contract manufacturer, Elcoteq, in order to ensure it has enough inventory, iSuppli noted.
In addition to the upfront payment, MindTree will make more payments to Kyocera based on revenues through 2012.