When marketing analysts discuss trends in portable power, they typically focus on high-end applications to illustrate how power requirements are changing. For example, when cell phones are being discussed, speakers often cite the expanded functionality of the latest handsets, which may include cameras, web browsers, music players and other battery-draining functions. Such high-end cell phone products drive the development of better batteries, power management circuitry and power supplies/chargers.
With any consumer products, designers are always challenged to enhance the performance of the product, while minimizing costs. However, the targets for cost and performance can change significantly when product manufacturers target customers in less affluent regions of the world. As Nicholas Brathwaite, CTO of electronic manufacturing services (EMS) giant Flextronics, discussed in his presentation at the Portable Power 2005 Conference in San Francisco, mobile phone manufacturers are seeing a “fundamental shift” in the regional demand for their products.
According to data from Gartner, just a few years ago, more than 50% of the demand for portable electronic products was coming from traditional markets in North America and Europe with the balance of demand coming from developing markets in Asia, Latin America, the Mideast and Africa. However, by 2004, demand was split about 50-50 between the traditional markets and the emerging markets. By 2008, the demand will have shifted solidly in favor of the emerging markets. Citing this data, Brathwaite observed that “developing countries are becoming the demand drivers” for handheld electronics.
This trend has far-reaching implications for those developing cell phones and for all those developing the components that go into those cell phones. With the demand for product shifting to China, India, Latin America, and other emerging markets and developing countries, the pressure to reduce product costs is great. As Brathwaite explained, a $40 cell phone simply isn't acceptable to consumers in developing nations.
That rising demand in emerging markets creates a need to significantly reduce the bill-of-materials (BOM) cost of cell phones, said Brathwaite. As a result, there is growing pressure on the EMS companies and original design manufacturers (ODMs) that build cell phones to lower product costs by attacking every element of cell phone cost, including the battery, but also the power supply/battery charger.
As EMS companies and ODMs seek to reduce the costs of batteries and power supplies used in cell phones, they will exert more pressure on their suppliers to reduce the cost of these power components. And, as Brathwaite suggested, they will explore options such as developing and manufacturing the power supply and batteries themselves.
Evidence that EMS and ODM companies would want to go that route can be found in the ongoing trends in outsourcing. As Brathwaite noted, “Despite business model concerns, OEMs continue to expand ODM relationships. According to iSupply Corp., revenues for the top 10 EMS companies grew 21% in 2004 versus 30% for the top 10 ODM companies.” And Brathwaite observed, “The increase in ODM-type relationships give EMS and ODM companies more involvement in power supply sourcing decisions.”
EMS and ODM companies already have significant influence over the power supply market. Consider that Flextronics alone expects to spend about $700 million on power supplies in 2006. At the same time, EMS and ODM companies also have established relationships with the semiconductor vendors who manufacture power supply ICs. These relationships can be exploited by EMS and ODM companies as they take on power supply development.
As the contracting companies expand their involvement in power supply design and manufacturing for cell phones and other portable products, how will traditional power supply merchants respond? Will power supply makers find new ways to provide value in portable applications while meeting increasingly aggressive cost targets? What do you think? E-mail me at [email protected].