Direct sales to operators to bolster revenue in difficult year Foxconn International Holdings, the handset-manufacturing unit of Taiwanese electronics giant Hon Hai Precision Industry, looks set to provide custom mobile phones directly to cellular network operators on the mainland and around the world. The move for Foxconn comes as the major brand-name vendors plan to scale down their production next year, according to industry analysts. The strategy is expected to bolster revenue for Hong Kong-listed Foxconn, the world's top contract maker of mobile phones, in a year when orders from its leading customers - including Motorola, the struggling United States-based brand - are expected to decline and large staff cuts are planned because of the global economic downturn. 'Foxconn could provide customised handset products to mobile operators, as it has a strong research and development capability and economies of scale to drive down the cost of production,' said Frederick Wong, a telecommunications hardware analyst at BNP Paribas. Although it currently does not offer customised handsets directly to cellular network operators, Foxconn's two large mainland customers - Huawei Technologies and ZTE Corp - market and sell such devices to domestic mobile phone service providers. Mr Wong said Foxconn already benefited from the customisation orders it handled for those clients. He did not elaborate. 'Huawei has long been in business with Foxconn, and they have jointly developed handsets for Huawei's mobile-network-operator customers,' an industry insider said. Shenzhen-based Huawei, the mainland's biggest telecommunications equipment manufacturer, recently shelved a plan to sell its mobile phone business. BNP Paribas forecast Huawei would ship 60 million 3G mobile devices next year. Foxconn chairman and chief executive Samuel Chin Wai-leung in August said profit might drop this year because of lower sales to Motorola, despite higher orders from Nokia and Samsung Electronics. Demand for higher-priced 3G smartphones, however, could help prop up Foxconn's revenues. BNP Paribas estimated that smartphones would account this year for 14 per cent of global handset shipments or 180 million units - up 50 per cent year on year. Smartphones - handsets that have personal computer-like features, such as e-mail, internet access and office productivity programs - are the fastest-growing segment of the mobile phone market. Research firm International Data Corp forecast global smartphone unit sales would grow 8.9 per cent next year, while shipments of traditional mobile phones would shrink 3.5 per cent. Foxconn is expanding its capacity for smartphone research and production on the mainland as its top client, Nokia, the world's No1 mobile phone brand, faces increased competition in the smartphone segment from Apple, Research In Motion and HTC Corp. Mr Wong said Nokia's traditional in-house production strategy for smartphones was set to change because the company was focusing more on software and the mobile content business, such as Nokia Maps. 'This implies that more outsourcing orders could be awarded to Foxconn,' he said. Foxconn has also been keen to expand production for the TD-SCDMA handset market, in line with the interest of its customers. Nokia, for example, plans to deliver mobile phones based on TD-SCDMA, the mainland's homegrown 3G standard, by the end of next year. Beijing-based CCID Consulting forecast TD-SCDMA handset users would reach 2.3 million by the end of this year. ZTE, Samsung and LG Electronics accounted for more than 70 per cent of TD-SCDMA handsets sold on the mainland in the first half. Another growth opportunity for Foxconn could come from the expansion plans of domestic mobile phone brands, such as Beijing Tianyu Communications Equipment. Tianyu, which supplies the domestic market with mobile phones under its K-Touch brand, secured a collaboration deal last week with US-based Qualcomm, which holds the worldwide patents on the CDMA and WCDMA 3G standards. K-Touch is the third-most popular mobile phone brand, behind Nokia and Samsung, in the mainland's 2G mobile phone market. While it hopes to expand its market share in a down economy, Foxconn International is poised to shed workers in line with parent firm Hon Hai's plan to lay off about 50,000 employees because of the global financial crisis and the sharp fall in demand for consumer electronics products. Hon Hai is estimated to have about 400,000 staff on the mainland, which accounts for 67 per cent of the group's global labour force. Foxconn International has also started moving its manufacturing capacity to northern provinces of Hebei and Shanxi, where it can take advantage of lower wage costs compared with Guangdong province.