Electronics Production | May 06, 2010

Elcoteq: 'Future will be bright'

Tomi Saario, Senior Vice President New Sales & Business Development at EMS-provider Elcoteq, sees the company marching towards a bright future. He spoke to Evertiq about the current situation, new investments and future plans.

The results for 2009 were better than expected. How do you see the results?
Let’s be honest about it; there is nothing to be proud of in 2009. It was a rough year and not a particular success for us. But, many companies experienced the same kind of problems. I also have to say that we are quite satisfied with how it turned out in the end. Starting from the last quarter of 2009 it has been much more promising. Basically, it looks much better now.

Would you expect a significant upswing in 2010 or will it rather be a gradual—and overall— improvement for Elcoteq?
I would go with a gradual improvement. We have made slight changes to our business strategy and we are now looking for a different kind of customer. Elcoteq is now more focussed on providing a low-volume / high-mix production, as well as after-market service.

The improvements that we achieved however will be much more visible on the profit side. We are not so focussed on the top line anymore.

Where do you actually see your OEM customers nowadays?
We still have the big customers—such as Philips—but we also have acquired new customers that are slightly smaller. We have successfully diversified our customer base.

The big ups and downs that we experienced over the last 10 years were usually connected to one single customer. This customer might have changed the outsourcing strategy or the product range, etc; ultimately affecting Elcoteq too.

Can you tell me—roughly speaking—how many customers you have now?
This is not something that we would announce openly. Let’s say that we serve a two-digit number of customers.

It seems you have narrowed down your service portfolio, now serving two—quite specific— areas. Why?
I wouldn’t really call it narrowing down. You are talking about the segments Consumer Electronics and Systems Solutions. However, we have served these segments all the time and that has not changed. I would say we still have the same scope in our offering; in fact it might be even wider than before. In Systems Solutions we have, for instance, several new industry segments, which we didn’t serve before.

The perception of what Elcoteq is has certainly changed. In the past, many saw you as an EMS-provider purely focussed on Consumer Electronics. Now it seems to be both. Is Consumer not as important anymore?
There certainly is a better balance between the two segments. But I would not say that the Consumer Electronics segment is less important for Elcoteq now. It is true; over the past 10 years we have focussed on the Consumer Electronics business—and here specifically the Communications & Mobile Devices part of it. This has certainly changed and we are now looking at it from a wider perspective.

The entire world has changed and in one way or another, more and more products are now Communication products – one way or another.

You would not see yourself as a direct competitor to the ‘Biggies’ in the Consumer Electronics segment?
In certain cases, I do believe we are a direct competitor. However, we are I believe much more flexible. This gives us the opportunity and advantage to take on a customer request much faster.

The big players in the industry are good at doing the “no thrills” high volume production. That is their main focus area. We are focussed on the more specialised production segments—more High-Tech if you so will.

You also divested parts of your Tallinn operations to Ericsson last year. What do you do in Tallinn now and what are the plans for the facility?
A lot has happened in Tallinn since the Ericsson deal went through. We moved to new premises and invested in new machinery. There is a lot of space to improve the facility further. We also have new customers for the Tallinn production facility. We also increased the headcount in Estonia.

So Tallinn is pretty much alive and we have no plans of leaving. 10 years back, Tallinn was focused on the production of consumer electronics, high volume, etc. Now we have a more high-tech and specialised production in Estonia. The facility is now serving closer end-markets, such as Northern Europe. It is a perfect solution to serve customers in Finland, Sweden or Norway for instance.

You have developed the Hungarian location Pécs into your European manufacturing hub. There is no competition between the two European sites in terms of customers?
Both locations do serve overlapping segments. Fact is that transportation times, etc. become increasingly important and Hungary as a manufacturing location is extremely central. It is not impossible to serve these regional markets from Tallinn, but Hungary is better from a high-volume transportation point of view. Although both facilities do serve overlapping segments, the focus is—at the moment—a little bit different.

What plans do you have for the Hungarian facility? Are there new investments, a new facility altogether. Would a move into Romania or Bulgaria be a viable option for you?
We actually have a company in Romania so we are pretty much ready to start something in Romania again. But on the other side, locations in Romania, Bulgaria or the Ukraine are still faced with problems in infrastructure or when it comes to a skilled workforce. In this respect, Hungary remains a very good base in Eastern Europe.

If you calculate the total cost of manufacturing, the difference between Hungary and other Eastern European locations is not very big. If you only look at the labour costs, then Yes, the Ukraine would be cheaper. If you calculate everything (transport cost, infrastructure, etc.); the difference becomes very marginal, sometimes even reverse.

The EMS-industry seems to be picking up again. What would you say?
Yes. I would say the worst is behind us. For us it is not just about the existing customers, but also about the new customers that we have. During the last 6 months we were able to secure quite a number of new customers. All in all, I would say that the dark days are behind us.

It was predicted that the EMS-provider Elcoteq would be acquired by a TIER-2 Asian EMS-provider before the year is out. What would you say to that?
At the beginning of the year, it was fair to state that. I mean the figures from last year, as we already discussed, were pretty bad. But we have solved most of our financial problems. We finished our debt restructuring and negotiated a new credit facility just a couple of weeks ago. We are actually planning on growing again. So, the king is not quite dead yet.

You also terminated your negotiations with Videocon. What was the reason for that decision?
As we are a publicly listed company I cannot talk in detail about these kinds of things. However, we did not have the immediate need to go ahead with the negotiations. The actions done in Q1/2010 to restructure the company’s debt changed the transaction structure significantly and the parties mutually decided to terminate the negotiations.

Something on a last thought?
I would like people to know that Elcoteq is actually serving a wide range of industries and customers. Despite the fact that we were—traditionally—focussed mainly on manufacturing communication equipment and mobile devices. People will come to realise that we serve the entire scope of life-cycle services nowadays. The new service offering including Engineering, Manufacturing, Fulfillment and After Market Services —which we promote also here at the S.E.E. Show in Stockholm—basically shows the direction that Elcoteq is going.

Thank you for the interview.


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