Phone maker cuts leadtime for new handsets to 72 hours

Here is a company that did not exist two years ago. Nowit makes phones in China, configures them in Holland, plans contract manufacture of the core electronics in Eastern Europe, and claims to have slashed time-to-market to just three days. What do they think they are playing at? Nick Flaherty investigates.

A small group of engineers and marketeers is aiming to take on the biggest names in communications with a new business model for mobile phone handsets.

With a modular design based around a core electronic module, a new company called Sendo says it can make a phone and deliver it with customised software and plastic casing to a network operator in 72 hours, rather than the three months for traditional phone makers. It can even design a whole new platform in three months.

It is starting from scratch that has allowed Sendo to get so far so fast, along with $35m in funding from a Chinese maker of cordless phones. The funding comes from CCT Telecom, one of the largest phones makers in China, and the core modules are made in the CCT factory in a dedicated afactory within a factory' in Guangdong province. The factory is run by Sendo but owned by CCT and the lines can make a phone module every 10 to 15s which are then shipped to Europe by a third-party logistics company and stored.

When an order comes in from an operator, the units are configured with software and plastics at a centre in Amsterdam, chosen for its fast customs procedures, and shipped by the logistics partner to the customer, all within 48 to 72 hours.

The plastics have been made in the UK around Birmingham, where Sendo has its headquarters, but this part of the business plan will be spread out so that the plastic units are made wherever the phones need to be built, and the company will also add configuration centres in Asia.

The company is also looking at adding the core electronics manufacturing in Europe as the volumes take off. That is set to be in eastern Europe with a contract manufacturer, giving Sendo the same economies of scale as the other phone makers get when they go to contract manufacturing.

Interestingly, the one area Sendo is not looking at is the USA. Chief executive, Hugh Brogan says the GSM market, even for the 1900MHz GSM 1900 variant, at 14m units, is not big enough.

More fascinating for the future is the way that the customisation can be used, not only to give network operators more choice of phones, but also to give the consumers themselves the opportunity to customise the phones in a much more dramatic way than just changing the front cover.

These are not low-end, simple phones. The first, the D800, weighs just 68g and is just 69 cubic centimetres, making it the smallest and lightest phone on the market with all the features of a Nokia, Ericsson or Sony phone for much the same price when it was launched last December. The next version of the phone, the A800 launched in January, has added the latest standard for WAP wireless internet browsing ­ and this will be the standard that actually works, says Hugh Brogan.

At the same time there will be a consumer version, the S200, for the pre-pay market with more animated, customisable icons to further abrand' the phone with the operator. The main difference is that this will be slightly larger and heavier at 88g and 89cc, using the cheaper NiMH batteries rather than the lithium ion battery in the D800 that gives it the low weight.

In the second half of this year, there will be a version with the GPRS aalways on' data and a asmart' phone, while the development of UMTS multimedia phones is also underway.

But the key is in the customisation. The plastic and keyboard can be entirely changed to meet the requirements of the network operators, who still ship over 70% of the phones sold in the UK. The customisation extends to the software to allow new services for the operators. Alongside the four games already in the phone, Sendo is looking at adding a fruit machine that could be played over the network using SMS text messages. For example, you could win more airtime against the cost of the SMS message. This sort of customisation opens up new revenue streams.

Brogan is not precious about the branding of the phone. The first public deal is with Virgin Mobile in the UK, which wants its own design of handset and its own colours and branding. The Sendo name will not appear on the front of the phone. Sendo is also supporting Virgin with marketing materials. "No one will go into a shop to buy a Sendo phone, but once they are in the shop we want to convert them,“ said Brogan.

As a small player, Sendo runs the risk of being squashed by the big companies, but Brogan is sanguine about this. First of all, he believes Sendo will be too small for the big players to notice, even if it is making several million phones a year. Vodafone alone ships 40m handsets a year, and just a small slice of that will satisfy Brogan. "Even is we just get a share of the growth, that's fine,“ he said.

"And even if they do notice, what could they do?“ he said. "If they drop their prices by $100 to cut us out of the market, they would be losing $1.5bn a year, which is the profit they make. With 14000 engineering staff and large shareholders they cannot afford to do that. Anyway, the operators cannot get enough phones as it is, so the big players have nothing to lose with another entrant.“

Market research predicts that the market for phones will grow from 410m units worldwide last year to over 1bn units by 2004/5, and Sendo aims to take just a small share of this growth. "The mobile phone market is four times the size of the audio market, and yet in Europe alone the audio market supports some 400 speaker manufacturers,“ he said. "Compare this with the 10 to 15 mobile phone makers. If we take a look at the tremendous growth of this market, if Sendo takes just a small percentage of the growth (not the market) then we are talking tens of millions of phones in 2002/3.“

And this is not just wishful thinking from a start-up. These are not inexperienced people. Brogan was running Philips' mobile phone business, responsible for developing the Genie phone, while chief operating officer Howard Lewis was also at Philips and, like Brogan, has also worked for Motorola's phone business.

The company was begun 15 months ago and is starting to ship the first of three different phones it has developed in that time, and that phone is being tested by over 50 operators around Europe.

Brogan also points to the lower cost base of Sendo. With only 140 people and manufacturing provided by a third party, there are no high capital costs to account for. The company needs to sell less than half a million phones to be profitable, says Brogan, and that is a great advantage when dealing with the big companies. The company aims to grow to around 500 people, but not much more than that, he says, keeping the cost base lower than competitors with 14000 engineers.

The other area where the company is potentially vulnerable is in the component supply. But Sendo has been working closely with Texas Instruments, Motorola Semiconductor and National Semiconductor debugging the early versions of their chips for them before they go out to the general market, giving Sendo a time advantage as well.

Sendo is also sharing its roadmap information, something Howard Lewis, the chief operating officer, says the component suppliers found a refreshing change. "We opened the kimono for them and they are very pleased,“ said Lewis. "They have been as anxious to work with us as we are with them.“

This partnership also feeds back into the cost base, as the work on chipsets has allowed Sendo to reduce the component count in the phone from an industry average of 550 to 360, further reducing the costs.

The customisation comes into its own with the modular approach. The S200 consumer phone will come with a tool that allows the whole plastic casing to be removed and replaced by the consumer, opening up the possibility of completely changing the look of the phone. And they already have test models with various printed exteriors, including one that looks like a denim jeans and another that has a picture of Brogan.

One plan is to offer a service where you can e-mail your chosen digital photo to Sendo and receive back a phone cover, back and front, with that picture on. That idea will take some more refinement, possibly having a web site where you can simulate how the phone will look, but that level of customisation is likely to drive not only the accessory market but also the phone take-up itself.

That kind of personalisation, in an industry acknowledged to be like the fashion industry, is a compelling result of the business model that Sendo has developed for a making new generation of mobile phones.

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