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By 2009, mobile handset OEMs will outsource 44 percent of their production to Electronics Manufacturing Services (EMS) and Original Design Manufacturing (ODM) providers, up from 34 percent in 2005, iSuppli predicts.

The fact that more than 50 percent of unit output will remain in house in 2009 indicates that the handset OEMs are loathe to outsource most of their manufacturing, the firm said. This contrasts sharply with the PC market, where most manufacturing is outsourced.

“It is unfeasible that the percentage of outsourced manufacturing for mobile phones will be as high as that for PCs,” said Jeffrey Wu, analyst, EMS and ODM services for iSuppli.

Wu said that dynamics in the mobile-phone market—combined with limitations in the design services offered by EMS and ODM providers—will restrict the amount of outsourcing in the industry.

“Many leading mobile-phone OEMs are expanding their production capacity, and consequently will attempt to keep manufacturing in house in order to ensure high utilization,” Wu said.

“Furthermore, the wireless handset industry is driven by constant technological evolution,” Wu said. “Given the immense R&D resources needed to develop new-generation mobile phones, only global OEMs have deep enough pockets to pioneer the newest technologies and platforms. While the design capabilities of contract manufacturers are gradually improving, they may not be sufficient to drive the latest technological advancements.”

The OEMs’ manufacturing strategies and outsourcing approaches will limit the role of ODMs in the handset industry to product niches such as smart phones and third-generation phones, or to focusing only on commoditized product categories, Wu said. On the other hand, EMS providers, with their cost competitiveness, operational efficiency and global footprint, are likely to be incorporated more broadly into OEMs’ supply chains in the long run.

According to iSuppli, Sony Ericsson outsources 66 percent of its manufacturing, while South Korean OEMs continue to produce nearly all of their mobile phones in house.