The early years: 1984–1990 Going it alone: 1990–1991 Rapid entrepreneurial development: 1992–1997 Investors convinced – the company goes public in 1997 International expansion: 1998–2000 The markets spring a surprise: 2001 Revised strategy and increase in sales resources 2003: financial performance and reputation soar Service portfolio expanded New customers 2004: Further focusing and expansion of operations A European pioneer 2005: New name and new plants Challengin Market Position in 2006 Action Plan to Target Problem Areas Transfer of Domicile More Challenges in 2007 Decision on the New Domicile Action Plans Continue A New Domicile and Organization in 2008
Elcoteq came into being in 1984 as a part of Lohja Corporation. The new unit was called Lohja Microelectronics because it focused on the manufacture of densely mounted control electronics for Lohja Corporation's ambitious project to develop flat displays. Antti Piippo, BSc (Eng.), a director in Aspo Oy's electronics division, was appointed to head the unit. He was soon joined by Henry Sjöman, MSc (Eng.), his former colleague at Aspo. Around the same time Jorma Vanhanen, a young engineering student, started at Lohja Display Electronics to work on his Master of Science thesis.
The Microelectronics unit quickly developed its expertise to meet the level demanded for the task, but Lohja Corporation made slower progress than expected in developing flat displays. The full amount of work Lohja Corporation had planned for the new Microelectronics unit did not, in fact, materialize, so the unit’s enterprising management set about finding customers outside the company.
Meanwhile new developments were being explored by other companies. Nokia Mobira in Finland and Ericsson in Sweden had developed the first mobile phones based on the NMT (Nordic Mobile Telephone) standard. One of the bottlenecks holding back full-scale production of these products was a lack of capacity and know how in the assembly of small components. Both Ericsson and Nokia started looking for the expertise they needed outside their own companies – and both decided to become customers of the Microelectronics unit, which was then based in Länsi-Louhenkatu street in Lohja, Finland. From that point on, the unit operated as an electronics manufacturing services (EMS) provider, with Ericsson and Nokia as its largest customers.
In 1990 Lohja Corporation demerged its business operations and incorporated them as separate companies. In doing so, the company was preparing for what was at that time the most profound structural reorganization in Finland's industrial history, the merger between Wärtsilä and Lohja. This created Metra, a company that operated under that name for only a decade, and Lohja Microelectronics became part of the new company.
Microelectronics was then renamed Elcoteq. There are many explanations why the name Elcoteq was chosen for the company. Here are a couple.
First, the simplest: The name Elcoteq was built from several elements: El from electronics; co from contract manufacturing/components/company, and teq from technology. The final 'q' was adopted after the company initially tried to register its name as Mikrotec. The Trade Register authorities demanded a more distinctive name that would distinguish it from similar names that had already been registered. Finally the authorities decided that no name of any kind that began with 'Mikro' could be registered.
Another explanation of the name Elcoteq links the company more closely to its origins and history. Lohja Corporation owned a dormant company called LK-teknologia, the first two letters of which are pronounced 'el-co' in Finnish. The LK came from Lohja Corporation's original name – Lohjan Kalkki Oy (Lohja Lime Ltd) – so the name Elcoteq has over a century of industrial history behind it.
Metra's electronics division – which included the manufacture of televisions in Turku, electroluminescent displays in Espoo and microelectronics in Lohja – was not a core business area in the new Metra's strategy. The division needed a new home, and this was found in three stages during 1991. Television production was sold to Nokia, flat display electronics went to an American competitor Planar, and Elcoteq was sold to its executive management in an MBO. This was the start of Elcoteq's history as an independent company. Antti Piippo, Henry Sjöman and Jorma Vanhanen became the new owners of Elcoteq (although at the very beginning Metra retained a small minority holding in the company). This trio complemented each other's skills and knowledge perfectly. Antti Piippo was already a well-known strategist, Henry Sjöman had in-depth customer knowledge and Jorma Vanhanen knew all the ins and outs of leading-edge technology.
Piippo, Sjöman and Vanhanen began to develop Elcoteq extremely quickly because there was sharp growth in the outsourcing of production to manufacturing partners at that time. Starting in 1991 with 170 employees in one plant in Lohja generating net sales of FIM 76 million, the company expanded to Tallinn, Estonia the following year. The Tallinn facility operated in premises rented in a local electronics plant and employed about ten people. A feasibility study that lasted many months was conducted before the move to Tallinn, mainly focused on assessing various Asian countries as a potential location. In the event, a better alternative was found much closer to home in Tallinn, the capital city of newly-independent Estonia.
The Tallinn facility rapidly grew into a full-scale production plant with several hundred employees. As projects became bigger, the plant was extended several times. In 1997 the plant had a floor area of over 17,000 square meters and employed more than 1,300 people.
Elcoteq at that time was growing in both Tallinn and in Finland. In Lohja, the premises in Länsi-Louhenkatu street were now too small and more space was needed for manufacturing. A perspex factory in Gunnarla, on the other side of the hill from Lohja, was completely refurbished. The inauguration of the new premises was attended by a large crowd of distinguished guests, as well as Elcoteq's employees, towards the end of summer 1995. The program, decorations and catering at the event were unprecedented in their scale and magnificence.
By 1997 Elcoteq's net sales had already reached almost FIM 1.7 billion and the group had 2,800 employees.
The company's rapid growth made it necessary to increase its management resources and obtain external financing. When market conditions were favorable, the company was listed on the Helsinki Stock Exchange in November 1997, acquiring several thousand new owners keen to share in the success of Europe's leading EMS manufacturer and to be in at the start as it expanded internationally. Elcoteq also ranked among the world's best EMS companies in the manufacture of mobile phones. It counted the two most successful companies in the mobile phone market as its customers – Ericsson and Nokia – and Elcoteq was also the first EMS manufacturer to be given responsibility for the manufacture of a mobile phone from start to finish.
Manufacture of this mobile phone, the Ericsson 628 model, started in Tallinn in summer 1997 and played an important role in convincing investors that Elcoteq had the skills and know-how needed. Another element that impressed investors in Elcoteq's 'story' was the entirely new level of collaboration with customers and suppliers that Elcoteq had achieved – a process the company called 'co-evolution'. Co-evolution was – and continues to be – clearly visible in Elcoteq’s mission statement and policies. The guiding principle of co-evolution is to continuously improve the performance of the value chains in which it participates. Another key element is understanding each other's business operations and objectives.
Although Elcoteq had grown rapidly, outsourcing in the 1990s was in its infancy. Elcoteq wanted to make sure it was one of the companies that won the lion's share of this growth in outsourcing, and international expansion was essential to achieving that goal. The funds from a share issue were used to establish an international network of manufacturing plants. Within a couple of years the company had increased its capacity many times over. In 1999 the network of plants already covered more than ten countries in three key regions of economic growth: Europe, America and Asia.
International expansion substantially increased the complexity of the operating environment. Not only were language skills and the knowledge of different cultures needed, but also an ability to operate flexibly in entirely new conditions. The business models adopted in Finland and Estonia provided a good starting point, but needed adapting for Hungary, Russia, Germany, Mexico and China. Elcoteq's organization proved its strength and flexibility with its ability to become a truly international company in the space of two short years.
Competition has steadily intensified in the EMS business. This is particularly true in the manufacture of mobile phones, their parts and modules as well as mobile networks, Elcoteq's key market sectors. Elcoteq's response has been to build a modern and cost-competitive network of plants that all employ the same consistent manufacturing methods. This strategy is unique to Elcoteq and differs from the growth strategies pursued by almost all other rival EMS manufacturers. The result is that Elcoteq's network of manufacturing plants is more competitively located and more consistent in its technologies, processes and systems than any of its competitors, making Elcoteq the best supplier of EMS services to customers in its selected business areas.
Customers want more than consistency, however. They want focus – in other words, a strong commitment to solving problems in their own business operations. They also want responsiveness – solid expertise and smooth cooperation at all levels. To meet these needs, Elcoteq divided its operations into three business areas at the end of 2000: Terminal Products, Communications Network Equipment, and Industrial Electronics. The company's plants had already been divided into product lines at the beginning of 1999.
In 1999 and 2000, Elcoteq first doubled and then tripled its business volume. The company also improved its profitability during this period, despite the heavy costs incurred by expanding internationally and starting up new plants.
At the beginning of 2001 Elcoteq encountered new challenges. Poor financial performance forced Ericsson to close down all its own mobile phone manufacturing plants in high-cost European countries. One of Elcoteq's competitors saw its chance and made a bid for these plants. In doing so, it took over the entire manufacture of Ericsson's mobile phones which Ericsson had already agreed should be contracted out to Elcoteq's plants in Hungary and Tallinn. This was a major blow for Elcoteq, and the company's shares lost half their value in one day. Elcoteq was thus among the first of many companies to encounter the profound market changes that have swept across businesses first in the electronics industry and later in other sectors.
Adjusting to weaker demand after such a prolonged period of growth was a challenge. The company concentrated its manufacturing operations in fewer plants, reduced the number of its personnel, cut costs across the board and enhanced efficiency in the management of all corporate segments. This restructuring made Elcoteq a leaner and healthier company, fit enough to endure the recession.
2001 was a year of major change: the markets altered course, the customer base failed, the company obtained a new president and a new chairman of the board, and restructuring measures occupied the minds and working hours of Elcoteq personnel. In addition, the group’s image also suffered from the extensive publicity received by events in the private life of the company’s main owner.
Lasse Kurkilahti joined the company at the beginning of December as President and CEO. He replaced Hannu Bergholm who had stepped in as interim president for several months following the resignation of Tuomo Lähdesmäki in August. Kurkilahti wasted no time setting his objectives: Elcoteq had to turn its sights towards corporate development and the opportunities this would bring. It was imperative to expand sales and the customer base, to bring the financial performance back into the black, and to begin a thorough revision of the company's strategy in order to achieve unanimity about the future direction for Elcoteq. An increase in resources gradually began to achieve results. During the first half of 2002 Elcoteq was already able to announce several new customers, while negotiations were in progress with many others. No rapid change was to be expected, however, since starting collaboration with a new customer is a slow process and volumes in the first joint projects are small. The financial performance began to improve in the second quarter of 2002, mainly because that was when the previous year's cost-cutting measures began to make a full impact.
The conclusion drawn by the strategy revision process was that Elcoteq should not waste the considerable expertise and experience it had acquired in wireless communications products. Rather, the company should focus even more resolutely on specifically serving customers with products related to Elcoteq's know-how. Another conclusion was that manufacturing, material services and logistics did not form a sufficiently broad service portfolio; design, engineering and after-sales services should be added to the portfolio. The first step towards increasing Elcoteq's design expertise was the establishment of NPI (New Product Introduction) centers. But it was only after it acquired the R&D team of Finnish mobile phone and telematics company Benefon in the summer of 2002 that Elcoteq could claim to have a full service portfolio.
At the end of 2002 Elcoteq acquired a 70% majority holding in two Chinese joint-venture EMS companies, Shenzhen GKI Electronics Company Limited and Beijing GKI Electronics Co, Ltd. With this acquisition Elcoteq doubled the number of personnel and its operations in China. After this acquisition, 30% of Elcoteq's capacity was in China, the fastest growing telecommunications market. The GKI deal was a clear demonstration of the company's ability to carry out the chosen strategy with persistence and consistency.
When Elcoteq reported its results for 2002 in February 2003, the company was able to state that it had achieved a complete turn around in one year. The 2001 result had been the worst in its history, but the result for 2002 was the second best in the company's history. A rapid improvement had also taken place in the company's tarnished reputation; at the beginning of 2003 Elcoteq topped the charts in a survey of Finnish companies and the quality of their media publicity!
Management policy was to inform internal and external stakeholders about the company’s new strategy – of concentrating on communications technology products and companies – and this strategy was systematically implemented. This, coupled with positive financial results and the company's own ambitious financial and business targets for 2003, which were also made public, all generated positive publicity for Elcoteq.
At the Annual General Meeting in March 2003 the company's principal owner, Mr. Antti Piippo, returned to the Board of Directors as chairman.
By 2003 it had become very evident that the company needed to make a much more determined effort to expand its service offering. Customers now expected their EMS partner to provide solid expertise in product development, efficient NPI (New Product Introduction) services, and wide-ranging sourcing capabilities.
During 2003 the company acquired, became a shareholder in, or established several new NPI centers, at the same time strengthening its existing NPI resources. Elcoteq strengthened its design services by recruiting more people for the Elcoteq Design Center set up in Salo, Finland, in 2002. In October 2003 Elcoteq signed an agreement with Cellon, the world's largest independent mobile phone design house, on design collaboration, and at the same time became a minority shareholder in this company and Cellon's preferred EMS provider. Elcoteq broadened its sourcing capabilities by enhancing its own sourcing organization and signing several supply agreements with material producers.
Elcoteq gained a number of new customers during 2003. The company's resolute sales efforts brought best results among communications network companies, such as Siemens, Marconi, Kathrein, Tellabs, LANCOM and Strix Systems. Some of these new accounts also included the acquisition of manufacturing capacity, notably Marconi's microlink plant employing 300 people in Offenburg, Germany. At the end of 2003 Elcoteq acquired a plant in Espoo, Finland, with 200 employees from Tellabs International.
Although the new strategy was put into effect during 2003 as planned, net sales did not fare so well. The SARS pneumonia epidemic that broke out in China early in the year, the war in Iraq, the significant weakening of the US dollar against the euro, and the drop in the prices of some components by as much as half, all weakened Elcoteq's net sales. For these reasons the company was forced to lower its net sales forecast twice during 2003. To a smaller extent the company had to reduce its forecast because it took longer than expected to gain new customers, and success in this took place mainly in the final months of the year. These new customers only had a full impact on the company's net sales and profits in 2004.
In November 2003 Elcoteq's President and CEO, Lasse Kurkilahti, announced his resignation, after being appointed President and CEO of Finnish state-owned chemicals corporation Kemira in 2004. On hearing the news, Elcoteq's Board of Directors moved quickly and the very next day announced that Jouni Hartikainen, President of Elcoteq Asia-Pacific, had been appointed the new President and CEO. At the same time the Board created the post of Executive Vice President, appointing Jukka Jäämaa, President of Communications Network Equipment/Industrial Electronics, Europe to this new position. The new appointments reflect the organization's maturity: this time competent resources for these most demanding of positions were available in-house. Hartikainen and Jäämaa took up their new responsibilities on January 1, 2004.
In the beginning of 2004 Elcoteq agreed on the sale of its Industrial Electronics business to the Swiss company Enics AG. As agreed, Elcoteq’s industrial electronics manufacturing plants in Baden, Switzerland, and in Vaasa and Lohja, Finland, were transferred to the new company. The deal enabled Elcoteq to concentrate more fully on developing communications technology services and serving customers in the sector in line with its strategic focus.
The communications technology markets continued to grow in the first part of 2004. Elcoteq anticipated this trend by strengthening its service portfolio and broadening its network of manufacturing plants in all its geographical areas. It increased capacity by building new production space in Estonia and by making more efficient use of existing premises in Mexico and Hungary. In addition, the company announced that it would build a new plant in Russia and start offering electronics manufacturing services in the growing market areas of India and Brazil.
The company continued to expand its service portfolio by developing its Original Design Manufacturing (ODM) capabilities. The aim is to offer integrated service offering to customers throughout the life cycle of their products.
Elcoteq also announced new customers such as Schmid Telecom, Research In Motion (RIM) and Vitelcom Mobile Technology (VMT).
In October 2004 Elcoteq passed yet another milestone when the Board of Directors decided to propose to a General Meeting of Shareholders that Elcoteq would change its company form and become a European Company (Societas Europaea, SE). Becoming an SE is part of Elcoteq's internationalization strategy and has the aim of creating an effective structural basis for ensuring continuous improvement of the company's competitiveness. Elcoteq wished once again to be a pioneer, this time in being one of the first companies to exploit the opportunities given by becoming a European Company.
Elcoteq signed an agreement for its largest outsourcing and acquisition to date with French company Thomson in December 2004. At the same time the company expanded into a new product area, home communications. Thomson’s production operations in Juarez, Mexico, were transferred to Elcoteq at the end of the year. Elcoteq manufactures set-top boxes for Thomson also in Europe. Besides providing manufacturing services, Elcoteq is also responsible for some of Thomson’s component sourcing.
Elcoteq inaugurated a new plant in Bangalore, India in April 2005. At the same time Elcoteq became the first global EMS company to manufacture telecommunications equipment in India.
When fully operational, Elcoteq’s Bangalore facility is expected to employ approximately 1,000 people and manufacture products for customers with global operations, mainly for the markets in India and other parts of Asia-Pacific. The construction of the facility was completed in a record time of nine months. The Bangalore plant manufactures both terminal products and communications network equipment.
In June 2005 the company established a new office in Budapest, Hungary for the management of Elcoteq’s geographical area Europe. The establishment of the new office close to the Central European market is part of Elcoteq’s internationalization strategy, one aim of which is to operate as close as possible to the end-markets and the company’s own key operational areas.
The extraordinary general meeting held at the end of September 2005 decided to change the company form of Elcoteq Network Corporation from a public limited company (plc) to a European Company (SE). The company name since October 1, 2005 has been Elcoteq SE. The names of Elcoteq’s subsidiaries remain unchanged. Elcoteq is the first major European industrial company to change its form and become a European Company.
Elcoteq held the inauguration of its new manufacturing plant in St Petersburg, Russia in October 2005. The new plant has a total floor area of roughly 15,000 square meters and when operating at full capacity is expected to employ about 1,500 people. Production was transferred from Elcoteq’s old manufacturing plant in St Petersburg to the new site.
After a year of robust growth, Elcoteq was faced with new kinds of challenges in 2006. There were large fluctuations in Elcoteq’s production volumes, especially in Europe and the Americas. The company’s net sales and earnings fell short of the targets. Delivery volumes also underperformed forecasts, leading to unused manufacturing capacity. This also complicated the forecasting of operations.
In order to increase the share of business accounted for by the Communications Network Equipment business area, Elcoteq forged a manufacturing supply agreement with Andrew Corporation in September and acquired the operations of Andrew’s manufacturing unit in Arad, Romania.
Tighter competition in the end-product markets of the customers led to declining product prices and shorter lifecycles. Many of Elcoteq’s competitors had or were in the process of becoming vertically integrated service providers – seeking growth and higher profitability, they broadened their manufacturing service offering with the manufacture of components. Price pressures in the EMS business are tough, but quality, delivery reliability and speed are also crucial factors in the choice of partners. Offering competitive services entails operational efficiency and profitability.
At the end of 2006, Elcoteq announced that it would initiate an action plan to improve its competitiveness and profitability. The target set was to achieve annual savings of about 20 million euros, especially from Europe and the Americas.
In December, Elcoteq’s Board of Directors resolved to propose to the Annual General Meeting of March 22, 2007 that the company’s domicile be transferred to Luxembourg. The Board of Directors published the Transfer Proposal, a Report and the proposed new Articles of Association.
Elcoteq fell significantly short of its financial targets in 2007, as the company had prepared itself for a substantial rise in production volumes with many customers. Manufacturing capacity had also been dimensioned on the basis of these forecasts. However, delivery volumes were consistently lower than the largest customer’s forecasts. In addition, production problems in Mexico weakened earnings. The company continued to balance its customer base and in 2007 its largest customers were (in alphabetical order) Ericsson, Nokia Mobile Phones, Nokia Siemens Networks, Philips, Research in Motion (RIM), Sony Ericsson and Thomson.
Customers expect their partners to take on a larger role in the management of complex product structures through the entire supply chain. Elcoteq seeks to provide its customers with broader service offerings globally and to be the leading provider of integrated electronic manufacturing services, which means adding expertise in mechanics-related technologies to the service offering.
The Annual General Meeting held on March 22, 2007 approved the proposal of the Board of Directors to transfer the domicile of the company from Lohja to Luxembourg effective January 1, 2008.
In 2007, production was closed down at the Lohja plant in Finland and the Juárez plant in Mexico as part of the action plans announced in late 2006 and October 2007. In addition, an agreement on the sale of the German subsidiary in Offenburg was made in December 2007. The company also announced that it would either scale down or divest its St. Petersburg unit in the first half of 2008.
In addition, the company sought to improve operational efficiency through greater flexibility and efficiency in the use of production resources and especially upgrading materials management.
A new era in Elcoteq’s history dawned in 2008 when the company was redomiciled to Luxembourg at the beginning of the year.
One of Elcoteq’s key ideas has been to spread out its senior executives geographically. Accordingly, in 2008, the members of the Group’s Management Team were based in all its territories – Europe, Asia and the Americas.
The company’s new organization model came into effect on January 1, 2008. The business areas are Personal Communications, Home Communications and Communications Networks.