High hopes for Xbox

THE Hungarian assembly line for Microsoft’s new-generation video games console Xbox may soon increase its output to cater for the clamoring European market.

Flextronics International won the contract to assemble the Xbox in the tiny town of Sárvár (190km west of Budapest) to become Europe’s first mass production games console plant and contribute to Microsoft’s strong fourth-quarter profits.

Microsoft generated a net income of $2.28 billion on record revenues of $7.74 billion in the last quarter of 2001, the company announced last week.

Jutta Devenish, spokesman for Flextronics in Europe, said the four assembly lines in Sárvár produced 75,000 Xbox units a week, primarily for the US market at the moment. "The Sárvár operation is easily able to increase its capacity should such a decision be made," she said

"The choice for producing Xbox for the European market is definitely Hungary."

Humphrey Porter, President of the Central and East European division of Flextronics, said that with growing demand production at the Hungarian unit may even be doubled.

"Sárvár has capacity for more lines, depending on market demand," he said.

Porter said Flextronics had set up its site in the Sárvár industrial park expecting local suppliers to follow suit.

He explained the Xbox was assembled, packaged and customs cleared on the site. "Only the handsets (produced by Japan’s Mitsumi) and the printed circuit boards from another Flextronics unit (in nearby Zalaegerszeg) are brought in," he said.

The Xbox was launched in the US in November and will be available in the EU from March this year for a retail price of about $430.

Porter said units from the Hungarian plant can be delivered anywhere in Europe within 72 hours.

But Peter Baumgartner, executive director of Flextronics’ operations in Central and Eastern Europe, said a lack of local suppliers hurt competitiveness. He explained that the trend was for background industries which supply global electronics companies like Flextronics to see more rapid expansion in countries such as Mexico and China. Mexico is the primary site for the assembly of the Xbox for the US market.

Baumgartner added Hungary’s strengthening economic growth took a considerable chunk from the so-called "value chain".

However, Devenish said that Hungary’s strengthening economy (meaning wage increases, etc) would not influence a decision on whether to boost production here. "There are no sudden (economic) changes so this would not be a factor," she said.

Baumgartner said Flextronics would this week announce its global fourth-quarter results for 2001. "Flextronics’ Hungarian operations last year closed a better year than in 2000," he said.

Based on the annual company listing of local journal Figyelo, Flextronics, which employs 10,000 people in Hungary, was among the country’s top 10 largest companies and the five largest manufacturers in 2000, generating revenues of Ft245 billion ($875 million).

Baumgartner said Flextronics had concentrated as much as 20% of its global production capacity (33% of its European production capacity) in Hungary.

He added electronic manufacturer service (EMS) companies like Flextronics had generally survived the global downturn in the electronics industry.

Baumgartner said that by 2003 the EMS industry’s share of world-wide electronics output was expected to rise to as much as 30%, compared to 10% in 1998.

Flextronics had boosted its income from $2 billion to $13 billion during the past three years, he added.

Paul Fox, spokesman for Microsoft Europe, said nothing definite had been agreed regarding increased production, but did not rule it out. He said things could change suddenly for better or worse.

He said 16 European countries would see the launch of Xbox on March 14, although Fox could give no date for a Hungarian Xbox launch.

Click here for the Source – Budapest Sun Online