Sendo: Britain's mobile maverick

The Z100: Everything a busy executive needs

By James Arnold BBC News Online business reporter

There's something of the dot.com about Sendo.

Its offices - a flimsy Portakabin at the back of a business park in Small Heath, Birmingham - have the hectic air of a 1998 internet start-up.

Multilingual, shirt-sleeved executives rush around, barking into mobile phones; the air hums with hammering and drilling; there are never anything like enough meeting rooms.

But Sendo is in business for desperately high stakes: from the smallest of beginnings, it is hoping to challenge Nokia, Motorola and the other giants of the mobile phone business, the world's biggest consumer electronics market.

These are tough times for even the most muscular telecoms firm - what possible hope does a Birmingham midget have?

Made in Britain

You probably haven't heard of Sendo, but that might change soon.

Sendo is Britain's only mobile manufacturer, and the only serious mobile maker in the world to have been started from scratch in the 1990s.

Founded three years ago and now run by Hugh Brogan, a veteran of Motorola and Philips's mobile divisions, Sendo now makes phones in Britain, China and the Czech Republic, and distributes them in nine countries in Europe and Asia.

The firm is tight-lipped about precise numbers, but it claims to be shipping "several hundred thousand" units a monthly, a figure that may tend towards 4 million for the year as a whole.

Modest operating profit, the company says, is in prospect "soon".

Barebones building

A minnow among whales, Sendo aims to make its money by squeezing more value from the production process.

Sendo hopes customisation will make people love phones

"If it was all about scale, we at Sendo wouldn't be able to sell any phones," says Mr Brogan.

"Instead, it's about technology: it is in the design phase that you can drive the real cost and performance advantages."

Sendo's four mobile models are all built around the same innards, a barebones basic phone skeleton that is the only product made at its contract manufacturing line in China.

Operating software is added later, and plastic covers are snapped on at the point of distribution.

This makes Sendo's phones far cheaper to build, more than eliminating the extra 5-6% the firm pays for materials in relation to its bulk-buying rivals.

A different sort of customer

The really clever part is that these cheap-to-build phones are sold on for high prices.

Having the capability to watch a movie, to listen to music, to get access to all my email, my contacts, my agenda - this is about changing the way people live

Hugh Brogan, Sendo chief executive

If Sendo is built around a philosophy, it is that its customers are the big mobile phone operators, not the fickle public.

"Consumers consume products that the operators present to them," says Mr Brogan.

"The companies that are successful in this business are not the traditional consumer electronics companies."

"If you can address the operator requirements, you can have a successful business."

Likely to linger

Sendo tries to appeal to mobile operators in two ways.

First, it aims to maximise the amount of time users will spend playing with - and hence paying for - its phones.

Smileys: The secret of subscriber success

To make its phones prettier, Sendo pioneered a technique, now becoming more widespread, under which users send in photographs by e-mail, which can then be turned into customised press-on covers.

To make phoning more fun, Sendo has lavished attention on graphics, animation and other on-screen diversions - including some 64 graphic "smileys".

And to extend the range of its phones, Sendo has developed more attractive games, including SMS multiplayer games.

Virgin Mobile, the UK operator that is Sendo's main client, recently calculated that Sendo phones had been the most successful at raising average revenue per user.

Flexible friends

Second, Sendo aims to take on itself the burden of the mobile phone supply chain.

Mobile operators, some of which buy as many as 60 million handsets a year, suffer from occasionally vast stocks of unsold phones, which depreciate at an alarming rate.

Sendo's nimble manufacturing process enables it to fulfil custom orders within a couple of days' notice, reducing the need for operators to stockpile phones.

And unlike its prouder rivals, Sendo is willing to let its phones be sold under other firms' brand names: its Virgin Mobile phones, for example, do not carry the Sendo name.

The way ahead

This combination of ingenuity and flexibility has won Sendo some juicy contracts.

Virgin Mobile has a deliberately irreverent tone

Aside from Virgin, it has 21 operator clients, and is on the verge of new ventures in the untapped US market.

But Sendo is also about to take a leap in the dark, with the launch next month of its first hybrid phone, the Z100.

The Z100 is one of a growing breed of gadgets that aim to combine phones with computer technology, producing something the size of a mobile which deals with e-mail, diary functions, fancy multimedia trickery and other basic computing.

With software contributed by Microsoft, which owns a 10% stake in Sendo, the Z100 is likely to retail at $400-$1,000 (£280-£700), depending on the operator package.

"Having the capability to watch a movie, to listen to music, to get access to all my email, my contacts, my agenda - this is about changing the way people live," Mr Brogan enthuses.

Handheld hope

Perhaps, but the Z100 is likely to prove a far tougher sell than Sendo's existing phone range.

For a start, it is aimed squarely at business clientele, a world away from the games-playing, text-messaging youth market Sendo has so far tapped through Virgin Mobile.

The appeal of expensive handheld gadgets is not yet proven either. Analysts have long pointed toward the logic of combining PC, multimedia and phone technology in one handful, but logic has not always driven hi-tech trends.

And the Z100 will be hitting a market that is about to become very crowded, very quickly.

British mobile operator MMO2 is about to launch a phone/PC of its own, and a number of US operators debuted PC-powered phones this week.

Growing pains

But Sendo is not betting the farm on the Z100: indeed, its flexible, demand-driven strategy should ensure that it never becomes expensively out of touch with market trends.

Instead, other challenges will beset the firm as it continues to grow.

Mr Brogan hopes to give industry giants a shock

The first is finance.

At present, Sendo manages nicely at a modest size, its 300 staff funded by ongoing cash flow, and cash injections from strategic shareholders such as Microsoft and CCT, a Hong Kong-based telecoms firm.

But getting up to the next level will require stepping up a gear in financing, something that may mean a stock market listing, a source of constant excitement among Sendo's pursuing pack of investment bankers.

Quite aside from the fact that now is not a great time for hi-tech flotations, a market listing could threaten to put a crimp in Sendo's free-wheeling culture, at a time when innovation and chutzpah are at a premium.

Staying ahead of the game

A second question mark hangs over Sendo's ability to remain independent.

So far, the firm has forged a path by remaining a little quicker, and a little cleverer, than the established giants of the industry.

But the Nokias and Motorolas catch up eventually, and their mighty distribution machines often enable them to defeat any opposition.

Nokia in particular has invested heavily in making its phones more fun, more multi-functional and more personalised in the past few months, launching a dozen new products in the last quarter of 2001 alone.

"Nokia spent £1.9bn on research and development alone last year," says Ben Wood, senior analyst at research firm Gartner.

"Other firms just cannot compete with that sort of investment."

One of a kind

Sendo is not uniquely small: half a dozen or so other firms get along very nicely with a roughly 1% share of the global handset industry.

But almost all of those - brands like Alcatel, Mitsubishi, Panasonic and Sony - are backed by vast corporations that make billions from other industries.

The only apparent counterpart to Sendo, Finnish niche manufacturer Benefon, looks like a lively start-up, but has been in the communications market since the 1920s.

Now that global mobile phone sales have started to fall for the first time ever, producers may well have to turn predator in order to win market share.

Sendo's dot.com cheek has served the firm well so far.

But if it wants to get much further, it might have to swap its slacker chic for sober suits.