From the second half of 2003, with leading vendors readjusting their channels due to the impact from SARS (Severe Acute Respiratory Syndrome) and heavy monochrome handset inventories, Chinese second tier handset makers adopted aggressive shipment strategies. Accordingly, the monochrome handset inventory build up delivered a heavy blow to international vendors in the value-line segment, causing international vendors and first and second tier Chinese players to focus on the high-end market. Therefore, in the first half of 2004, the Chinese color mobile phone market encountered problems such as intense price competition and high inventories in the channels.

Furthermore, with the central government regulating the overheated Chinese economy, financial institutions have withheld lending to handset channel players, GSM/GPRS and CDMA mobile phone orders have thus gradually declined. At the same time, growth of PAS (Personal Access Phone System) handsets, which saw a rapid climb in the first quarter of 2004 resulting from the loosening of policies, has stagnated due to incomplete infrastructure. Consequently, the Chinese mobile phone industry in second quarter of 2004 did not meet expectations, declining 6.4% sequentially, and totaling 61.1 million units. 

In the third quarter of 2004, due to the weak retailing months of July and August in the Chinese domestic market, shipment is not anticipated to see a considerable turn for the better. However, with the October 1st national holiday, September shipment is anticipated to grow, enabling the Chinese mobile phone industry to grow 24.3% year on year, surpassing first quarter shipment scale.