- Riding a wave of rapid growth Chinese handset makers began aggressive capacity expansions in the first quarter of 2003; however, the generational shift from monochrome GSM to color GSM and GPRS handsets resulted in excessive inventory levels as Chinese mobile phone market growth began to slow. Additionally, the spread of SARS through large cities in southern and northern China combined with the shortening of the May Day holiday further slowed the pace of capacity liquidations, ultimately curbing new model launches and handset sales. China accounts for approximately 15% of worldwide mobile phone sales, and as international brand-name vendors and Chinese makers account for roughly 90% of Taiwanese handset makers' total shipments, SARS and Chinese inventory levels will have a direct impact on the second quarter performance of the Taiwanese mobile phone industry.
It was originally anticipated that the transition to new handset models for international vendors would result in a decline to 9.4 million units in the second quarter of 2003. However, given the impact of SARS, inventory problems, and new model transitions in China, Taiwanese makers are taking a more conservative attitude toward China-bound shipments. It is hence expected that second quarter shipments will drop to 6.7 million units in the second quarter of 2003, the first ever year-on-year decline for the Taiwanese mobile phone industry.
Taiwanese makers shipments to international vendors are primarily entry-level GSM/GPRS phones, while higher-priced clam-shell and color GSM/GPRS are shipped to Chinese makers. In light of a host of uncertainties in the Chinese market, as Taiwanese makers cut down on shipments to Chinese makers, shipment volume is forecasted to drop down to US$450 million. ASP is also expected to fall to US$66.7.
International vendors accounted for 65% of Taiwanese mobile phone industry shipments in the first quarter of 2003, and considering high vendor inventories in China and phase outs of models outsourced to Taiwanese makers, contracts are expected to drop 26% from the first to the second quarter. As for Chinese customers such as Konka, TCL, Bird, and Eastcom, the high inventories borne from overoptimistic capacity expansions in the first quarter are likely to bring about a 68% sequential drop in orders during the second quarter of 2003.