-As PHS made its advance through China in the first quarter of 2003, the Chinese mobile phone market surrendered the performance witnessed during the same period in 2002. Although Chinese maker shipments saw the largest growth, overly aggressive sales forecasts resulted in inventories of 20 million GSM handsets and 3.5 million CDMA phones, which has added insult to injury as the Chinese handset market is dramatically inhibited by the spread of SARS.

 From mid-April first level coastal cities in China have been particularly hard hit. Mobile phone sales in Beijing have dropped 70% to 80%, and speed of recovery will be hampered. In Guangzhou, after sales had fallen 60% in the latter part of April, the degree of impact has gradually lifted, and sales volume is anticipated to recover to reach approximately 60% of normal sales levels at the end of May 2003. Shanghai did not experience a large drop in the early stages, and actually benefited from panic buying; however, with the shortening of the May Day holiday combined with strict isolation measures throughout the city, May sales began to see a 40% to 50% drop. Other major coastal cites generally witnessed a 40% drop in handset sales. Interior and small and medium-sized coastal cities saw 10% to 50% volume declines at the beginning of May, and such decline rates began to gain further momentum in mid-May. Given that consumer fears are unlikely to subside in the short term, the Chinese mobile phone market is expected to experience a 28% year-on-year decline in the second quarter of 2003. Consumer confidence is anticipated to rebound in the third quarter, shrinking the drop in sales to approximately 20%.           

During the earlier phase of the epidemic handset demand in small and medium-sized cities underwent a much lighter impact, helping Chinese makers to steadily augment market share with strategies of enveloping the cities through initial penetration of the countryside. However, with a substantial drop in large-scale promotional activities as SARS prevention picked up, opportunities for promoting new models were limited, and time spent by consumers on shop floors also shrank. Thus, with brand recognition gaining in importance and the sway of sales people diminishing, boosting market share or clearing inventories will be increasingly more challenging for Chinese makers. It also remains to be seen whether low-priced strategies will be sufficient to stimulate demand.