Shortages of Supply to Create Market Opportunities

As regards the key factors affecting the Chinese vendors' WCDMA mobile phone development strategies, on the demand side, one important issue relates to the way that 3G mobile phone service has developed. In Europe in particular, mobile operators paid tens of billions of US dollars for 3G licenses. However, with no killer applications to stimulate rapid subscriber growth, 3G has not provided the boost to data service revenue that operators had anticipated. Competition in the 3G mobile communications market is becoming more intense, as new entrants introduce low charge rates; at the same time, operators have had to spend heavily on 3G network deployment. Given the high price of most currently available 3G mobile phone models, the introduction of more low-priced, entry-level 3G mobile phones would be one viable strategy for stimulating subscriber growth.

On the supply side, the leading WCDMA mobile phone vendors ?including Nokia, Motorola, Sony-Ericsson, Samsung, NEC and Sharp ?have tended to focus on the high-end segment of the market. The lower profit margins in the mid-range and value-line segments have discouraged them from rolling out new models in these segments. The supply shortage in the mid-range and entry-level mobile phone market thus creates new opportunities for Chinese vendors with their cost advantage.

Most Chinese mobile phone vendors do not have strong brands; they are thus more willing than the leading European and US vendors to accept contracts that involve producing mobile phone that will bear only the operator's brand, or both the operator's brand and the vendor's brand. While the lack of a strong brand may be a problem in brand-conscious markets such as Europe, it will not be a major issue in markets where consumers are less brand-conscious and more price-sensitive.

More Challenges to Come

Although Chinese vendors have already achieved some successes in their development of the global 3G mobile phone market, their impact on the competitive balance in the global market is limited. The annual shipment volume of the Chinese mobile phone vendors is much lower than that of the top five leading international vendors; the Chinese brands also lag behind in terms of their R&D capabilities and the comprehensiveness of their product lines. As a result, strengthening R&D capabilities and gaining a more in-depth understanding of international markets will be key for Chinese vendors to maintain sustained growth in the 3G mobile phone market.

As regards the challenges facing individual Chinese companies, the five-year agreement to supply 3G mobile phones to Vodafone has ensured a steady supply of orders for Huawei for the near future and will help Huawei gain a better understanding of consumer needs in international markets. However, it remains to be seen just how Huawei will position its 3G mobile phone business in the future. Techfaith will be able to leverage its strong R&D capabilities and its close relationship with Qualcomm and Microsoft in the development of the 3G mobile phone market. ZTE has had little success so far in its 3G central office equipment business; the company's efforts to develop the Western European market have particularly achieved few results. ZTE has thus been unable to leverage network equipment sales to boost mobile phone sales. ZTE enjoys no particular advantage in R&D, production capacity, or customer relationships, and so has been forced to compete on price, focusing on the entry-level segment of the market; this strategy will not be sustainable over the long term. Amoisonic has displayed a particularly high level of ambition in its 3G market development strategy. Currently, most of Amoisonic's 3G mobile phone sales are in overseas markets. However, the company has continued to allocate resources to maintaining its market share and brand image in the Chinese domestic market, anticipating that this will give it a solid foundation for developing the Chinese 3G mobile phone market in the future. By focusing on overseas markets now, Amoisonic is able to leverage the demand for value-line mobile phones in international markets to build up its own resources, while at the same time cultivating the R&D team it will need to compete effectively in the Chinese 3G mobile phone market in the future.

Appendix

List of Companies

      Access               

      ADI            

      Amoisonic         夏新電子

      Bird                     波導

      BT Movio         

      CECW                 中電賽龍通信

      Commit               凱明

      Datang                大唐

      EMP          

      Far Eastone        遠傳電信

      France Telecom               

      Hisense               海信

      Hutchison         

      Iusacell             

      Lenovo                聯想

      Longcheer           龍旗

      Microsoft          

      Motorola           

      NEC           

      Nokia        

      NTT DoCoMo          

      NXP           

      Orange             

      PCCW                  電訊盈科

      Qualcomm               

      Samsung           

      Sharp         

      Simcom             

      SingTel Mobile        

      Sony-Ericsson          

      Spreadtrum              

      Sprint        

      STEP Technologies         

      Sunday              

      T3G            

      TCL           

      Techfaith              德信無線

      TechFaith Software         

      Telefonica         

      TIM            

      TTPCom           

      Vodafone          

      ZTE                         華為