Abstract

Major Trends in the Worldwide Mobile Phone Market

Affected by the winner-takes-all effect, second-tier European vendors such as Alcatel, Siemens and Philips have been forced out of the market. By contrast, smaller Asian mobile phone vendors such as HTC and Amoisonic have had some initial success in transforming themselves into niche players, reorienting their product lines towards Smartphone and 3G products, and working closely with telecommunications operators.

Looking ahead to the future, while the dominance of the global mobile phone market by the leading international vendors such as Nokia, Motorola, Samsung and Sony-Ericsson is likely to remain unchanged, there are three significant trends that should not be ignored.

Firstly, the mobile phone is increasingly seen as a fashion product. As the mobile phone market reaches maturity, some of the leading consumer electronics vendors are beginning to expand into the mobile phone business. The most striking example is Apple and its iPhone, which has leveraged the popularity of the iPod among younger consumers.

A second trend can be seen in Vodafone's active search for ODM partners in emerging markets in order to reduce its mobile phone purchasing costs and minimize the burden imposed by Vodafone's subsidizing of mobile phone sales to subscribers. While the trend for leading operators such as Vodafone to begin working with low-cost mobile phone manufacturers is creating new opportunities for smaller mobile phone makers all over the world, it is also attracting new entrants into the mobile phone business. In China, ZTE has already secured contracts to supply entry-level WCDMA and GSM mobile phones to Vodafone; previously, Sagem had been Vodafone's main supplier for these types of mobile phone.

A third major trend is the rapid growth of the emerging markets. According to data compiled by the GSM Association, in the first half of 2006 the number of GSM mobile phone users grew by 22.6% in Africa, 20.3% in the Middle East and 17% in Latin America compared to 2005. All of these growth rates were well above the global average of 13.6%; they also surpassed the Asia Pacific region average of 15.7%. GSM subscriber growth has been faster in these three regions than in any other part of the world. As a result, Samsung and Sony-Ericsson, which had previously positioned themselves as vendors of high-end mobile phone models, have joined Motorola and Nokia in developing entry-level models to target these emerging markets.

Strategies of Chinese Mobile Phone Vendors

Intense competition from the leading international vendors such as Nokia and Motorola has squeezed the Chinese mobile phone vendors' combined share of the Chinese mobile phone market down to around 30%. The Chinese mobile phone makers lack the international vendors' R&D capabilities and strong brands, and are hampered by the vicious price competition that exists among them. The larger Chinese mobile phone vendors - including Bird, TCL, Haier, and Konka - are starting to focus more on the development of overseas markets; some of them already have a significant overseas presence.

While the Chinese vendors' mobile phones remain competitive on price, the quality remains inferior to that of the leading international vendors. With the main focus of demand in the Chinese mobile phone market shifting towards replacement of existing mobile phones rather than mobile phone purchase by first-time buyers, and with more international vendors entering the market, the negative impact of low quality standards will become an increasingly serious handicap for the Chinese mobile phone makers.

At the same time, China's telecommunications operators are stepping up the introduction of customized mobile phones. Once 3G service begins in the second half of 2007, demand for customized mobile phones will create significant demand for niche players.

Amoisonic

Of the four leading Chinese mobile phone vendors examined in this report - Bird, TCL, Lenovo and Amoisonic - the outlook for Amoisonic appears relatively bright. The company's focus on R&D and on niche markets may provide a model for other Chinese mobile phone makers to follow.

There are still several factors that could have a negative impact on Amoisonic's future growth. Currently, Amoisonic's 3G and Smartphone product line-up is still dominated by entry-level models. Given the low technical entry barriers for products of this type, it would be relatively easy for other manufacturers to replicate Amoisonic's success; rival firms such as Techfaith have already begun to develop the same market. The challenge for Amoisonic will be to keep upgrading its R&D capabilities, expanding into the mid-range and high-end 3G feature phone and Smartphone segment, and stepping up its collaboration with telecommunications operators.

Lenovo

Lenovo's senior management need to take advantage of fact that Lenovo has not yet experienced severe inventory problems to strengthen the company's R&D capabilities and plan the next generation of mobile phone products, building up the competitive advantage that Lenovo will need to survive in the future. If this can be achieved, then Lenovo may avoid being drawn into vicious price competition with the other Chinese mobile phone makers.

TCL

TCL's dream of leveraging Alcatel to strengthen its own competitive advantage has already foundered. Alcatel's market share is shrinking all over the world, threatening the success of TCL's strategy of using the Alcatel brand to expand overseas. TCL will now have to rely on its own R&D capabilities and the restructuring of its distribution channels to achieve new growth in the future.

TCL's current strategy is based on the separation of the R&D, production and marketing functions. By getting other companies to acquire shares in TCL and by cutting costs, TCL has gone some way towards overcoming its immediate financial difficulties. Nevertheless, TCL still needs to focus more on developing new-generation products if it is succeed in building long-term competitiveness and creating new revenue sources. Overall, the outlook for TCL does not offer much cause for optimism.

Bird

Having more or less abdicated control over the company to Sagem, Bird's future will depend largely on the fate of Sagem's mobile phone business. Sagem has been in the red since 2005; it remains to be seen whether the moving of mobile phone production and R&D to China will be enough to stimulate new growth for the company. Given that other second-tier European mobile phone vendors such as Alcatel, Siemens and Philips have already withdrawn from the mobile phone market, and in light of the recent series of news reports to the effect that Sagem may soon be selling off its mobile phone business, it seems doubtful whether Sagem will remain a player in the global mobile phone market for much longer.