Abstract

PCBA and ODM Models Becoming Main Business Models

Faced with intense competitive pressure from leading international mobile phone vendors Nokia and Motorola, second- and third-tier international handset brands such as Alcatel, Philips, NEC, and Sanyo have chosen to withdraw from the Chinese market. At the same time, the local Chinese brands have seen their combined share of the domestic market eroded to less than 40%. The abolition of the mobile phone manufacturing and domestic sales permit system has encouraged dozens of new entrants to move into the mobile phone market. Overall, the competition in the Chinese mobile phone market has grown both increasingly intense and increasingly confused.

Companies such as Techfaith that had previously used an NRE or NRE+Royalty model have been losing orders from the leading international vendors, and have been forced to switch over to the PCBA model, with Chinese vendors as their main target market. The smaller size of most Chinese mobile phone vendors makes for a higher level of financial risk. At the same time, the Chinese mobile phone market is now intensely competitive, with product specifications being upgraded at a very rapid pace; the PCBA model facilitates the reduction of lead time for new products. China's mobile phone design houses have also been moving aggressively into emerging markets such as India and Latin America. Exports to these markets normally have to take the form of SKD/CKD kits, owning to high import duty on complete mobile phones and other protectionist measures. There has also been a rapid increase in ODM orders from industrial customers in China and from telecommunications operators in Africa and the Middle East. Given the changes in structure of the Chinese mobile phone design houses' customer portfolios, it can be anticipated that PCBA and ODM will be the main business models for the leading design houses in the future.

Strengthening Vertical Integration in the Industry Value Chain

The growing popularity of MTK turnkey solutions in China has significantly reduced the barriers to entry to the mobile phone design business. With many new entrants, the competition in the mobile phone design industry has grown more intense. The emergence of turnkey solutions threatens the core value that design houses have been able to offer in the past. Companies such as Techfaith and Longcheer that had previously focused mainly on R&D and design have responded to the changing environment by moving downstream into mobile phone manufacturing and assembly. They are now seeking to be able to provide customers with a total solution; STG has even secured a domestic sales permit so as to be able to undertake mobile phone sales.

China's leading mobile phone design firms have also been seeking to differentiate themselves from their smaller competitors by focusing on the development of mid-range and high-end mobile phone models, where more value-added can be created. These firms have already begun to develop mobile phone designs with Wi-Fi/GSM or GPS capability, along with TD-SCDMA 3G mobile phones and Smartphones.

Appendix

Research Scope

This report analysis the development of China's leading mobile phone design houses -including Techfaith, STG (Simcom), and Longcheer -over the past few years, presents an overview of the current state of their operations, and seeks to forecast how the Chinese mobile phone design industry will evolve in the future.

Glossary of Terms

List of Companies