Nikkei Electronics Asia -- March 2008
Reports
China's Handset Makers Face Growing Competition

Mar 4, 2008 17:06 Nikkei Electronics Asia

Faced with increasing competition from international brands, as well as low replacement demand in the domestic market, Chinese handset manufacturers have been forced to cut back production, or change their product portfolio to stay afloat. Many of them are taking advantage of a flexible and low-cost baseband chip integration platform offered by local vendor Spreadtrum Communications Co Ltd and Taiwan-based Mediatek Inc (MTK), in order to survive in the highly competitive market.

High Inventory, Tough Season
The fourth quarter of 2007 was tough for mobile phone sales in China. International brands such as Nokia and Samsung continued to hold their market share, while domestic Chinese manufacturers and brands saw a steep decline in sales. Some are merging with rivals and many have been forced out of the market altogether due to inventory oversupply.

"It has been very tough for everybody in China because companies are stocked up with very high volumes of inventory," said Tracy Zheng, marketing manager at Inventec Appliance Corp, a handset ODM in Nanjing.

Inventec, China's biggest PHS (Personal Handy-phone System) handset maker with the OKWAP brand, is now focusing on the dual-mode PHS/GSM market, as well as on increasing its GSM product mix. Zheng said the company sees little demand from the Chinese market in the short term and is shifting focus to the developing market. "The China market is very bad right now, so we have to get orders from other markets, such as India," she said.

Inventec is one of the few companies which, like Amoi Electronics Co Ltd, Huawei Technologies Co Ltd and ZTE Corp, provide handsets to markets outside China, specifically to developing countries where the markets have not yet become saturated.

MTK's Diversification
Fabless IC design house MTK is the world's largest maker of chips used in DVD players. The company successfully diversified its business into handset chip production a few years ago.

In China, MTK dominates second-tier handset markets. As much as 100 million cell phones with MTK chips were shipped in 2007, accounting for at least a 30% share of the total Chinese handset market. The company works closely with upstream players such as Longcheer Holdings Ltd and Sim Technology Group to integrate the MTK platform onto printed circuit board assemblies (PCB-A), which are sold to hundreds of handset assemblers in China. These assemblers, mostly based in Shenzhen in southern China, source their own casings, keypads and LCD screens and integrate them into MTK's PCB-A platform for a complete phone.

MTK's PCB-A business model spurred hundreds of small companies to enter the handset business. "Mediatek did a lot to change the game in China by making it cheaper for small companies to assemble phones," said Frankie Zhang, marketing manager at Dewav Communication Technology Co Ltd. "They offer ready-made software and hardware packages that allow reduced development time."

Competition within China
Another Chinese competitor, Spreadtrum Communications Inc, has begun to threaten MTK's market share in China. Spreadtrum started as a GSM baseband provider, but has recently moved to the TD-SCDMA chipset business and is now one of the largest TD-SCDMA baseband providers for China's homegrown 3G handset market.

Spreadtrum is still a major player in the GSM baseband business and has recently benefited from its relationship with Wingtech Group Ltd. Wingtech was one of the fastest growing handset manufacturers in China in 2007, shipping over 2 million handsets to the domestic market, as well as to major exporters such as Amoi. Handsets that run on Spreadtrum's chips offer the same functions as MTK's products do, but its design gives the company an edge over Mediatek, said Geng Niu, marketing specialist at Wingtech.

by Van Tran

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