Thursday, April 12, 2007

China has approved another 4 licences to manufacture handsets

You could argue that the last thing China needs is another four mobile handset manufacturers. And you'd probably be right. The mobile market have been saying for a long time that there is a major shakeout coming, and that in the end the 80 odd device makers will probably be whittled down to a round dozen or so.
The Coming Agony
If anything, this move hastens the day when the big shakeout begins. Now, we've already seen some manufacturers depart the market completely. Mitsubishi appears to have packed up and left, Siemens is gone, its successor BenQ is on life support, and others are on the edge.

Here are the challenges that face the market:

1. 3G is coming : Not all companies will find it easy to shift from producing GSM-based phones to producing phones based on 3G, especially TD-SCDMA. Some will never make the shift, relegated to fighting for scraps at the bottom of the mobile food chain.

2. Picky consumers. China's mobile handset buyers - regardless of whether they are first-time buyers purchasing basic handsets, style-conscious fashionistas, or wealthy young executives buying the newest, coolest handheld hypergadget, are expecting more and more from their devices. Delivering handsets with the mix of design, features, and experiences that appeal to consumers is no easy trick, and the chances of getting it wrong are growing. Smaller manufacturers won't be able to afford mistakes - a couple of mediocre handsets, and they'll be gone.

3. Market tempo: Tastes change fast out here, and your average handset owner picks up a new phone every 15 months or so. You have to move extremely fast to keep up with changing demand. Maintaining a reasonable level of innovation and product development will exact a brutal cost on companies, and many - if not most - of the current crop of manufacturers won't be able to keep up.

4. Economies of scale: Being able to sell a given design, feature, or handset across a global market will mean lower prices, even at the high end. The bigger manufacturers will deliver better value for the dollar. Period. At the low end, where economies of scale are everything, the kind of scale that Motorola, Nokia, and Samsung can bring to the party is going to be difficult to match. A lot of companies are going to engage in bloody price wars to try to hold onto the low end of the market, while the big boys can turn out cheap phones at a profit all day long.

5. Retail: Up till recently, phones have been sold in a bazaar-like environment in stores large and small around the country. The war for retail space and for the attention of the consumer is getting intense: the major manufacturers are making large investments in improving the retail experience across the board. This is no longer about how much display space you get - rather, it is about who can make buying the handset more enjoyable. Motorola is way out ahead in China with its flagship stores. Nokia is following, and Samsung will probably do so as well. The question is, can new licensee or any of the other smaller manufacturers manage the same?

The Winners Will Be...

We can be pretty sure of about ten companies that will make it across the divide: Motorola, Nokia, Sony-Ericsson, Samsung, LG, Ningbo Bird, ZTE, and a couple of the larger original device manufacturers [ODM]. Beyond that, it's going to be anybody's guess.

No comments: