WW-117 -- The Chinese Mobile Market -- A Goldmine for International Handset Makers, Or a Rising Threat?

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Commentary on Japan's Wireless World
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Wireless Watch Newsletter
Issue No. 117
Thursday, January 8, 2004
TOKYO

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CONTENTS

@@ Viewpoint: The Chinese Mobile Market -- A Goldmine for International
Handset Makers, Or a Rising Threat?

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@@ Viewpoint: The Chinese Mobile Market -- A Goldmine for International
Handset Makers, Or a Rising Threat?

Undoubtedly, China represents a huge market potential for mobile
handset makers. By the end of last year, China boasted about 250 million
mobile subscribers. With overall market penetration at only 20 percent,
there is ample space for growth.

More than 100 million handsets are expected to be sold in 2004 alone.

Nokia, Motorola, Samsung and Siemens should be well positioned to take a
large share of the pie. In 1999, Nokia and Motorola had a joint market
share of 70 percent, while Chinese makers had only 5 percent. Since then,
the market has changed dramatically -- Chinese handset makers grabbed
a full 50 percent market share in the first half of 2003, while Nokia痴
share fell below 15 percent, and Motorola痴 slipped to 9.7 percent.

Measured in absolute number of handsets sold, however, Nokia and
Motorola are still doing better than they were in 1999.

The market is getting crowded. There are eight Chinese handset makers
with a market share larger than 1 percent. The largest handset
maker in China is Ningbo Bird, with 15 percent market share, followed
by TCL with 11.6 percent. In the first 10 months of 2003, TCL
introduced 16 new models and sold more than 7 million handsets.

The Chinese have excelled at manufacturing handsets in just a few
fast years. They are not only producing low-end, black-and-white
devices, but also 2.5 generation handsets with cameras and MP3
players. 3G devices are next on their roadmap.

Chinese costs are kept low and time-to-market is kept short via a
network of specialized external parties. Design and development are
outsourced to specialized design houses. Core hardware and software
components are sourced from third parties, and production is done
by companies like American Solectron or Singapore Flextronics
International.

Foreign handset makers are now following the Chinese model. NEC
outsources the design and development of its middle-range handsets
to Chinese design house Techfaith, while it keeps the development
of high-end devices in-house. Through the use of this strategy,
NEC will be able to introduce 20 handset types per year under
NEC痴 own brand. With 1.3 percent market share, NEC is not yet
an important player yet in the Chinese market. But it anticipates
growth through its new strategy.

The next step for the Chinese is to enter the fast-growing Southeast
Asian market. We expect declining market shares in the dominant
Western and Korean makers by 2005, while the European and American
markets might be targeted by the Chinese -- especially after their
household appliances become ubiquitous in the West.

-- Arjen van Blokland

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STAFF
Written by Arjen van Blokland; Edited by Roland Kelts
(editors@japaninc.com)

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