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2006-3-17 05:04:00 p.m. HKT, XFNA
FOCUS - Dbtel exit from China cellphone market not a sign of consolidation
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BEIJING (XFN-ASIA) - The exit of Taiwan's Dbtel Group from the China
mobile handset market does not signal an industry-wide consolidation,
analysts said.
As China hands out new handset manufacturing licenses, the
highly-competitive cellphone market is rapidly accepting new entrants who may
be able to turn a profit with specialized products.
""Ironically, we're not seeing consolidation. What we're seeing is a
freeflow issuance of manufacturing licenses,"" said Mark Natkin of Beijing's
Marbridge Consulting.
This follows recent news that a Dbtel unit, Shanghai Dbtel, has dismissed
more than 700 staff and announced it is ceasing production of cellphones here.
The firm, which was once a top-five mobile phone brand in China,
experienced a reversal of fortune in 2004 in the face of overcapacity and
fierce competition in the mobile handset market, according to media reports.
Other firms including Nanjing Panda Electronics and Yimei Communications
have also exited from the space.
But this may not mean that smaller mobile phone firms, or those which
have only recently received manufacturing licenses, are being squeezed out of
the market by their larger, more entrenched peers, Natkin said.
He said two recent entrants to the CDMA phone manufacturing club --
Jiangsu Gaotong and CECT -- were given a seat at the table during China
Unicom's most recent round of bulk cellphone purchasing which saw Unicom
split an order for two mln phones among 13 vendors.
""In some respects you're seeing new players that are getting orders from
carriers,"" Natkin said.
China boasts the world's largest cell phone market, with 398.8 mln
subscribers recorded as of January, a number which is expected to grow to 441
mln by the end of this year, according to the Ministry of Information
Industry.
Competition between foreign and domestic handset vendors -- particularly
at the low-end -- has been a tug of war.
Domestic vendors' saw their market share grow to around 60 pct in 2003,
only to witness it erode the next year as multinational firms beefed up sales
and distribution while releasing a bevy of low-end phone models, according to
Beijing research house Analysys International.
In the fourth quarter of last year, international vendors held a 65.5 pct
share of the GSM mobile phone market and a 62.4 pct share of the CDMA market,
according to data from Norson Telecom Consulting.
This competition among domestic vendors led Analysys to predict that 30
pct of China's domestic handset makers would be forced out of the market in
2006.
In a bid to cool down competition in the sector the government issued
more stringent rules on licensing for handset manufacturers last year.
But despite the new regulations, China handed out 20 new handset
manufacturing licenses in 2005, bringing the number of licensed players to
around 60 as of January, according to telecom consultancy BDA (China) Ltd.
BDA analyst Zhang Yu said that while competition remains fierce in the
space, there's still room for smaller players.
""In some aspects you can see that there are a lot of industry giants (in
the market) and that competition is intense. But there is still a lot of
space for small handset vendors to grow,"" he said.
He said that smaller handset vendors with specialty products, such as
Dopod which focuses on smartphones, have a better chance of weathering the
storm.
In addition, smaller vendors may prove more nimble in latching onto the
next trend and bring their products to market faster than their larger
competitors, Zhang said.
A senior analyst with Norson, Chris Han, said that despite the massive
size of China's cellphone market, mobile phone penetration was still at 30.3
pct as of end-December -- which leaves plenty of room for those who get in on
the margins.
""Each year millions of new mobile users will buy handsets and millions of
mobile service users will update their cell phone,"" he said.
While this doesn't mean that smaller vendors will be able to upstage the
likes of Motorola or Nokia, it does suggest that a vendor can survive here on
a small market share, or by specializing in a particular market segment,
according to Han.
He added that he expects competition to grow even more heated this year.
He said industry heavyweights Nokia, Motorola, Lenovo and ZTE will see
gains in market share. Meanwhile, Samsung, LG, NEC and TCL will struggle to
improve their respective positions.
john.bishop@xinhuafinance.com
jpb/dk
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