PROFILE - CHINA'S CELL PHONE INDUSTRY (MARCH 2009)
BEIJING, Mar 10, 2009 (AsiaPulse via COMTEX) -- The following is a profile of China's cell phone industry in 2008.
EXPANSION OF INDUSTRY SCALE: China gained 93.924 million mobile phone users in 2008, boosting the total to 641 million. The nation's cellular teledensity rate, which means the number of handsets per 100 people, hit 47.3 units, up 6.2 units year on year.
The industry's cell phone output grew by two per cent to 560 million units.
According to IDC, an industrial consulting firm, the output of handsets around the world increased by 3.5 per cent on year to hit 1.18 billion units, with China's production accounting for 47.5 per cent, about the same as 2007.
China's cell phone output growth in 2008 showed a trend of slowdown. Output surged 14.3 per cent in the first two months, but the growth rate declined to 7.9 per cent in the third quarter. The annual growth was merely two per cent, down 10 percentage points from the beginning of the year.
Negative growth appeared starting from the third quarter.
The handset output slid by 2.6 per cent in October, and dropped 38 per cent in November, recording a historical low.
EXPORT GROWTH UP SLIGHTLY: According to the statistics released by the General Administration of Customs, China exported 533 million units of handsets valued at US$38.54 billion in 2008, up 10.4 per cent and 8.27 per cent year on year, respectively.
In the meantime, 17.719 million cell phones valued at US$1.721 billion were imported, with the volume up 5.3 per cent but the value decreasing 3.85 per cent from the previous year.
The export growth generally showed a downturn tendency over the past year. The monthly average growth rate exceeded 10 per cent in January-October, and dropped by 11 per cent and 22 per cent in November and December, respectively.
China's cell phone product export mainly depends on foreign-funded enterprises, accounting for 83 per cent of the total. The export volume of products manufactured by multinational firms, namely Nokia, Motorola, Sony-Ericsson and Samsung stand at 71.5 per cent.
Manufacturers of domestic brands exported 64 million mobile phones, accounting for 17 per cent of the total. Included were two firms with export volume of 10 million units and one company with export volume of 5 million units.
ECONOMIC EFFICIENCY DOWN: As impacts triggered by the financial crisis appeared gradually, the global economy showed a downturn trend, market demand growth slowed down, and the growth of the cell phone industry decreased monthly starting from the beginning of 2008.
Many enterprises' reported negative growth.
China's mobile communication and terminal equipment industry achieved profits of 1.98 billion yuan (US$289.48 million) in January-February last year, down 10 per cent from a year earlier. By the end of November, the industry gained profits of 14.57 billion yuan, dropping 11.8 per cent in comparison with the same period of 2007. The industrial profits dived more than 50 per cent in September-November.
MARKET STRUCTURE ADJUSTMENT IN FULL SWING: Output and sales volume of GSM cell phones produced by China's 100 important handset manufacturers in 2008 dropped by 17.1 per cent and 15.4 per cent from the previous year, respectively, with the proportions accounting for 74.7 per cent and 75.4 per cent of the industry's total, down 6.7 percentage points and 6.5 percentage points.
The reshuffle of China's telecom operators had an impact on the output and sales of CDMA handsets, led to increases of 15.4 per cent and 15.2 per cent on year, respectively, accounting for 13.5 and 13.4 per cent of the total.
Output and sale of 3G mobile phones surged. With the initiation of TD-SCDMA trial commercial use in April 2008 as well as increased international market demand, output and sale of 3G handsets grew rapidly with the output and sales volume last year hitting 65.79 million units and 66.37 million units, respectively, hiking 87.5 per cent and 90 per cent on year.
PROBLEMS: The impacts of the global financial crisis have started to emerge. The growth of China's cell phone market was affected by the global financial crisis in 2008 with drops starting from the third quarter.
During the forth quarter, the global handset output showed negative growth with a decrease of 12.6 per cent, and major enterprises' orders down over 10 per cent on average.
KNOCKOFF HANDSETS BEGAN TO INFLUENCE THE INDUSTRY: Currently, knockoff handset manufacturing has formed a complete industry chain, and gradually becomes a main force in the development of China's mobile phone industry.
Statistics show that the number and export volume of knockoff handsets both took up over 10 per cent of the industrial total.
Since knockoff handsets don't go through access ratification, boast obvious advantages on the timing of market debut and costs, and have comparatively fresh appearances and functions, their existence caused great impact on the export and rural market share of regular manufacturers.
Some knockoff handsets have imitated new products of regular cell phone enterprises and violated the intellectual property of the latter.
Besides, the quality of knockoff handset producers varies greatly, many of their products are sold on the market without strict examination or maintenance support, thus leading to increasing problems on product quality and services. The knockoff handsets received the most complaints over the past years.
CHANNEL COMPETITION INTENSIFIED: Under the gloomy macro-environment, foreign manufacturers intensified their exploration for channels to answer challenges from knockoff handset producers, while some domestic enterprises reformed the model of channels, transforming former subsidiaries to regional marketing centers, and adopted the regional agent model instead of branches' direct supply so as to cut sales costs. A new round of channel integration started.
Besides, sales models will see huge changes with the coming into existence of the 3G era. China's telecom giants, China Mobile Communications Corp. (CMCC) and China United Telecommunications Corp. (Unicom Group) (SSE:600050, SEHK:0762), will participate in the field of cell phone selling to promote new business, and reinforce their status in the industry chain.
Issuance of 3G licenses induced great pressures on regrouped Chinese telecom operators for developing new subscribers.
Providing subsidies for purchasing terminals or providing free handsets for attracting new users will be feasible. Carriers' large-scale procurement and bundling sale played an increasingly important role on mobile phone sales channel.
OUTLOOK: The development of the global economy remains sluggish at present, the international financial markets remain turbulent, prices of raw materials and energy see drastic fluctuations, international trade barriers emerge continuously, and the export environment is worsening.
Industrial research firms, namely IDC and iSuppli, expect the global output of handsets to decline by 2-5 per cent this year. Since China's cell phone output stands at more than 60 per cent of the total in the world, foreign demand drop will bring plenty of impacts on the industry.
DOMESTIC MOBILE PHONE MANUFACTURERS CONFRONT MORE DIFFICULTY: Overseas mobile phone producers intensified investments in low-end handsets and China's rural markets over the past years alongside solidifying the high-end cell phone market.
In comparison, the business scale of Chinese enterprises is comparatively smaller. They lack core technologies and the industry chain is incomplete. Therefore, it is difficult for them to compete with foreign rivals on costs, brands and sales.
On the low-end competition with knockoff handset manufacturers is intensive.
3G DEVELOPMENT PROMOTES INVESTMENT AND DOMESTIC MARKET EXPANSION: China's telecom industry recorded fixed asset investments of 295.4 billion yuan in 2008, up more than 50 billion yuan year on year.
Statistics show that Chinese carriers will invest 400 billion yuan in 3G network development over the coming three years. Included will be 170 billion yuan this year.
CMCC plans to build 60,000 new TD-SCDMA base stations with the business covering 70 per cent of China's prefecture-level cities.
China Telecommunications Corp. takes over the CDMA network and business from Unicom Group and engages in CDMA 1X network expansion and optimization.
Unicom Group focuses on 2G network upgrade and reform to make it capable of offering both 2G and 3G services.
China's 3G user number is expected to surge during the second half of 2009, which will drive up the sales volume of 3G handsets.
China's handsets output this year is expected to stay the same as in 2008.
(Source: Ministry of Industry and Information Technology) (XIC)
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