Communications & Networks

In 1Q 2008, China's mobile phone shipments grew to 43.1 million, up 4.0% QOQ, while revenues reached 49 billion Yuan, up 7.2% QOQ. Sales and shipments were strong in the face of inflation, driven by holiday promotions of the Chinese New Year.

CCID Consulting project mobile phone shipments will reach 44.5 million in 2Q08, up 3.3% QOQ. Although China's Golden Week holiday in May has been cancelled, CCID Consulting believes this will have little impact on growth.

Replacement purchases are a key driver, along with upgraded technologies and more applications.

China's phone shipments for 2007 reached 150 million, 60% (or 90 million) of those were replacement purchases. CCID Consulting projects in 2008, shipments will reach 180 million, with a larger 65% (or 117 million) of those will be replacement purchases.

Replacement purchases are driven by shortened mobile phone product life cycle, accelerated technology upgrades and more applications, better price-performance ratios, and more effective carrier-based retail channels.

Technology upgrades to new phones continue. Larger, higher definition TFT screens are increasing, as the over 2” screen segment is 43% of shipments. Memory and storage capacities also upgraded. The share of mobile phones with upgraded cards reaches 48%.

Mid- to high-end phones in China come standard with camera, MP3, and PMP (Portable Media Player). Mobile phones with 2 mega pixel cameras are the mainstream, but 7 mega pixel models are available, rivaling digital cameras. Over 100 models offer TV video I/O connectivity.

New mobile phones offer more applications. Partly enabled by increased mobile phone operator services, new phones in China now offer more applications: WiFi, e-wallet, e-mail, digital TV, PTT, GPS, Bluetooth and NFC/RFID. For example, shipment share of GPS mobile phones has reached 2% in 1Q 2008.

Another driver will be the opening of China's 3G networks. Testing of China's own 3G standard, TD-SCDMA, is also underway.

Multinational vendors have market share while Chinese domestic vendors respond more to the market, and more enter.

Combined shipment share of Nokia, Samsung, and Motorola was over 65% in 1Q 2008. Nokia leads with its strengths in channel management, promotion, and product bundling.

Samsung continues to aggressively launch new products and optimize its price, channel, promotions, production, and operator strategies.

However, Motorola continues its decline in market share. Sony Ericsson and LG have smaller market shares.

Chinese domestic vendors such as Bird, TCL, Amoi, and Lenovo loose market share. However, they are increasing their responsiveness by offering new product, functionality, and non-conventional marketing methods, such has TV direct sales. They are also pushing into China's more rural markets.

At the same time, there are emerging Chinese vendors, such as Tianyu, Gionee, Telsda, and Ahong. Tianyu and Gionee are the new top 10 players, with smart product positioning and channel-friendly strategies.

Source: CCID Consulting, april 2007

Chain stores in China are the largest channel, while mobile phone operator-specific channels show potential.

Mobile phone retail chains are the largest channel at present, but their share has declined by growth of operator-specific and home electronics channels. We see some exiting of weaker mobile phone chains.

Operator-specific retailing has been strong for lower-end mobile phones, and this channel will benefit further with the opening of 3G networks and increased operator services (attached to the mobile phone). Home electronics chains have been coming on strong, due to their scale economies, direct supply chain, and disciplined marketing.

Source: CCID Consulting, april 2007

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

Ó 2008 CCID Consulting Co., Ltd.