Chinese cell-phone firms struggle to make a profit
Local brands have grabbed a lion's share of China's cell- phone market but are struggling to make money, market insiders warned.
Industry officials estimate that smartphones will continue to batter the cell-phone market in the coming year, with the Android operating system consolidating its leading position.
Contract phones are tipped to lead the market as handset manufacturers forge closer ties with operators to boost sales.
As of November, 70 percent of handsets sold in China are manufactured by domestic companies, according to a study by Beijing-based Sino Market Research Ltd.
After South Korea's Samsung Group, which topped the list with 15.5 percent of the market share, the second- to fifth-most sold cell phones in China are homegrown brands: Lenovo, Coolpad, Huawei, and ZTE.
A similar ranking is in the smartphone hierarchy, with the Chinese consortium claiming a combined 40 percent of sales.
Samsung leads the smartphone field with 16.3 percent of the market, while Apple Inc's iPhones dipped to sixth with less than 5 percent of the market.
Meanwhile, Chinese firms are struggling to translate their sales success to profits.
Most domestic phone makers are running on zero margin or barely make a profit, said Xu Zhen, a telecommunications specialist with d1net.com, an information technology portal.
He referred to the second-generation Xiaomi phone, a domestic gadget with a quad-core CPU priced at 1,999 yuan ($320), as having a meager 30 percent gross profit, while Apple's iPhone 5 has a profit rate as high as 400 percent.
Henry Lin, chairman of NQ Mobile Inc, a leading mobile security provider, echoed Xu's comments, saying Apple grabbed up to four-fifths of the overall profit gains despite its relatively small volume.
Domestic brands managed to dominate the low- and middle-end market that is highly cost-conscious, putting a dent in their long-term profitability, Lin said.
Xu said the problem is likely to worsen, as almost all Chinese producers use the Android operating system, which has stricter hardware requirements than iOS, the operating system that runs exclusively on iPhones.
"Therefore, local companies need to invest more in hardware upgrades to sustain a smooth user experience. That costs a considerable amount," Xu said.
Thanks to the expansion of 3G service coverage and further falls in prices of budget smartphones, the share of the handset market accounted for by smartphones is likely to reach 32 percent, or around 143 million phones this year, according to estimates from Digitimes Research, an online electronics information pool in Taipei.
A more aggressive finding suggests that smartphones and feature phones will achieve similar shipments, data from Analysys International showed.
Li Yanyan, an analyst with the consultancy, said that 77 percent of newly sold handsets in the third quarter are smartphones, adding the trend is likely to be reinforced as the "smartphone wave" penetrates across second- and third-tier cities.
Android is definitely calling the shots in the market, with two-thirds of the cell phones sold in China in 2012 running on the system, according to a recent report from London-based Informa Telecoms & Media, a unit of the research firm Informa UK Ltd.
Analysts agreed that the dual-core processor will prevail in most smartphones in 2013, and the price for quad-core gadgets is likely to drop.
Besides, a larger screen is usually better on phones when it comes to viewing videos, Web surfing and gaming, Li said. While Apple finally upgraded to a 4-inch display for the iPhone 5, high-end Android smart phones had edged above the 4.5-inch mark and beyond.
Another trend observed is the growing role of operator stores as a sales channel for handsets.
Operators will enjoy a 40 percent-plus share of the total mobile handset market by 2014, up from 24 percent in 2008, said Daniel Hui, an associate principal at McKinsey & Co in Hong Kong.
He noticed a growing influence operators have on the mobile retail market, since the release of 3G licenses in 2008.
"Through policies and subsidies, the government is pushing a high subscription target combined with a strong push on 3G technology. This puts Chinese operators in a strong position, and they are using it to expand their presence into other channels, such as by opening counters in consumer electronics stores," he said.
Contract phones are tipped to lead the market as handset manufacturers forge closer ties with operators to boost sales.
As of November, 70 percent of handsets sold in China are manufactured by domestic companies, according to a study by Beijing-based Sino Market Research Ltd.
After South Korea's Samsung Group, which topped the list with 15.5 percent of the market share, the second- to fifth-most sold cell phones in China are homegrown brands: Lenovo, Coolpad, Huawei, and ZTE.
A similar ranking is in the smartphone hierarchy, with the Chinese consortium claiming a combined 40 percent of sales.
Samsung leads the smartphone field with 16.3 percent of the market, while Apple Inc's iPhones dipped to sixth with less than 5 percent of the market.
Meanwhile, Chinese firms are struggling to translate their sales success to profits.
Most domestic phone makers are running on zero margin or barely make a profit, said Xu Zhen, a telecommunications specialist with d1net.com, an information technology portal.
He referred to the second-generation Xiaomi phone, a domestic gadget with a quad-core CPU priced at 1,999 yuan ($320), as having a meager 30 percent gross profit, while Apple's iPhone 5 has a profit rate as high as 400 percent.
Henry Lin, chairman of NQ Mobile Inc, a leading mobile security provider, echoed Xu's comments, saying Apple grabbed up to four-fifths of the overall profit gains despite its relatively small volume.
Domestic brands managed to dominate the low- and middle-end market that is highly cost-conscious, putting a dent in their long-term profitability, Lin said.
Xu said the problem is likely to worsen, as almost all Chinese producers use the Android operating system, which has stricter hardware requirements than iOS, the operating system that runs exclusively on iPhones.
"Therefore, local companies need to invest more in hardware upgrades to sustain a smooth user experience. That costs a considerable amount," Xu said.
Thanks to the expansion of 3G service coverage and further falls in prices of budget smartphones, the share of the handset market accounted for by smartphones is likely to reach 32 percent, or around 143 million phones this year, according to estimates from Digitimes Research, an online electronics information pool in Taipei.
A more aggressive finding suggests that smartphones and feature phones will achieve similar shipments, data from Analysys International showed.
Li Yanyan, an analyst with the consultancy, said that 77 percent of newly sold handsets in the third quarter are smartphones, adding the trend is likely to be reinforced as the "smartphone wave" penetrates across second- and third-tier cities.
Android is definitely calling the shots in the market, with two-thirds of the cell phones sold in China in 2012 running on the system, according to a recent report from London-based Informa Telecoms & Media, a unit of the research firm Informa UK Ltd.
Analysts agreed that the dual-core processor will prevail in most smartphones in 2013, and the price for quad-core gadgets is likely to drop.
Besides, a larger screen is usually better on phones when it comes to viewing videos, Web surfing and gaming, Li said. While Apple finally upgraded to a 4-inch display for the iPhone 5, high-end Android smart phones had edged above the 4.5-inch mark and beyond.
Another trend observed is the growing role of operator stores as a sales channel for handsets.
Operators will enjoy a 40 percent-plus share of the total mobile handset market by 2014, up from 24 percent in 2008, said Daniel Hui, an associate principal at McKinsey & Co in Hong Kong.
He noticed a growing influence operators have on the mobile retail market, since the release of 3G licenses in 2008.
"Through policies and subsidies, the government is pushing a high subscription target combined with a strong push on 3G technology. This puts Chinese operators in a strong position, and they are using it to expand their presence into other channels, such as by opening counters in consumer electronics stores," he said.
