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Patrick Zhou, principal analyst, joined Strategy and Planning Division, H Corporation in 2005 and is now responsible for delivering analysis, insight and recommendations of mobile internet and device to board of directors. He is influential and was awarded the Gold Medal last year, the highest... More
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  • Four Main Survival Models Of Handset Companies

    Four Main Survival Models of Handset Companies



    ModelFeature(s)Competitive Advantage(s)Winner(s)
    ElegantBest-experience products, Faithful high-end users, High profit, Niche marketGood insight of potential demands of consumers, Pursuit of perfect qualityApple
    StreamlineLow-price products, Volume business, Low profitStrong tolerance of low profits, Good manufacturing, supply chain, distribution channel and after-sale serviceLenovo and others with experience of PC and home appliances & New Riches innovative at manufacturing, supply chain, distribution channel or service
    TechnologicalLeader in key components, Vertical integration, Good profitStrong accumulative technological capability on key components such as chipset, screen, memory, sensorSamsung and others
    FashionableCultural branding highly recognized by specific customer group, Good profitDeep understanding of specific customer group, Strong sense of fashion trend, Consumer-oriented company structure and cultureXiaomi, Meizu, Oppo and others with experience of new media (such as internet) or traditional media (such as TV)

    Elegant Model: Some people might argue that Apple will continue to lead in mass market. However, as I said before, open ecosystem (rather than Apple's enclosed system) and professional labor division provides consumers with wider-range and lower-prices products.

    Streamline Model: Some people might say that handset is personal consuming electronics, different from PC. Admittedly, fashion is a very important differentiator. However, price and attainability are the same points of PC and handset that consumers care about. Companies with streamline structure can provide consumers with low-priced, easily-attained, and well-serviced products.

    With regards to who will win with this model, chipset vendors are supposed to play very important role. No matter which one from Qualcomm, Mediatek, and Intel would win at last, I bet it would support the growth of branding companies rather than white-brand ones. Since the position of chipset in handset is supposed to be more significant, chipset makers would probably have strong impact on the future of handset makers.

    Technological Model: Some might say Samsung is also competitive at fashion. Many consumers are motivated to buy Galaxy III and Galaxy Note because they have watched these products used by handsome boys and beautiful girls in Korean movies. Yet, we have to distinguish between core competitive advantages and others. Although Korean culture does have some influence, I do not think Samsung's fashion could enable it to be widely accepted by the whole world.

    Fashionable Model: Both culture industry and the upgrade of manufacturing industry are now strongly encouraged by the government. The convergence of these two trends is the Servitization of Manufacturing which implies golden time of next ten years for fashionable model.

    It is very hard for traditional manufacturing companies to transform themselves into consumer-oriented fashion companies. Therefore, this model is very attractive to newcomers especially when they understand new media (such as internet) very well.

    I think this model is still in early stage and will not come to take off until 2014. By then, the "arms race" in smartphone will probably come to the end. Consumers will come to care much more about applications and fashion than performance.

    PS: some companies may operate on more than one model. For example, Samsung is now running on both technological model and fashionable model. But I do not think any company can operate on several models with equal weight. That is to say, one model must be its core model and others are just value-added models. Moreover, some companies may adjust their models according to market changes. For example, as low-end smartphones are gaining momentum, will Samsung add streamline model?

    Written by Patrick Zhou on Sep 19th, 2012.


    Announcement: The short article only represents the viewpoints of the author rather than any organizations and is only used for the exchange of industry insights with industry and financing professionals rather than any direct business purposes.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 19 9:57 AM | Link | Comment!
  • Handset Survey Of College Students

    Recently I conducted a survey of handsets of college students in Shenzhen and Guangzhou and found some interesting points to be shared with you.

    Firstly, Brand Choice. All surveyed students use foreign brands. APPLE, HTC and Samsung are their favorites. Boys care more about technology and performance while girls care more about appearance, fashion, and photographing.

    Secondly, Handset Affordability. Generally students have pretty good handset affordability. Students in Guangzhou are inclined to pay around RMB1500 while most in Shenzhen can afford over RMB3500

    Thirdly, Replace Requirements. Nearly all students say they will replace their handsets every around two years. Some say they will do every three to four years. Over half of students put Samsung as their first choice of replacement because of strong brand, good hardware and fashion (many students like to watch Korean movies). Nearly one third of students lists xiaomi as their second best choice. It is interesting to find that all students from Shenzhen do not like Xiaomi while most from Guangzhou prefer it.

    Fourthly, Xiaomi and Meizu. Xiaomi is popular with students mostly because of its high performance-to-price ratio. The attractiveness of MIUI has been declining because of wide choices of similar UI software. This confirms my prior judgment that UI cannot be a sustainable competitive advantage. However, Xiaomi has performed very successfully in marketing through internet. This may change my prior forecast of its future. Let's wait to see whether marketing could be its core competitive advantage. Meizu seems to target a different customer group who has graduated from colleges but has worked for no more than five years and has stronger affordability.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: QCOM
    Sep 06 11:16 AM | Link | Comment!
  • The Future Of MTK

    Does MTK Have A Bright or Gloomy Future?

    In short term, MTK has a very bright future because of robust growth of smartphones in China market and MTK's local advantages. In mid-to-long term, it is a hard question to answer. In my view, Qualcomm is a bit more likely to win.

    Why Does MTK Have A Bright Future In Short Term?

    Firstly, the smartphone shipment in China market in 2012 is expected to reach over 150 million, tripling the number last year. Consumers in China are more sensitive to prices over quality than those in USA and Europe. This lends support to MTK when it lags behind Qualcomm in technology.

    Secondly, MTK understands China market much better than Qualcomm. Some people argue that Qualcomm can also launch low-price turnkey chipsets. However, they underestimate the negative effect of organizational inertia. Qualcomm's organizational structure serves B2B model and developed markets while MTK's serves B2(small)B and developing markets. Qualcomm's product center in US cannot respond quickly to fragmented and countless "micro innovation" in China market, high-cost and limited service teams cannot serve hundreds of small handset companies, and inflexible accounting system adds the cost of QRD.

    Thirdly, MTK has a wise strategy. Number one, MTK would rather tolerate lower profit margin and pursue growth of market share than yield to capital market. Number two, MTK has established a strong sales team in china which not only sells but also collects rapidly changing industry news everyday and responds quickly to the headquarter for decision reference. Number three, MTK has successfully supported the growth of Lenovo and become popular in non-Tier 1 makers. Number four, MTK has started to build local ecosystem, embedding cloud application engines into its chipsets and cooperating with all Chinese telecom operators.

    What Could Be Long-term Dangers of MTK?

    Firstly, Qualcomm is very impressive in the aspect of implementation and adaption. Qualcomm noticed the potential threat of MTK's business model quite a few years ago and paid more and more attention to the construction of Chinese local teams. Although QRD and other mechanisms are still defective, Qualcomm is highly likely to finish localized transformation within three years.

    Secondly, the personnel structure of MTK in China mainland cannot support sustained growth because of inadequacy of localization. How to build a faithful and motivated team mostly made up of local salespeople and engineers is a key challenge.

    Thirdly, local chipset makers in China mainland are growing rapidly, imposing long-term threat on MTK.

    Fourthly, service providers and chipset makers are expected to be two largest giants in the industry of mobile internet. This implies that chipset makers must be good resource integrators. MTK's company history and DNA of Taiwan manufacturing worry investors.

    Fifthly, white-brand companies can bring tremendous short-term money for MTK but cannot support sustained growth of MTK. How to transform company infrastructure to serve big-brand companies is another challenge.

    How to Build Long-Term Advantages of MTK?

    Firstly, build a real strong strategy division which is responsible for the making of 3-5 year strategy planning, discovery and cultivation of strategic customers, integration of industry resources and construction of local ecosystem, transformation and streamline of company structure, competition policy of strategic rivals, and identification of strategic opportunity and threat.

    Secondly, construct a wide moat within three years to realize "enjoy in the middle" rather than "stuck in the middle". Number one, discover and cultivate strategic clients. The trend of handsets in two different directions of commoditization and fashion will reshape the competition situation. New giants which are expert in fashion and marketing will benefit from big wave of servitization of manufacturing, keeping away from red sea and earning high margins. Look at the fact that Qualcomm has invested in Xiaomi, a company with DNA of internet. Number two, build a closely inner-connected ecosystem in which Chinese local internet companies feel MTK can understand what they need deeply and respond timely. Number three, MTK may sponsor some show performances to make itself more exposed to common people.

    Written by Patrick Zhou on August 25th, 2012.


    Announcement: The short article only represents the viewpoints of the author rather than any organizations and is only used for the exchange of industry insights with industry and financing professionals rather than any direct business purposes.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: QCOM
    Aug 25 7:45 AM | Link | Comment!
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