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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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  • Does Positioning Of Audi Work For HTC?
    In the earnings call of Q4 2011, the CEO of HTC implied that HTC would position itself as "Audi in handset market". Does this positioning work for HTC in middle-to-long term?

    Upside of Audi Positioning

    1. Simple and Clear

    In face of questioning of sustainability and threat of Asian rivals with low-price strategy, the positioning of Audi gives investors and consumers a clear and simple image. By analogy with automobile industry, investors and consumers themselves could perceive HTC as a supplier of high-class but not luxury handsets targeting at high-end but not top-end population.

    This positioning offers HTC a good excuse to decline to disclose the shipments since Q4 2011 because HTC does not target at mass market.

    The positioning implies that HTC may reduce the number of models and try to build every model as classic and famous one. It also implies that HTC would try to keep leading in catching the trend of technology and fashion.

    2. Lead in technologies

    Audi impresses consumers firstly with its advanced technologies such as ASF, FSI, TDI, MMI, Quattro, Tiptronic, Multitronic. This matches the history of HTC which is the first to launch smart phone with OS of Microsoft in 2002, the first to launch Smart Music Phone and smallest PDA phone in 2004, the first to launch Android smart phone in 2008, the first to launch GSM/WiMAX dual-mode handset in 2008, the first to launch LTE smart phone in 2011.

    Moreover, HTC Sense has been a leading UI among all Android smart phones.

    3. From developed market to developing market

    The success route of Audi matches that of HTC which is making strategies for developing markets. With the widely known brand in Europe and USA, HTC hopes to secure a price premium in developing markets such as China mainland.

    Downside of Audi Positioning

    1. Lack of key handset technologies

    Engine, Chassis, Transmission are usually key technologies of automobile industry. Audi is leading in all three aspects and others. In contrast, chipsets and OS are key technologies of handsets. But HTC has little of them. It is nearly impossible for HTC to remedy it in future.

    2. Key Component suppliers of handsets are marketing directly to end users

    In automobile industry, consumers care far more about the brand and quality of cars than components. In contrast, consumers are showing more and more loyalty to brand of OS or chipset suppliers of handsets. For example, according to a user survey in China, young consumers are more loyal to Android than brand of handset makers. What if the episode of 'WINTEL' come back? Goocom?


    Although we cannot determine that this positioning would definitely lead to death, the way would be rather long, tortuous and risky.

    In short term of no more than three years, the evolution of main handset technologies such as chipset and OS would markedly slow down. Instead, the application of technology to new lifestyles would stand out. OS or chipset suppliers could do limitedly in face of localization and nationalization. This offers handset makers a good opportunity to find new growth points in markets where they root in.

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

    Tags: HTC Audi
    Feb 14 8:26 AM | Link | 1 Comment
  • Summary of Device Industry Insight
    1.        The key element of success of application stores lies in not development but operation.
    Operating application stores needs internet culture and mechanism. Manufacturing companies find it very difficult to do well only by themselves. Investment in service providers may be a good solution.
    2.        The key element of success of OS lies in not development but propaganda.
    ü         BADA will probably fail partly because Korea market is too small and industry chain is weak.
    ü         China has the best handset industry chain in the world. The key point of success in China OS is to integrate diverse resources and gain support from partners.
    ü        HTC has recently made correct choice to move its root from western world to China gradually.
    3.        MTK’s 6573 has opened a new era of low-end smartphones, shorting the lifespan of smartphone industry.
    It seems that Qualcomm finds it uneasy to respond quickly to the attack of its Asian rival. Before the completion of substantial adjustment of new financing system, customer support and local design center, the loss of market share is highly likely to be unavoidable.
    4.        Apple is falling soon.
    Innovation is brilliant but hard to sustain. Apple has made tremendous success in MP3, handset and flat computer. Moreover, Apple has opened the era of mobile internet, internet service + mobile devices. However, it is coming to the end. The sense of human begins drives people to buy comparable but cheap commodities. The failure of attempting to break the monopoly of MSO in USA and open home market accelerates the fall.
    5.        Commoditization is accelerating.
    As the entry level of smartphones is much lower with the emergence of MTK’s 6573 and the stability and rich functions of Android, more and more companies will pour into this field in next few years, which was ever seen in the era of PC. The mess of two to three years seems inevitable. However, after that, dominant giants will eventually consolidate their positions and command the industry chain.
    6.        Differentiation focuses more on lifestyle and culture.
    Smartphones differ from PC with its representation of personalities of individuals. Under the pressure of commoditization, lots of companies have to turn their attention to the research of lifestyle and culture. Crossing-culture opportunities are showing up.
    7.        Internet service providers will create considerable niche markets of devices.
    The rapid growth of wireless bandwidth boosts the increasing power of internet service providers. Internet service provider are likely to imitate the current business model of telecom carriers, issuing orders and subsidizing customized devices. Device makers which lack the gene and ability of good cost control would have to learn how to survive in such niche markets.
    Tags: AAPL, HTCCF
    Nov 03 9:54 AM | Link | Comment!
  • Xiaomi Handset – Chinese Apple?


    What is Xiaomi Handset?
    Xiaomi Handset is a dual-core 1.5G smartphone which will be launched in October by Xiaomi Corporation, a venture company with $41 million and 249 employees based in China.

    A Crazy Idea?
    Leijun, the founder and CEO of Xiaomi Corporation, claimed at the new product release conference in August that Xiaomi was a fans-oriented handset and targeted at becoming Chinese Apple.

    Vision of Xiaomi
    l         The growth of ‘cloud’ applications and services is much faster than that of handsets
    l         The progress of handset in aspect of convenience, friendliness, and localization is far behind technology.
    l         Young people direct the future and fashion but their attention and concern are ignored by the mainstream society.
    l         Apple is God but Chinese need Chinese God.
    Strategy of Xiaomi
    Product Strategy: Firstly, Xiaomi use best components to be a best handset. It was said that over 90% of all suppliers numbered over 100 of Xiaomi are the completely same as of Apple. Secondly, internet development mode is introduced to handset development. The software version is updated and released every week. Thirdly, the design of some functions is determined by the vote of xiaomi fans. Fourthly, MIUI, the OS of Xiaomi, derived from the customization and optimization of Android 2.3. Fifthly, the match of internet applications and handsets is targeted at perfectness. MiLiao, Xiaomi’s handset IM software, which functions as WhatsApp at APP store and had attracted over 3 million users within half a year since launch by July 2011, will be deeply integrated into handset OS and hardware.
    Pricing strategy: Xiaomi with 1.5G dual-core Qualcomm MSM8260 processor, 1G memory, 1930 mAh battery, 4-inch screen and 8-mega-pixel camera, is priced at only RMB1999 (approximately $312) , far below the expectation of most people. The estimated profit margin is very poor or even negative if quality accidents happen. In contrast to Apple, Xiaomi does not pursue handset profits. Instead, best reputation and enormous customer base are what Xiaomi really concern.
    Promotion Strategy: Firstly, Xiaomi targets at the circle of fans which comprise 3 million MiLiao fans and 500,000 Xiaomi handset fans. Secondly, only 10,000 units will be sold in October for the first time and hence only lucky registered Xiaomi fans are qualified to get one. Obviously hunger marketing is employed.
    Distribution Strategy: Electronic Commerce is expected to be the main means, catering to the habit of young people while saving big deal of money for channel distribution. Telecom carrier distribution is alternative.

    Management Team of Xiaomi
    Seven co-founders come from very famous IT companies. Leijun, the former president of Kingsoft and, is CEO and board directors. Linbin, the former vice president of Google China China Engineering Academy, is the president. Liwanqiang, the former vice president of Kingsoft, and Huangjiangji, the former director of ‎Microsoft China Academy of Engineering, are responsible for MIUI. Hongfeng, the former senior product manager of Google China, and Huangjiangji are responsible for MiLiao. Zhouguangping, the former senior director of Motorola China R&D Center, and Liude, the former founder of Industry Design Department of University of Science & Technology Beijing, and Liwanqiang are responsible for Xiaomi handset.

    A Bright Future?
    Firstly, the vision of Xiaomi is wonderful. In fact, the handset industry chain of China is best in the world and capable of producing world-class companies. As commoditization approaches, those companies which can seek differentiations by hearing the voice of young people and fashion and seamlessly integrating it into handset design will be Chinese Nike.
    Secondly, lots of highlights can be observed from four strategies. As a result, I accessed the forum of Xiaomi and surprisingly found that it was very hot and frequently refreshed by countless fans. Some fans said although they were high school student and did not afford to buy Xiaomi, they decided to earn money by themselves during summer vacation. Some said they were very nervous, worrying that they were not lucky enough to get one. Some regarded Xiaomi as their favorites and did not tolerate any criticism on it. This reminded me of the hot scene of the singing contest ‘Voice of Super Girl’ which achieved unparalleled success by adapting game rules to young people.
    Any Dangers Ahead?
    Firstly, users pay none for most internet applications but have to pay RMB1999 for Xiaomi. As a result, users can tolerate the demerits and frequent update of internet services but cannot stand handset problems.
    Secondly, supply chain management is crucial to handset business. If Xiaomi’s shipments exceed 1 million or even 10 million, Xiaomi will undergo great challenge.
    Thirdly, the development mode of frequent version update is doubted. It may bring about unreliability.
    Lastly, inadequate repair service is risky.

    l         Once Xiaomi handset is indeed popular with its fans when launched in October, it would achieve half of success. After that, if Xiaomi could tackle potential problems ahead(although the probability of failure is considerable), it can really produce great product.
    l         Apart from Xiaomi’s aggressive solution mode, the mode of SP + handset such as Alibaba + K-touch is working. In spite of the immaturity of the mode of latter, it represents the trend of the industry. Therefore, Xiaomi ought to seize the opportunity window of around 3 years and make its enclosed ecosystem large as soon as possible. Afterwards, it could consider transforming into open ecosystem but controlling some key elements such as handset OS and cloud platform.
    l         If Xiaomi failed, it would definitely contribute a lot to the growth of overall Chinese handset industry. It would enlighten Chinese handset makers on the concern about convenience, friendliness, localization, and fashion. More and more Chinese handset makers would walk along the path of Xiaomi and some of them are likely to be Chinese Nike.  

    PS: All contents including visions and strategies of Xiaomi are analyzed and summarized from my perspective. The Xiaomi corporation does not claim them or touch only part of them.

    Tags: AAPL, xiaomi, 小米
    Aug 29 11:00 AM | Link | Comment!
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