According to The Wall Street Journal (subscription required), Chinese mobile phone manufacturers are suffering despite tremendous growth in the domestic cell phone market. The WSJ explains why these manufacturers are hurting and which companies investors should consider:
China cellphone market growing quickly
- Currently 330 million subscribers.
- Mobile-phone sales are expected to rise 11%
- Motorola (ticker: MOT) and Nokia (ticker: NOK) are capitalizing.
- BUT China cellphone makers are suffering
Problems for China mobile phone manufacturers
- Chinese manufacturers are unable to integrate phone features such as cameras and color screens that are in heavy demand in China. Motorola's high-end "Razr" phone is a hit.
- Chinese manufacturers are struggling to acquire high-end components particularly at the discounted rates enjoyed by Nokia, Motorola and Samsung Electronics.
- Many foreign phone makers have moved operations to China to take advantage
of lower labor costs. The Chinese vendor is not necessarily the low
- Foreign companies have improved their distribution networks in more-remote Chinese provinces where cellphone use is growing fast.
- This has led to Chinese companies building up inventories of unpopular phones which are ultimately sold for cheap - hurting profit and delaying innovation.
- In a recent BDA survey of Chinese consumers, more than 80% of respondents said they use a cellphone made by a foreign company.
- In the last quarter of 2004, Nokia sold 66.1 million handsets globally. China's TCL made fewer than 10 million phones in all of last year.
How investors can play wireless growth
- Foreign players like Motorola or Nokia that are running successful China operations.
- Other options: China's ZTE and Lenovo Group both of which have gained some cellphone-market share lately.
- ZTE has had some success selling phones that operate on the less-popular CDMA standard.
- But, handsets comprise a relatively small portion of the business of ZTE and Lenovo.
- Both are state-controlled and faced with widespread regulatory uncertainty.
- The Chinese government is expected to restructure the telecom industry soon to reduce price competition and spending on new networks.
Flavia Cheong, a fund
manager with Aberdeen Asset Management in Singapore
- Chinese phone companies could succeed in two to three years, but it's hard to pick a winner.
- Aberdeen owns shares of China Mobile.
Lehman analyst Alan Hellawell
- Recommends buying China Mobile.