Four Main Survival Models of Handset Companies
|Elegant||Best-experience products, Faithful high-end users, High profit, Niche market||Good insight of potential demands of consumers, Pursuit of perfect quality||Apple|
|Streamline||Low-price products, Volume business, Low profit||Strong tolerance of low profits, Good manufacturing, supply chain, distribution channel and after-sale service||Lenovo and others with experience of PC and home appliances & New Riches innovative at manufacturing, supply chain, distribution channel or service|
|Technological||Leader in key components, Vertical integration, Good profit||Strong accumulative technological capability on key components such as chipset, screen, memory, sensor||Samsung and others|
|Fashionable||Cultural branding highly recognized by specific customer group, Good profit||Deep understanding of specific customer group, Strong sense of fashion trend, Consumer-oriented company structure and culture||Xiaomi, 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.