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A Shanzhaiji CEO’s Insight

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                                   A Shanzhaiji CEO’s Insight
 
Yesterday I had tea with a friend, the CEO of a Shanzhaiji company with over 100 employees of whom most work on supply chain side, in an attempt to know whether Shanzhaiji as a whole is moving to smart phone and how threatening it is to branding companies. Now I am sharing his insights here.
Firstly, owning to low penetration rate of smart phone in China, Shanzhaiji as a whole still concentrates on feature phones.
Secondly, there are two kinds of shanzhaiji companies developing smart phones. The one is branding companies such as K-touch and GIONEE which intend to enhance the image of branding by launching smart phones and may not really pursue profits from smart phones. The other is small companies with employees of fewer than 20. They provide extremely similar mimic smart phones of famous branding companies with even the same logo but with a lower price.
Thirdly, middle-to-high end feature phones will be further cannibalized by smart phones in next years. However, most Shanzhaiji customers will still choose Shanzhaiji feature phones next year. Shanzhaiji customers are sensitive to pricing and usually choose phones under RMB 400 ( approximately $62). Smart phones is hopeless to be sold at this price next year. Moreover, low-end populations mainly seek simple applications such as voice, message, QQ (instant messaging), light games, music which can be easily and well fulfilled by smart feature phone or touch feature phone. These phones are much cheaper than smart phones. For example, a touch feature phone with 3.2 inch QVGA screen and 2 mega pixel camera has a BOM cost of only RMB180 and is sold at only RMB 300.
 
                                          Implications
Smart feature phones under RMB 400 still have 2-3 years of prosperity.
More and more Shanzhaiji companies with a certain scalability and branding will launch smart phones next year to enhance branding image and hence gain the premium.
Besides high pricing, complex operation and limited applications are bottlenecks to impede the penetration of smart phones in the mass. Tremendous market opportunities are waiting for smart phone companies which can not only lower the price but also increase customer awareness, integrate applications and ease the operations.