China's handset makers to cut prices, others to exit overheating mkt - analysts
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Date-Time: 2003-7-31 15:38:10 BEIJING (XFN) - China's handset makers increased production rapidly in the first half of the year, but profits fell from the period a year before, a sure sign that the sector is overheated, analysts told XFN. "A hard time is lying ahead for domestic handset makers," Fang Lunyu, a telecoms analyst with Guangfa Securities, said. He said the sector would soon enter a period of consolidation. "The era of quick and huge profit for handset manufacturing is over." China's telecommunications industry recorded a profit of 5.5 bln yuan for the first half, down 35.4 pct year-on-year, according to figures from the Ministry of Information Industry (MII), a fall that coincided with a glut of handsets. The country produced 82.2 mln mobile phones in the first half of the year, or one-third of the world's total, the MII said, contributing directly to the weaker profit levels in the sector. Fang estimates that by the end of June, China's handset inventory stood at 20 mln units, with annual demand standing at an average of around 60 mln units over the past few years. This revenue-sapping stockpiling of mobile phones will put pressure on handset manufacturers to cut prices. "The manufacturers will have to further cut prices to reduce their inventories, and their gross profit margin will continue to fall," Zhang Xiaofei, a telecoms analyst with Southern Securities, told XFN. To drive home the point, Zhang highlighted the example of TCL Communication Equipment Co Ltd (SZ A 000542), one of China's largest cellphone manufacturers. TCL saw its gross profit margin fall to 23.4 pct in the first three months of 2003, Zhang said, and would drop to about 15-16 pct in the first half. Wang Jinyan, a telecoms analyst with Industrial Securities, expects many of China's smaller manufacturers to exit the handset manufacturing sector in the near future. China has 37 handset manufacturers, many of them smaller operations that have ridden along on the coat-tails of the sector during the good times, but will find survival hard in the times ahead. "[As with] the TV and computer sectors, the handset making industry will see profits and market share gradually consolidated into a few players," Wang said. Guangfa's Fang said that with growth rates slowing in the sector, "handset manufacturers will find a limit to its market share growth, and thus more difficult to increase profits." He added that China's telcoms could look abroad in order to expand from the increasingly saturated domestic market, but said this path was fraught with obstacles. "Although the makers could try harder to expand into the global market, they will have to spend a lot more money on technology innovation and marketing," he said. roger.chen@xfn.com
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