Endangered species: Asia handset makers

Jennifer Tan

SINGAPORE: Struggling to boost sales in a maturing mobile phone industry gripped by cut-throat competition, several Asian handset makers are heading for extinction.

NEC Corp. of Japan, Taiwan's BenQ Corp. and China's Ningbo Bird Co. Ltd. are among those suffering from the absence of economies of scale in production and distribution to compete with leaders like Nokia and Motorola.

But a handful could survive by growing their partnerships with telecoms carriers in developed and emerging markets, and supplying them with attractive, quality phones.

"The trend is that regional players are struggling and global players are winning," said Bengt Nordstrom, chief strategy officer with research firm inCode. "For a smaller Asian handset maker to compete with Motorola and Nokia in the low-end segment is almost mission impossible."

Some small South Korean players are already teetering on the brink. Pantech Co. Ltd. and Pantech&Curitel Communications Inc. are undergoing debt restructuring, hit by heavy losses from stiff competition and eroding margins, while VK Corp., once known for its ultra-slim phones, was placed under court receivership this month.

BenQ, Taiwan's top mobile phone vendor, posted its fifth straight quarterly loss earlier this week, dragged down by its ailing handset business after it declared its German unit insolvent late last year, and warned of weaker sales.

Even sector heavyweight Motorola has not been spared. The U.S. firm warned on Wednesday of a first-quarter loss and a worse-than-expected 2007 outlook due to weak sales and pricing pressures, despite growing its global share last year.

Industry leader Nokia expanded its market share last year, while Sony Ericsson overtook South Korea's LG Electronics Inc. to grab fourth position.

Targeting niche strategies

But most of the smaller Japanese cellphone makers, which command less than 1 percent share of the global market, are suffering. Many have retrenched staff over the last few years, hit by the industry's competitive environment.

These players could grow their miniscule share by offering revolutionary products ahead of their larger rivals, such as fuel cell-powered phones and handsets capable of ultra-fast data transmission, said Gartner analyst Michito Kimura.

The niche strategy of supplying premium handsets to operators in developed overseas markets, which has boosted margins and profits for these firms, would also ensure their survival, said Gartner analyst Ann Liang.

Japan's top mobile phone supplier Sharp Corp. works with Britain's Vodafone Group Plc, while Toshiba Corp. has partnered with Orange in Spain and France.

"It's hard to imagine a global player emerging from Japan at this late stage, although one exception to the rule might be Sharp," said Neil Mawston, analyst with Strategy Analytics.

Sharp has built a healthy niche position in third-generation (3G) mobile technologies across western Europe, thanks to its advanced offerings and attractive phone designs.

"But despite its success, it is unlikely to move beyond niche status globally, due to limited economies of scale," he added.

Likewise, many Chinese mobile phone makers, with less than 1 percent share globally, will have to exit the market or merge with rivals, as the industry's supply glut bites. Analysts estimate that at least 35 domestic brands exist.

"The outlook for Chinese brands is weak. Nokia and Motorola have been flexing their muscles in China since 2005 and have already crushed most of the domestic competition with their larger marketing and distribution budgets," Mawston said.

But a handful of Chinese phone makers such as Lenovo Group Ltd., ZTE Corp. and Huawei Technologies Co. Ltd., which supply reliable and feature-rich handsets at reasonable prices to operators in Europe, Latin America and Africa, are emerging as credible niche players.

Their small scale, however, would still limit their global reach.

iSuppli analyst Kevin Wang is forecasting declining overseas and domestic shipments for Bird this year, but expects Huawei and ZTE to boost their sales sharply, thanks to phone supply contracts from carriers like Vodafone and India's Reliance Communications Ltd.

(Additional reporting by Kiyoshi Takenaka in Tokyo, Sophie Taylor in Shanghai, Sheena Lee in Taipei, Rhee So-eui in Seoul)