China cellphone makers seen challenging Nokia, Motorola

The 2G and 2.5G phones produced in China are technically comparable with those from multinationals, according to a report released by Portelligent (Austin, Texas).

"The Chinese government has said it wants to move its domestic handset makers from 25 percent to 85 percent of the local market in three years. That's a stretch but if they get halfway there it could be devastating to major multinationals such as Nokia and Motorola," said Howard Curtis, vice president of global services at Portelligent.

"We think from a technology, design and manufacturing standpoint it's plausible they will get to over 50 percent of the market. I'd be very concerned if I were in Nokia or Motorola," he added. Motorola is said to sell nearly a quarter of its handsets in China.

The Portelligent report contains an analysis and teardown of 17 cellphones from 11 Chinese OEMs, including Amoisonic, Ningbo Bird, Capitel, Haier, Konka, Legend and TCL. The OEMs account for about 20 million of the estimated 80-100 million cellphones sold in China annually.

"There's good evidence a couple of these companies are selling to cost-sensitive markets in Russia and India. They may not be able to create a global brand, but they could become an export presence," added Curtis.

Among the report's findings were that many systems mix chip sets from various suppliers rather than use an entire chip set or reference design from any one chip maker.

"Chinese handset makers are rolling out competent products with very competitive manufacturing costs. Their potential threat to the current pecking order in worldwide handset market share should not be underestimated," said David Carey, president of Portelligent.

The report noted that the P5 Pen Phone from Haier Group as one particularly innovative design.

TCL and Ningbo Bird are already the second and third largest GSM handset suppliers in China, surpassing Nokia but trailing Motorola, according to market watcher Forward Concepts (Tempe, Ariz.). However, in total cellphone sales in China, Motorola and Nokia are still tops with estimated sales in 2002 of 18.7 and 11.3 million handsets compared to 6.8 and 6.5 million for Ningbo and TCL, respectively, according to figures from China's Ministry of Information Industry.

Will Strauss, principal analyst at Forward Concepts, said Konka and Haier might have the most potential of the estimated 25 cellphone makers in China, based on their established sales of TVs and white goods in the U.S.

"They have well developed distribution in the West, so I expect them to do better in their overseas markets. TCL and Ningbo have no Western presence," Strauss said.

The rise of the China cellphone makers has come relatively quickly. "A lot of these China companies were not even in the cellphone market in 2001, including Konka and Haier that now sell three and 1.5 million units respectively," Strauss said.

"The Chinese have zero R&D expense. They have very low overhead because all their IP comes to them in chip sets," he added.Nevertheless, China needs to find a way to consolidate its current host of OEMs if the country wants to become a greater global force in handsets, said Curtis. "It would be better for China if the country had six or seven stronger players," he said.