Wednesday, August 22, 2012


Homegrown smartphone industry on track, Rmb500 smartphone emerging

Made-in-China smartphone shipment on track to reach 170MM in 2012, or 25% of global shipment. Smartphone production volume of Chinese vendors in 1H12 reached 70mn, according to HQ Research. Top 3 vendors (Huawei, ZTE and Lenovo) accounted for 42% of total units in 1H12, vs 60+% in 2011. This is driven by 1) MTK/QRD lowering barriers to entry in R&D; 2) Chinese telcos warming up to low-tier brands and 3) Huawei/ZTE focusing on profitability rather than volume. Vendors gaining market share include China Wireless, Gionee and OPPO. We maintain our smartphone shipment units by Chinese vendors at 170MM in 2012, but we cut shipment units of Huawei/ZTE by 11%/13% to 40MM/28MM (Table 3).

Asian chipset vendors continued to gain market share in June. Total smartphone chipset shipment to Chinese handset makers reached 75-80MM in 1H12. MediaTek’s smartphone chipset shipment in June amounted to 8mn (nearly half are EDGE/TD/EVDO), exceeded Qualcomm’s shipment in China for the first time. Spreadtrum’s smartphone chipset shipment reached 1mn (including TD and EDGE) for the first time in June and is poised to ramp up quickly to 3mn per month by August. Meanwhile, price competition intensified further – ASP of low-to-mid end smartphone chipset is now touching US$6 – putting pressure on margins of chipset makers.

Chinese telcos and open channels ready to push Rmb500 smartphone in 2H12. In the open channel, we found 18 smartphone models with 3+’’ touch screen priced at Rmb500 or below at, a popular website on handsets. Chinese telcos will start to push Rmb500 smartphone in 3Q12. For example, multiple smartphone models including Lenovo A288t, Huawei 8808D and K-touch 800A will be launched for China Mobile in July-August period. China Unicom continues to focus on the Rmb800-1,500 segment but will launch Rmb500 models as well. We summarized China Unicom’s planned smartphone specifications (screen, CPU, RAM, ROM, camera, sensor and others) in 5 price categories in Table 4.

Whitebox tablet – a passing fad or here to stay? Whitebox tablet shipment in 2012 could exceed 40MM, according to EE Times and several industry sources. In 2Q12 whitebox tablet shipment was 9-10MM vs 11-12MM in 1Q12. The 20% drop qoq is mainly due to high inventory level at the end of 1Q12. Major chipset makers for whitebox tablets include Rockchip, Allwinner, VIA, Infotmics and Amlogic. These are mostly 7'' ones with FOB price of US$50. They are mainly replacing multiple devices such as MP4s, PDAs and DVDs in emerging markets. Vendors are aiming to launch 5'', 6'', 8'' and 9'' products entering 2013. We’ll follow the space closely to see whether whitebox tablet will start to impact PC and smartphone market then.

Stock implication: We maintain our positive view on MediaTek and Spreadtrum as they will continue to ride the wave of low-price smartphones.

To read report in detail: CHINA TECHNOLOGY