The handset market – focus on the others

7/29/2019 The handset market focus on the others

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The Distribution Of Mobile HandsetsConnecting Global And Local Distribution

Per Andersson, Associate professorStockholm School of Economic, CIC

P.O. Box 6501, SE-113 83 Stockholm,

Sweden

voice +46-8-736 95 38

fax +46-833 43 22

e-mail: [email protected]

Bengt G Mlleryd, Ph.DEvli Bank, Research TMT

Kungstrgrdsgatan 16,

SE-117 30 Stockholm, Sweden

voice +46 8 407 80 38

fax + 46 (0)8 407 80 01

e-mail: [email protected]

Presentation prepared for 15th Biennial ITS Conference Berlin September 4-7, 2004


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Aim

The aim of the paper is to discuss a set of

distribution challenges meeting suppliers of

handsets, operators, and other channel actors inthe global mobile telephony industry.


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Issues

1. What are the underlying changes and drivers leading toan increased focus on distribution issues in the globalmarket for mobile handsets?

2. What are the distribution challenges for handsetmanufacturers as production increasingly is becoming

global?3. What are the distribution challenges when this global

distribution has to be connected to regional and localdistribution and consumption networks with often verylocal, specific characteristics?

4. What role do operators play in this globalization ofdistribution process, and what are the challenges forother actors in the global distribution system?


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Research Background

Distribution channel effects of institutional, technological andmarket changes in the rapidly growing market for mobile telecomequipment (Andersson & Mlleryd 1994)

Distribution system and service consequences of technologicalconvergence (Andersson & Mlleryd 1998)

Increased polarization of distributor-customer relations and retailers

strategies to cope with this (Andersson & Mlleryd 1999) Market system studies of changes in customers buying centers,

buying organizations and buying behavior (Andersson & Mlleryd2001)

The internationalization of distribution (Andersson 2002)

A global perspective on distribution channel changes in the mobiletelephony industry (Andersson & Mlleryd 2004)


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Empirical Background

Changes in the Global Handset Market

General rapid growth of new users

A growing replacement market

New entrants competing with the Big Six in the handset

market Continued regional market variation despite globalization

Internationalization of handset production and changes inthe production value chain

Internationalization of operators The increased importance of the Chinese market in global

distribution


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The handset market is entering a dynamic

phase

The handset market is prospering as the replacement cycle kicks in- extensive upgrades to color screens, camera handsets- commercial volumes of 3G are around the corner

The big suppliers keeps a firm grip on the market

- LG Electronics has now entered the core group

But the Group other is a force to be recon with, primarily driven bystrong activity in Asia

- A Chinese handset industry is emerging

- Extensive development is ongoing in Korea

Reference designs (platforms) and new chipset pave the way for a

partial disintegration, technology houses and ODMs are instrumental=> Market volumes are growing strongly and the big ones are set to

benefit as they have sufficient resources to master the entire

production and distribution chain


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Replacement drives the handset market

Increasing replacement ratio: 30% 2004, 31% 2005 Growing share of subs that have their 3-4-5 handset, drives demand

for mid- and high end handsets

Segment: SonyEricsson, Samsung, Motorola, sleeper

Handset market

432

641

690

520

0

100

200

300

400

500

600

700

800

2002 2003 2004E 2005E

Million

0%

10%

20%

30%

40%

50%

60%

70%

80%

Total market of which replacement Replacement rate Replacement ratio


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Handset market is worth EUR 71bn 2004

We expect unit growth to be 23% 2004, and 8% 2005

Assumption:

ASP (EUR)

2002: 153

2003: 132

2004: 1112005: 109

Volume (m)

2002: 432

2003: 520

2004: 641

2005: 690

Market value handsets

60 000

62 000

64 000

66 000

68 000

70 000

72 000

74 000

76 000

2002 2003 2004E 2005E

MEUR

0%

1%

2%

3%

4%

5%

6%

Market value (MEUR) Market value growth y/ySource: Evli estimate


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Passing 1bn handsets 2010

Positive long term outlook with huge volumes will trigger

industry dynamics with growing platform business

Reaching 1.3bn handsets by 2015

1002

1331

0

500

1000

1500

2000

2500

3000

3500

2010 2015

Million

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Subscribers m volume repalcement rate replacement ratio


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The big six delivered 74% of all handsets 2003

The leading six supplied 408m handsets 2003

Market shares (sell-in) 2003

Nokia

32,6 %

Motorola

13,6 %Samsung

10,1 %

Siemens

7,9 %

SonyEricsson

4,9 %

LG Electronics

5,0 %

Other

25,9 %

Source: Company reports, Evli estimate

LG Electronics

passed

SonyEricsson

During Q4

We have identified 35 suppliersA consequence of total

sell-in volume of 551m


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The Group Other estimated sales 2004

19,2 18,9

12,011,0 11,3

8,0 7,6

10,0

5,4

9,5

6,6

4,53,5

4,9

1,2

3,4

1,92,7 3,0

2,2

0,81,2

2,0

0,50,9 0,6 0,4 0,5 0,5 0,7 0,6

2,4

0,5 0,6

0

5

10

15

20

25

Panaso

ni

Nec

Kyocer

aTC

L

Ningbo

BirdC

o

SageAlcate

l

Sharp

Toshib

a

Sany

o

Mitsubis

hi

Philip

s

FujitsuDbte

lHaie

r

Kejian

Eastco

m

Konka

Amoison

ic

SoutecZT

E

Chine

seElec

tronicCo

rp

Stan

dard

Teleco

Dalia

nDaxi

an

Hisens

e

Legen

d

Hitach

i

Chabridg

e

HTCMaxon

VKCor

pBen

QPand

a

Datan

gTele

comTe

chnolog

millionunits

Source: Company reports, Evli Bank estimates

The smaller suppliers will sell 160m 2004

Nec aim to grow

considerable

through

international sales

of WCDMA

handsets


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The Mobile handset production chain

Nokia

Siemens

Suppliers

ArimaBenq

DBTEL

GVC

Microcell

Sewon

Pantech

Telson

AscompElcoteq

Flextronic

Solectron

=> Chipset suppliers go for reference designs to offer complete cellular

systems

=> Know-how and technical competence is now widely spread in the

mobile industry

EMS ODM

Builds up

Design capabilities Growing business

Response to OEMs

ambition to provide

wider portfolios Target operators


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A growing Chinese handset industry We have estimated volumes on 1) reported

volumes, 2) reported sales divided withbenchmark ASP, and 3) talked to the companies

We estimated total sell-in volume to be 38m2003

Amoisonic is primarily targeting the high-endmarket

Chinese Electronic Corp works closely withPhilips

Dtang works with CDMA, TD-SCDMA

Eastcom supplies GSM and CDMA phonesunder own brand, and has a JV with Motorola

Haier is the leading white goods supplier inChina, has teamed up with Sendo

Keijan is a growing player on the Chinesemarket, collaborates with Samsung

Konka produces both GSM and CDMAhandsets

Ningbo Bird is a leading supplier on theChinese market

Soutec sells GSM and CDMA hands

TCL leading player on the Chinese market Ituses platforms from Ericsson and Motorola

ZTE manufactures and sells GSM and CDMAhandsets, is also a infrastructure provider

The Other - China shipment 2003

3,0

0,51,2

0,5 0,6

1,9

0,9 0,9

3,42,7

0,6

8,7

0,5 0,4

2,2

9,8

0,8

0

2

4

6

8

10

12

Amois

onic

Chabridge

Chine

seElectronic

Corp

Dalian

Daxian

Datan

gTelecom

Techn

olog

Eastc

omHa

ier

Hisense

Kejia

n

Konka

Legend

NingboB

irdCo

Panda

ShenzhenS

edElec

troni

Soute

cTC

LZT

E

Millionunits


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Strong activity in other parts of Asia

Japanese suppliers primarily sell to domestic

operators

Fujitsu sells to NTT DoCoMo

Kyocera focus on CDMA Hitachi sells small volumes to Japanese operators Mitsubishi primarily sells on the domesticmarket

NEC is a leading supplier in Japan, growingexport sales of WCDMA

Panasonic sold ~10m handsets in Japan, growing

export Sanyo supplies CDMA handsets to KDDI, Sprint,and PDC handsets to Vodafone

Sharp spearheads camera phones, 2.2m units soldoverseas

Toshiba is a leading CDMA supplier

South Korea spearheading CDMA

LG is ambitious and is expanding rapidly Maxon primarily produces to other OEMs Standard sells under its own brand Nixxo inKorea, and produces handset for other OEMs

VK Corp is a small player on the Korean market

The Others - Shipment Japan 2003

3,5

10,9

0,4

6,6

14,0

16,0

9,0

8,0

5,4

0

2

4

6

8

10

12

14

16

18

Fujit su Kyocer a Hit achi Mit subishi N ec Panasonic Sanyo Shar p Toshiba

Millionunit

The Others - South Korea shipment 2003

27,7

0,72

0,55

0

5

10

15

20

25

30

LG Electronics Maxon Standard Telecom VK Corp

Millionunits


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The Handset Distribution System

Distributors RetailersSuppliers End customers

Sell-in

Sell-

throug

h

Sell-in:

handsets delivered to

the distribution system

Sell-through:

handsets bought by

end-customers

Inventory : Normalized 6-8

weeks, 10-12m/w, but it is a

wide range in different regions


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General Drivers of Change

Internationalization and structural change processes

Technological changes/drivers

New power-dependence relations and power shifts in the

marketing channels New patterns of competition and cooperation between

firms in and between channels


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Concluding Discussion

Channel issues facing handset manufacturers, operatorsand other channel actors:

1. Important drivers leading to increased importance of

distribution issues2. Distribution challenges for handset manufacturers withincreased globalization

3. Distribution challenges with global, regional and localdistribution and consumption

4. Role of the operators and challenges for other channelactors


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1. Important drivers leading to increased

importance of distribution issues

Globalization of markets and growth of markets

for handsets

Technological changes in channels Changes in competition and cooperation in and

between channels


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2. Distribution challenges for handset

manufacturers with increased globalization Globalization and weaker brand loyalty

Increased distribution complexity with more

focus on efficient information systems:

Ownership of handset consignments and channel

control


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3. Distribution challenges with global,

regional and local consumption

Globalization in combination with apparent localvariations

Handling and changing local variations indemand


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Distribution is a regional businessEurope: Fragmented distribution

Sales to operators over 50% Retail 15%

Distribution 35%

US: Operator focus Sales to operators over 90%

Retail 5%

Distribution 5%

APAC:Fragmented

distribution

Sales to

operators over

30%

Distribution

more than 60%

Retail 10%

Close connections with operators essential, beneficial for both

Nokia and Ericsson


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4. The role of the operators and challenges for

other channel actors

Branding issues and the battles for channelleadership

Controlling user interfaces and relations withsystem integrators

Increased focus on professional procurement inthe channel

Taking the Distribution Center role

Documents

The handset market – focus on the others