SAN JOSE, Calif. - Market research house RedTech Advisors offers a glimpse at the key themes in China that will play out in 2011 and beyond.
RedTech a Shanghai-based advisory firm specializing in China’s consumer, cleantech and medical hi-tech sectors. B. Michael Clendenin is the founder and managing director of RedTech Advisors. (For more information, contact email@example.com or firstname.lastname@example.org on this page.)
Here are 15 trends and commentary from the firm:
1) Telecom: Improving affordability
''China’s 3G rollout will still be in its early phase in 2011, but the focus of attention will continue to shift away from expanding network coverage and toward increasing network affordability. 3G subscribers will hit ~47 million this year, up 3.5x over 2009. We expect subs to near 140 million in 2011.''
2) TV drivers: LED and Net-connected
''After a tough second half in 2010, domestic TV makers are looking to LED and Net-connected TVs to help them rebuild momentum. The former will do well, approaching 40-45 percent by the end of 2011 and helping to boost ASPs. Net TV is still more of a gamble. China’s content regulator, SARFT, is being very protective of its role as the content traffic cop. Its wariness slowed the development of TV maker content portals in 2009 and 2010, but partnerships are beginning to firm up between content providers and the likes of Skyworth, TCL and others so 2011 should see faster development.''
3) Consumer electronics boom
''The China consumer electronics market is estimated at around $151 billion in 2010 and this is expected to increase to $219 billion by 2014, for a compound average growth rate of about 8 percent. In the near term, we still expect volume to grow faster than value as entry-level or low-end devices increasingly account for a greater portion of sales. Much of this has to do with the consumer base for electronics swelling to include rural residents and lower income workers from China’s smaller cities.''
4) Tablet PCs
''Compared to notebooks, tablets are 50 percent of the price, 20 percent of the weight and 80 percent of the utility. To us, that is 100 percent disruptive. The Shenzhen tablet industry is kicking into overdrive, hoping ARM-based, Android-driven tablets will be a key driver in 2011 and 2012. IDC is expecting 2.5mn tablets will be sold in China in 2011 (and they usually low-ball the market by ignoring a lot of the shanzhai guys.)''
5) Cheap PCs
''To own a PC five years ago, an average urban Chinese consumer had to hand over two to three months’ wages. But rising incomes and dramatic price cuts during the past several years have made new PC owners out of tens of millions of Chinese. China’s PC industry recorded 20 percent CAGR from 2000-2010, and volume growth will remain in the 10-15 percent range through 2014.''
6) Online Video
''In 2011, all eyes will be on Baidu’s online video JV, called Qiyi. Its CEO, Gong Yu, recently said the site should become profitable by Q4 2012, and remain so for all of 2013 with operating revenues of 300 million to 500 million yuan for the year. This will put more pressure on Youku and Tudou to perform. The good news is there’s headroom for growth in ad rates, and advertisers are increasingly interested in the medium because it’s a more powerful way to establish brand identity in a developing market.''
7) Social networking sites (SNS)
''The next hot Chinese tech IPO in 2011 will likely come from social networking site Ren Ren. There were about 210 million SNS users in China at the end of June, up from 175 million in December 2009. We’ve also heard that kids SNS game developer TaoMee wants to make an IPO run as well. So far, the SNS sector has developed in a vacuum, as foreign players like Facebook are usually blocked. That may change in 2011. Facebook CEO Mark Zuckerberg visited the offices of Baidu this week to see if Facebook can find more friends in China.''
''Lots of hand-wringing over the online games market in 2011. Clearly, the market is maturing, as shown by two consecutive year-over-year declines in Q2 and Q3. There are still too many players in the market, cranking out games with little differentiation. Consolidation is needed, but you could say that for a lot of industries in China – hardly means it will happen.''
''Most people think Taobao when they think about e-commerce in China, but that’s so C2C. The new action for 2011 will be in B2C, where scrappy, fast movers like 360buy.com will face off against online bookseller Dangdang as well as brick-and-mortar types like Gome and Suning that are seriously behind on developing a compelling online presence. Don’t get me wrong: C2C will still far outdo B2C, but the faster pace of growth will come from the latter and we expect an IPO out of 360buy in late 2011 or early 2012. Not bad for an outfit that started out as a dingy booth in Beijing’s Zhongguancun.''
10) Internet Incursions
''Baidu’s move to open a B2C online shopping mall in partnership with Rakuten is just one of many signs of a shifting Chinese internet landscape. Until recently, there seemed a tacit understanding among China's Net oligarchs to respect each other’s territories - almost like Mafia Dons. Those days are gone. A bloody turf war will unfold in 2011, as maturing businesses spur China's biggest Net players to covetously eye that which had traditionally belonged to his neighbor.
Baidu wants a piece of e-commerce and video. Alibaba is eying search; Sina and Sohu are too. Tencent wants it all. In this war, we don't believe a decisive winner will emerge. Rather, we see subtle shifts that will eventually have dramatic results.''
''We can’t resist saying that this is a hard market to read in China. The model here is so different from the West. E-readers are relatively pricey in China because e-reader vendors need to make money from the hardware since Chinese users resist paying for the content. That will change over time, possibly several years.''
12) Triple play
''Trials will continue in 2011, but we don’t see any grand expansion that will result in the kind of numbers that the government is estimating. One of the key reasons is that the cable industry is still too fragmented to execute on triple play and the telecom industry is too distracted, trying to ramp-up 3G. These issues won’t be resolved until late 2011 or even into 2012.''
13) Foundry: SMIC
''Pure coincidence that foundry SMIC comes in at No. 13. Yet we cannot ignore the huge amount of luck it will need to accomplish its 5/5 plan -- $5 billion in 5 years (2010-2014). Organic growth is out, but M&A might do the trick. Look for SMIC to flirt with becoming an IDM to hit its target. It has the support/interference of the government and a determined chairman.
Note that this is not our forecast, only a guide as to the type of growth the foundry would need to hit its target. The foundry industry will likely only see low double-digit growth during this period, with an aggressive expansion by both TSMC and Global Foundries.''
14) Long-Term Evolution
''It’s ironic that after waiting forever and a day to launch 3G, China seems eager to push into 4G-based LTE. But hang on, MIIT recently said trials would begin in Q1-2011. Some of us are familiar with that unique dialect of gobbledygook that MIIT technocrats speak. For those who aren’t: Trials = another five years of waiting. So far, Beijing-based Innofidei and ST-Ericsson are already testing TD-LTE chips with China Mobile, but we know Mobile would like to see some other options in the market. There’s plenty of time for Spreadtrum and one or two others to get something out since we don’t expect the first inkling of a TD-LTE ramp to even begin until 2012, which means the market won’t be worthwhile until 2014.''
15) Cloud Computing
''Expect more announcements in 2011, mostly driven by government projects.''