LONDON – After a couple of recent profit warnings from white-box – or unbranded – handset manufacturers Nomura Equity Research has concluded that China's handset OEMs are facing structural problems. It puts this down to a sudden slowdown in the white-box market in June and the cancellation of 90 percent of an order for 12 million TD-SCDMA 3G handsets by China Mobile.
SIM Technology Group Ltd., one of the largest handset manufacturers in China, issued a profit warning on June 17, saying it expected to make a loss in the first half of 2011.
SIM attributed the potential loss to "the significant reduction in demand during the past few weeks in the open market and the push out of TD-SCDMA handset tender." Nomura analysts stated that SIM had seen a more than 50 percent decline in 2G handset revenues since May and that several TD-SCDMA projects had been cancelled.
Longcheer, another major handset design house in China, may have implemented significant employee layoffs recently, according to Nomura analyst Leping Huang. The company announced its first quarterly loss in eight years in the third fiscal quarter ended March 31, 2011. When the financial results were announced Deng Hua, CEO, commented: "The market for our mainstay feature phones products continue to remain challenging due to the excess capacity and adverse competition both upstream and downstream." He added that Longcheer would exercise more stringent control over costs and expenses to remain competitive.
Nomura analysts ascribed the slowdown to faster than expected uptake of 3G in China, Patent infringement lawsuits conducted against white-box manufacturers in China by Nokia and a crack down on white-box manufacturers in Shenzhen by the Chinese government. Nomura said there is also growing evidence of a macro-economic slowdown in south-east Asia.
At the same time China Mobile has reduced its requirement for TD-SCDMA handsets from 12 million handsets to 1.2 million, which is set to challenge handset design houses and OEMs that had been gearing up to meet orders, Nomura said.
So much for the business plan of catering to the third-world people who will never be able to afford a smartphone. It's also a little mind-boggling to hear about layoffs in China in the telecom market. I've got to wonder if the same thing is happening in India.