Tech Hardware Supply Chain - Gazhoo

Bhavin Shah
(852) 2800-8538
bhavin.a.shah@jpmorgan.com
Figure 39: Vodafone own-brand
phones
Source: Vodafone.
Asia Pacific Equity Research
20 April 2009
still penetrating the new emerging markets and gaining share. White-box has
significantly outgrown the emerging markets in the past three years.
Operator own-brands should also outperform
Operator own-brand handsets have also been growing rapidly, as seen from the sharp
rise in shipments by ZTE and Huawei. We expect growth to slow in 2009 yet still
outpace the overall industry. Key growth drivers, in our view, are:
1) Ultra low-end phones for emerging markets: This is a fast-growing segment
that has not been addressed by top brands due to very thin margins and not
enough volumes to justify the higher operating expenses involved. This
provides an opportunity to ZTE and Huawei, which have leaner operating
structures in handsets (no marketing expenses and cross-selling with
equipment sales).
2) Phones with tailored features: Recently, Hutchison formed a handset design
company, INQ that launched the INQ1 model, which has dedicated
Facebook and Skype features built in. Providing such highly specialized
features should help Hutchison retain customers and increase data usage.
Recent operator-branded phone launches
Vodafone announced seven models (including three 3G models, two low-end GSM
models, and two GSM “Catwalk” models with many color variations) during the
MWC 2009. In particular, the Vodafone 835 is its first consumer 3G mobile phone
with built-in GPS. The other two 3G phones and two models in the “Catwalk
Collection” target the European market, not just the emerging markets. T-Mobile
plans to launch its own-brand with Windows-based MDA device having similar
capabilities. It announced a strategic partnership with ZTE, covering handsets and
data cards for all its European markets. It also chose Huawei as the Android partner.
The more aggressive own-brand plans by Vodafone and T-Mobile should benefit
operator-brand ODMs such as ZTE, Huawei, and TCL-Alcatel. ZTE and Huawei are
already big players in this area and have indicated big growth plans for 2009—ZTE
and Huawei are looking for 30%-40% and 35% growth, respectively. The growing
global market share and penetration into the 3G and low-end smartphones space
should put pressure on the top global handset OEMs, especially the ones with high
European operator exposure, i.e., Nokia, Sony-Ericsson, and Samsung.
Figure 40: ZTE/Huawei/Alcatel handset shipments to operators (assuming 25% growth in 2009)
Shipments in mn
120
100
80
60
40
20
0
1.9%
6.2
Source: J.P. Morgan estimates.
3.3%
12.0
4.6%
27.6
6.3%
38.0
9.2%
2005 2006 2007 2008 2009E
Alcatel ov erseas Huaw ei ZTE Operator combined Market share
47.5
10%
8%
6%
4%
2%
0%
Combined market share (%)
79