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India, China cellphone markets go head-to-head

Posted: 16 Jul 2007 ?? ?Print Version ?Bookmark and Share

Keywords:India China cellphone market? cellular market? wireless communication?

The buzz these days is that India is the "new China" of the cellular world. All the big multinationals have piled onto the subcontinent, chasing trendsetters in Mumbai and first-time buyers in remote villages. "They are the key drivers for the marketplace," said David Taylor, India-based director of strategic operations in Motorola Inc.'s High Growth Markets unit.

Expansion in India now rivals China, the world's largest cellular market. At least 5 million to 6 million Indians are signing up each month, and about 7 million in a peak month. China? Only 4 million to 5 million. Overall, China still trumps India in subscriber count, at more than 480 million. India is on fire, though. Subscribers nearly doubled last year, to 149.5 million and should hit 484 million by 2011, according to iSuppli Corp.

India is adding fuel to an already hot global trend. Since 2002, handset sales in developing countries have jumped threefold, compared with 62 percent in developed countries, according to Strategy Analytics Inc. It forecasts that 65 percent of handsets sold this year will be bought in emerging markets.

Yet the rapid ascension of India shows that not all emerging markets are alike. Beijing and Mumbai may both be supersized cities in gigantic markets, but there are probably more differences than similarities in the way these places are growing, especially in the supply chain.

China has a relatively large chip industry, targeting local growth in communications; India does not. China has more than 75 companies making handsets; India has only a few. China develops globally competitive telecom gear; India does not. The list goes on.

Expansion in India now rivals that of China's cellphone market.

This is a relief to multinationals, although they may not publicly admit it. As things stand, global chip and handset makers won't see a new crop of margin-destroying competitors rise as quickly in India as they did in China.

"Wireless didn't really explode until 2004, so the Indian market is relatively young," said Jagdish Rebello, iSuppli Corp.'s principal analyst for wireless communications and India research. "For the next few years, the market will rely on the big brand names, like Nokia, LG and Samsung."

India's strategy
In chips, India will stick with its current modus operandi!stay behind the scenes and strike deals with market leaders. There could be a "rogue" company out there that has a design for a baseband chip, Rebello said, but he thinks most of them will try to sell small pieces of the design to big multinational corporations.

Because the wireless industry is maturing, some observers believe it will be more difficult for small chip design companies to emerge in India and effectively compete, especially if there's a dearth of local handset vendors. Even in China, apart from MediaTek Inc., there hasn't been a significant challenge to global players, though many are trying, said Bill Krenik, chief technology officer of the wireless terminals unit at Texas Instruments Inc.

That doesn't mean India lacks the brainpower to pull it off. TI, after all, tapped Indian engineers to develop a significant portion of its Locosto single-chip platform. The fact that those engineers get paid less didn't factor heavily in the decision, Krenik said. "When you're doing something this complex, you're more concerned with getting solid technical resources, not so much with counting your pennies."

India imports just about all core components!ranging from ICs to LCD modules. China is different. From the early days of the handset market, China placed a premium on building up a supply chain that included a fair number of local companies that would benefit from skyrocketing growth.

Home-court factor
For China's handset makers, however, home-field advantage hasn't counted for much so far. In 2006, domestic handset companies captured only 35 percent of total units (and less by sales), a big drop compared with 2003, according to government figures. Domestic companies had won just over half the market back in 2003 by targeting the low end.

Nokia and Motorola have now carved into that turf as well, however, so there is no low-hanging fruit in China. By various estimates, Nokia claimed about 35 percent of the China market last year. Lenovo Mobile, the top local brand, eked out only 6.2 percent, according to BDA China.

Domestic market share for China's local handset makers.

To illustrate the importance of China to its top line, Nokia in May unveiled the largest order in its history. China Postel, the country's largest mobile-phone wholesaler, said it would spend $2.5 billion to buy more than 20 million Nokia handsets this year. Soon after, Motorola touted a similar deal: $2.3 billion for 16 million handsets.

To battle back, local companies are trying their hand at designing phones for the midrange and high-end markets. In April, Amoi released four Windows-based smart phones. Lenovo, claiming its R&D ability is on par with global rivals, is developing smart phones, 3G phones and phones for mobile TV. Ningbo Bird, another major player, is betting that more-complex multimedia phones will bolster its thin bottom line.

Some analysts believe such strategies will fail, however. Consumers who want fancier phones will usually fork over a little!or a lot!more for a trusted brand, something the domestic companies don't necessarily have.

"In the high-end market, brand power is crucial," said Raymond Yan, an analyst from In-Stat.

In India, the story will be the same. High end or low, the global brands have the market sewn up. "Setting up a mobile-phone brand is expensive, and it's very competitive out there," said Taylor. "But there are many local Indian electronics brands, so I'm sure they will come at some point."

High-growth area
But when it comes to the area of hottest growth!the countryside!India and China are likely to turn to foreign manufacturers that can leverage huge economies of scale to deliver cheap handsets. Motorola is touting its Motofone, which retails for less than $40. Nokia's 1100 sells for just a few dollars more and is popular in India.

For India, in particular, basic connectivity for the lower class is a huge issue. Urban teledensity exceeds 40 percent, but rural penetration stagnated at a little more than 2 percent last year. Approximately two-thirds of the Indian population lives in the countryside.

Despite all the talk about rural networks and cheap handsets, Rebello warns it would be a mistake to characterize India as only low-cost. "There is still plenty of demand at the middle and in the high end," notes Rebello.

"It's not just an entry-level, low-tier marketplace like it was two years ago," Taylor said. "It's developing quickly into a very dynamic marketplace."

- Mike Clendenin
EE Times

- Additional reporting by Cai Yan in Shanghai and K.C. Krishnadas in Bengaluru.

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