Alcatel’s new handset deal with Chinese electronics manufacturer TCL Corp. is part of a notable and growing trend toward joint ventures and acquisitions, and analysts expect the pace to accelerate.
“There’s going to be some consolidation,” said John Jackson, a wireless and mobile technology analyst for the Yankee Group. “You will see more of this.”
Jackson said worldwide more than 100 companies sell mobile phones. However, the vast majority of those vendors are forced to nibble at crumbs, because the industry’s top six players control close to 80 percent of the market. And in an industry where manufacturing and distribution costs are high and margins slim, Jackson said some will be forced out.
Indeed, that’s exactly what appears to be happening to Alcatel. The mobile-phone veteran described its deal with TCL as a joint venture, but those in the industry see it as more of a sale. Alcatel’s phone business has been losing money and market share and accounts for only a small portion of the company’s business. TCL has an option in about five years to purchase the joint venture outright. Combined, the two companies sold more than 17 million mobile phones last year and place seventh in terms of worldwide market share, according to reports.
“Do joint ventures make sense?” Jackson asked. “Where a handset business is clearly failing, then yes.”
TCL’s partnership with Alcatel is just the latest in a long line of such deals. Casio Computer Co. Ltd. and Hitachi Ltd. earlier this year announced a joint venture to sell handsets in Japan and elsewhere. Chinese vendor TechFaith Holding Ltd. and Japanese technology giant NEC Corp. announced late last year their joint-venture company named STEP Technologies, which will sell 2.5- and third-generation handsets in China. NEC also announced a teaming in 2002 with Matsushita Communication Industrial Co. Ltd. and Huawei Technologies Co. Ltd. to form a joint-venture company called Cosmobic Technology Co. Ltd. to develop 3G handsets in China. Also in China, Qiao Xing Universal Telephone Inc.’s mobile-phone division, CEC Telecom, earlier this year announced a joint venture with Taiwanese mobile-phone vendor BenQ to build mobile phones for the Chinese market. Chinese phone vendor Ningbo Bird recently formed a joint venture with Sagem Mobile to develop phone components for China and elsewhere. In Japan, Fujitsu announced a joint venture with Mitsubishi Electric Corp. to build 3G FOMA phones for NTT DoCoMo Inc. Finally, Audiovox Corp. is considering selling its mobile-phone business to South Korean phone vendor Curitel Communications Inc.
Such business moves follow in the footsteps of the industry’s biggest joint venture to date: Sony Ericsson Mobile Communications. Formed in 2001, the partnership was a combination of L.M. Ericsson’s phone business and wireless technologies with Sony Corp.’s electronics and marketing expertise. Although it suffered losses during its first several years, the joint venture recently managed a turnaround and has scored profits for the past three quarters. Sony Ericsson earned the industry’s No. 5 market-share slot in the first quarter.
Jackson said some joint ventures, like Alcatel and TCL, combine a struggling phone company with an electronics firm looking to expand its business. Other joint ventures, such as Fujitsu’s teaming with Mitsubishi, are likely an effort to create economies of scale and greater buying power.
A notable trend in most of the industry’s recent joint ventures-including Alcatel’s deal with TCL-has been the combination of a European mainstay with an Asian upstart-usually a Chinese vendor. Chinese incumbents like Ningbo Bird and TCL have managed to wrest away a significant chunk of the Chinese mobile-phone market from the likes of Nokia Corp. and Motorola Inc. and are now looking to expand their businesses into Europe and elsewhere.
“The Chinese are not content just to serve their own markets,” Jackson said.
Such Asian invasions have been spearheaded by companies such as Samsung Electronics Co. Ltd., and to a lesser extent, LG Electronics Co. Ltd. The Korean vendors have made major inroads with mid- and high-end clamshell phones and are now challenging the market’s heavyweights. Smaller Asian players are looking to repeat such performances.
Indeed, it appears at least some market share is up for grabs, as market leader Nokia recently fell behind its first-quarter predictions and forecasted a flat second quarter. The company’s stumbling may open the door for additional players-which in turn could spark further consolidation.
