Got Ningbo Bird?

A lot of ink is expended on the competitive machinations of the top five global handset vendors-for good reason. This year, together, they will account for perhaps 80 percent of the nearly 1 billion handset shipments around the world.
Big research-and-development budgets that support a broad portfolio, brand power, marketing clout and well-developed distribution channels have fueled market share gains for the industry’s two behemoths, Nokia Corp. and Motorola Inc. Precocious Sony Ericsson Mobile Communications L.P. also added a point of market share in the third-quarter from the year-ago quarter. Even among the top five vendors, however, growth remains a challenge: Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. both lost a point of market share this year, illustrating the perils of competition among giants.
Rounding out the top 10, global handset vendors, however, is a scrappy group of companies battling to keep a foothold in the market even as the remaining market share-perhaps 20 percent, or nearly 200 million units-is shrinking.
For contrast, consider that Nokia garnered more than 34 percent of the global market in third quarter, while No. 5 LG held little more than 6 percent. The next competitor beyond LG has only 2 percent market share, which is eroding. The rest of the top 10 vendors each hold between 1 and 2 percent market share. Beyond the top 10 lies a wilderness inhabited by dozens of also-rans, though market trends may favor some in the long run.
Specifically, those making the second half of the top 10 list are a disparate group of Taiwanese, French, Japanese and Chinese vendors with a mix of markets, strategies and challenges very different from the top five. In order of size, largest first, they are BenQ-Siemens, Sagem SA, Panasonic Mobile Communications, Sanyo Corp. and Ningbo Bird. (This article discusses only original equipment manufacturers, or OEMs.)
“They’re all succeeding-no, maintaining-a global presence by leveraging their brand or a carrier partnership in specific geographic markets,” said Chris Ambrosio, director of Strategy Analytics’ wireless device strategy service. “This is no longer a growth market, it’s a mature market. Volumes for these vendors are flat or falling.”
In each case, the vendors’ domestic markets-and the human tendency to support local companies-provide something of a safe harbor for continued operations, according to Ambrosio.
This is particularly true in Japan, where the culture appears to support local enterprise and resist economic defeat and the subsequent destruction of jobs, the analyst said. This may contribute to a prolonged life for Panasonic and Sanyo, for instance, as they develop alliances or niches to remain competitive. In contrast, the Chinese market clearly is attracted to the brand power exerted by huge multinational corporations; Nokia and Motorola have already claimed more than 30 percent and 20 percent of that potentially vast market, respectively.
Alliances and size, however, are no guarantee of success. The No. 6 vendor, Taiwanese BenQ-Siemens, has risen and appears to be falling on the trend to create alliances in search of the critical mass necessary to survive. Having taken over Siemens’ handset business along with a $300 million cash sweetener, BenQ-Siemens has shuttered its German headquarters and pulled back from European and Latin American markets to serve only Asia. This year Strategy Analytics projects BenQ-Siemens may ship 24 million handsets-a 2-percent global market share-though that number is expected to tumble in two years to less than 12 million units.
The French vendor, Sagem, is No. 7 by volume and appears to have carved out a strong niche in European and Asian markets as an alternative to Nokia with prepaid, entry-tier offerings, Ambrosio said. This fact explains why Motorola has expressed interest in possibly purchasing Sagem; it might fill a void in Motorola’s market-by-market battle with Nokia.
No.’s 8 and 9, the Japanese vendors Panasonic and Sanyo, both do well in their home market, yet both need alliances that can help them compete internationally. This need partially explains the recently announced alliance of Panasonic, NEC, Matsushita and Texas Instruments Inc. in forming a joint venture to develop next-generation hardware and software platforms, which would help stretch each company’s precious R&D dollars. The group also plans to license those platforms to others.
Conversely, Sanyo’s future prospects were hurt when Nokia decided earlier this year to cancel a proposed joint venture to produce CDMA handsets for the U.S. market, among others. (Even the industry’s healthiest giant has an Achilles’ heel.) Sanyo’s strong position at Sprint Nextel Corp.-the Japanese vendor has often provided as much as a third of Sprint Nextel’s CDMA portfolio at times-may well be displaced by the newly arrived Motorola Razr, Ambrosio said. Amazingly, after two years on the market, Motorola will ship more Razr units this quarter than any other past quarter, according to Ron Garriques, the head of Motorola’s mobile devices division. (The continued popularity and low price of the Razr may itself blind consumers to Motorola’s other, more expensive offerings.)
Rounding out the top 10 is the curiously named Chinese vendor, Ningbo Bird. According to Strategy Analytics’ data, this vendor has about 10 percent of China’s 100 million-unit-per-year business, which consumes 90 percent of its production. Ningbo Bird leveraged relationships with LG, BenQ, Sagem and other established manufacturers to acquire the expertise and components needed to become the top domestic Chinese handset supplier. That may not be enough to survive.
“Ningbo Bird’s unit volume is falling,” Ambrosio said. “They’ve maximized their market share.”
With the growing power of the mega-brands such as Nokia and Motorola and strong pushes from Samsung and LG in mid- and high-tier phones in China, some 30-odd, small domestic vendors there are fighting for “table scraps”-essentially the low-tier market-the analyst said. Yet the advent of low-cost, single-chip solutions for that low-tier market may breathe continued life into many of the hardier domestic vendors such as TCL, Lenovo Mobile, ZTE, Haier and Huawei.
Of course, dramatic reversals of fortune have occurred in the handset industry, new trends can suddenly lift a vendor’s bottom line, every giant vendor has an Achilles heel and innumerable niches in technology and geography can keep companies going, if not growing. For example, according to just-released Gartner data, the growth in replacement handset sales is cooling, while overall growth has shifted to demand from first-time buyers in emerging markets. Smart-phone sales increased by 50 percent in the first half of 2006 compared to 2005, according to fresh data from In-Stat. Still, competitive trends based on size, resources and clout remain in effect.
“In a market where players compete on price, technology and strategic partnerships, it is impossible to believe that life is not getting much tougher for the smaller vendors,” said Carolina Milanesi, principal analyst for mobile phone research at Gartner.
According to Ambrosio, one up-and-coming prospect may yet buck the trends described here. Taiwan-based HTC Corp. doesn’t yet make waves on volume, but has been gaining in profile due to growth in smart-phone sales and the popularity of Microsoft Corp.’s Windows Mobile. While making a push for its own brand identity, HTC has made significant inroads in the smart phone market, its chosen niche.
Perhaps the second-tier battleground could be summed up by paraphrasing the refrains of two pop songs from the Sixties: You can make it if you try, with a little help from your friends.