China's gray-market cellular shipments to decline in 2012, iSuppli predicts

China’s gray market cell-phone shipments will total about 255 million devices next year, up 11.8% from 2010, but nothing compared to the huge 43.6% surge between 2009 and 2010, proof that a government crackdown against the illegal handset sales is working, according to research firm iSuppli, part of IHS Inc. (IHS) .
“The object of a nationwide government crackdown, the gray cell phone market in the world’s most populous country is facing some trepidation as official scrutiny focused on illegal handsets and as consumers are starting to lose some interest in the devices,” said Kevin Wang, director of China research at iSuppli. “This created particular challenges for white-box handsets—on which gray-market dealers can put their logos. These types of phones use smuggled chips, carry no certification from China’s Ministry of Industry and Information Technology, sport fake international mobile equipment identity codes and are smuggled to Hong Kong to avoid value-added taxes.”
Most of the growth in 2011 will come from demand from emerging countries as well as by falling average selling prices for gray handsets, iSuppli said. Beyond China, gray-market handsets are popular in Thailand, Vietnam, Indonesia, the Philippines and Pakistan. The firm expects the gray market to decline in 2012 as cell-phone suppliers are unable to cut prices any further and find themselves competing with more locally branded manufacturers.
“Meanwhile, shipments from Chinese non-gray handset makers will grow by 36.4 percent in 2010 and continue to climb during the next five years,” iSuppli said. “Not only will Chinese OEMs improve their global market sales—especially in the emerging countries—China’s white-box handset shipments also will keep growing. Furthermore, Chinese handset makers will win more orders from international carriers and from locally branded OEMs in the emerging markets.”
3G handsets in China should grow dramatically in the next five years, the company said, reaching 134 million devices by 2014.