Too many manufacturers and razor-thin profits have put the nation's mobile phone producers on course for a major shakeout, agree industry leaders and analysts. In the end, Taiwan's nine handset manufacturers will be reduced to four or five. The question now is when.
"There's not enough demand to support so many Taiwanese manufacturers," said Lee Kun-yao (
ACM, Taiwan's leading mobile phone manufacturer in the eyes of analysts, will produce 10 million units this year, up from 6 million in 2000 but lower than the company expected, according to Lee.
He said the bleak market outlook is due to slowing demand in the US. The only variable that could offset the impact is the potential impact of General Packet Radio Service (GPRS) phones for the mobile Internet. Market analysts in Taiwan agree.
"There are too many [mobile phone industry] players right now in Taiwan," said Frank Lee, senior analyst at Indosuez WI Carr Securities in Taipei. Although he expects slower growth in handset sales worldwide to have limited impact on Taiwan, he said cutthroat competition is to blame for the industry's coming consolidation.
According to reports, in a rush to sign one foreign client, Arima Computer (
In a rush to begin mobile handset production, many Taiwanese firms have accepted razor-thin profit margins -- selling at or below cost. Although this business model mimics how the nation's manufacturers have approached other industries, Lee believes the winners will be those with enough cash from other operations to withstand the competition.
Companies first to come up on the chopping block will be those involved solely in the mobile handset business, like Dialer & Business Electronics Co Ltd (DB Tel,
Taiwan's notebook makers are expected to win out. Out of the nation's nine mobile phone manufacturers, five are major notebook computer makers -- Acer, Arima Computer, Compal Electronics (
Stronger financials also ensure these companies do not have to bend to the buyer's will. They can afford to pass on orders from firms who demand microscopic profit margins or production at below manufacturing costs. Companies dependant on handset sales alone will have no choice but to take any order they can get, at any price.
Still, high profile deals like the one inked by Taiwan's GVC Corporation (致福) and Ericsson earlier this week can really move stock prices. The company's stock has rocketed 36 percent in the past two weeks to finish at NT$16.6 per share yesterday. The current price is 54 times forecasted earnings, more than double the Taiwan Stock Exchange Index's price earnings ratio.
Lee said the firm's stock pricing currently does not reflect profit growth and that revenue statements from the second or third quarter this year should help analysts get a better idea of the profit margins Taiwanese mobile phone makers are operating on.
Other competitors in the mobile phone manufacturing industry include, Cherish Enterprise and Kinpo Electronics (
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