Changing market set to curb handset makers' growth

Taiwan's contract handset makers are expected to see growth squeezed further next year as global mobile-phone vendors are increasing in-house production amid the fast-changing handset market, industry watchers said yesterday.

The shift in major vendors' outsourcing strategies is putting more pressure on local mobile phone manufacturers who already face stiff competition as more Chinese handset design companies and contract manufacturers join the game.

"Taiwan's handset manufacturers are finding it more and more difficult to solicit orders, not to mention maintain profits," said Steven Tseng (曾續良), an analyst with Yuanta Core Pacific Securities (元大京華證券).

Local companies are experiencing a free-fall in gross margin, Tseng said. Now they can only secure gross margin of 15 percent, from 25 percent previously, he said.

Compal Electronics Inc (仁寶), for example, plans to leave the market. Compal, which used to count on Chinese customers such as TCL Group for big profits in its handset business, is expected to phase out of the handset sector after losing most of its customers to Chinese rivals, Tseng said.

"In light of shrinking gross margin, BenQ Corp (明基電通) is aggressively expanding its own-brand business for new growth," Tseng said.

Similar worries can be found in the latest report from researcher the Market Intelligence Center (MIC, 市場情報中心).

"Taiwanese companies only play a minor role in filling the capacity shortfall for global handset vendors," MIC analyst Feng Lin (林育烽) said in the report.

In the report, MIC said local handset makers are expected to ship around 63.6 million units next year, representing a scant 21.6-percent expansion from this year, compared to the explosive growth levels of the past.

The researcher blamed intense competition and global handset vendors' move to increas in-house production to better cater to customer needs for the slower growth.

Global handset demand is expected to grow at an annual pace of 6.8 percent next year with around 660 million units shipped, versus 640 million units this year.

Simon Hsu (徐玉學), an analyst with the private Topology Research Institute (拓墣研究所), also expects local mobile phone makers to face obstacles going forward, but had some optimism.

"We believe companies capable of making tailored handsets for telecom operators will still have respectable growth, riding on the growth in commercial operations of 3G services," said Hsu.

Chi Mei Communication Systems Inc (奇美通訊) and Inventec Appliances Corp (英華達) are two such cases, Lin said.

Chi Mei Communication is approaching European telecom operators to be a handset supplier as it hopes to duplicate the success of High Tech Computer Corp (宏達), Hsu said. High Tech makes phones for European mobile services carriers such as Orange and T-Mobile.