Siemens inventory in China begins to drop

"Inventory remains quite a serious problem within the industry in China. But we saw a turnaround in the market in the past two months. Things are looking better."

Joerg Ayrle, chief financial officer of Siemens' China mobile unit

Siemens AG, the world's fourth-biggest mobile-phone maker, said it slashed handset inventory in China after a switch to direct selling to consumers in bigger cities helped increase sales.

Siemens has reduced inventory days to four weeks from a peak of about nine weeks during the SARS outbreak six months ago, Joerg Ayrle, chief financial officer of Siemens' China mobile unit, said in an interview in Shanghai.

The improvement is a sign that China's US$3 billion stockpile of unsold mobile phones, which built up during the SARS epidemic, may be starting to ease. Siemens is boosting sales by focusing on wealthier cities, opening direct sales counters and introducing new models aimed at young people.

"Inventory remains quite a serious problem within the industry in China," Ayrle said, who didn't disclose Siemens' China sales. "But we saw a turnaround in the market in the past two months. Things are looking better."

Only six of 10 handsets made for the local market were sold in the first half, as SARS kept shoppers at home and cellphone makers boosted production.

About 15 million mobile phones are still languishing in warehouses and stores, which will take as many as four months to clear, Ayrle said.

Based on an average handset price of 1,750 yuan, the stockpile has a retail value of 26.3 billion yuan (US$3 billion).

TCL Mobile Communication Co, the No. 4 cellphonee maker in the country and the No. 2 domestic manufacturer, said last week it expects inventory days to drop to three weeks, the usual level for the company, by the end of this month, from about five weeks in June.

About 4 million handsets are sold each month in China, the world's biggest market with 244 million cellphone subscribers at the end of last month. Unit sales rose an average 17 percent in the past two years.

Growth slowed to 1.7 percent, or 25.2 million units, in the first half because of SARS, according to Beijing-based Sino Marketing Research.

Some analysts such as J.P. Morgan Chase & Co.'s Johnny Chan aren't reassured by falling inventory numbers.

Chan said he expects Chinese phone makers to start shipping new phones with color screens to retailers as early as this month.

"Without material pick-up in the underlying growth rate of end demand, aggressive stocking activities by the industry will end with excessive inventory after the Chinese New Year in 2004," he said.

Siemens, which trails leaders Motorola Inc, Nokia Oyj and domestic makers such as Ningbo Bird Co, controlled inventory by selling only in bigger cities, Ayrle said.

The company introduced a set of "fashion phones" under the Xelibri brand, and miniature models, such as the SL 55, which features a sliding dial, to attract young people.

In the next two months, Siemens plans to introduce four more models, including one that looks like a make-up box and one using voice-recognition technology, Ayrle said.

"Asian customers change their phones more often. The models will first be introduced in Europe, but will soon be sold in Asia," he said.

Siemens' phones are sold in about a third of about 50,000 distribution outlets in all of China.

The company also runs direct sales counters in Shanghai and Beijing.

Siemens had a 6.8 percent share of the global handset market in the second quarter, compared with 35 percent for Nokia and 13 percent for Motorola, according to market researcher IDC.