TCL Mobile Communication Co (TCL,
Nam Tai Electronics Inc's wireless unit, which designs and assembles cellphones in China, said it won't start working on camera phones until next year at the earliest. No. 2 Chinese handset maker TCL said it may begin selling the camera-embedded phones by the end of this year, a year later than planned.
The delays give Nokia Oyj, Samsung Electronics Co and other overseas makers, which supply half of all phones in the world's biggest wireless market, a head start that may help reverse two years of market-share loss to domestic producers.
"Few Chinese handset makers are willing to spend on research and development," said Winson Fong, who overseas US$2 billion at SG Asset Management Ltd.
"They're still dealing with stockpiles of unsold phones and stressed balance sheets. Why would they want to open new product lines now?" Fong said.
Chinese handset makers spend less on research than their overseas rivals.
TCL Mobile, which had revenue of 4.9 billion yuan (US$592 million) in the first half, spends about 5 percent of sales on product research, exceeding that of its domestic rivals, said TCL International Holdings Ltd spokeswoman Shirley Yau.
Most foreign makers earmark at least 10 percent.
Motorola Inc, the top cellphone seller in China with a fifth of the market, announced a US$100 million research center in Beijing earlier this year to develop more advanced phones.
"The technology gap between international and Chinese handset makers is becoming more apparent," said Lily Jap, an analyst at Nomura International (HK) Ltd.
"We look for international players to claw back market share in 2004," she said.
Fong, too, says now may not be the time to buy shares in domestic handset makers. He said he prefers shares of Taiwanese cellphone maker BenQ Corp (明基電通), which he owns, to those of TCL.
The combined market share of domestic Chinese handset makers rose to 42 percent by June from about 20 percent in June last year, according to independent Sino Marketing Research Ltd.
Still, the companies are encum-bered with stockpiles of handsets after the outbreak of SARS in the second quarter slashed sales. Siemens AG, which has about 6 percent of the Chinese market, last month estimated about 15 million phones were languishing in ware-houses and shops in China.
Price cuts by Chinese phone makers have hurt profitability, forcing manufacturers to cut costs. Both Ningbo Bird and TCL Mobile posted a drop in first-half profit margin, with TCL's net profit margin sliding to 9 percent from 14 percent a year ago.
Camera phones are appearing in the Chinese market. A Shenzhen distributor offers 11 built-in camera phones. All but two are made by the likes of Motorola, NEC, Sony, Samsung and Nokia.
The Chinese models were manu-factured by Guangzhou Soutec (Group) Technology Co (南方高科) and Amoi Electronics Co. Ningbo Bird does offer one model with an add-on camera.
"The step to integrate a camera to the phone isn't as obvious," said Didier Dutronc, managing director of Wavecom Asia Pacific Ltd.
"On the software side it's far more complex. Chinese manufacturers are still in a learning phase. They will invest because the demand is there," he said.
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