Friday, December 17, 2010
Last week, I highlighted the bright, cheerful side of the booming Chinese cell phone market. Today, I want to show you the darker side... a trend that is crushing part of the market.
Millions of Chinese customers will be buying iPhones over the next year. As I pointed out last week, the result will be huge growth for Apple and China Unicom. However, millions MORE will buy phones that don't have a brand name on them.
In fact, for every iPhone that Apple sells worldwide, there are 10 no-name brand phones sold.
These phones are called "white box" products. It's a polite name for products that are often closer to the black market. In emerging markets like China, these white-box phones are a HUGE business. And the latest data from IT research leader Gartner shows how these no-name phones are eating into the market share of phone manufacturers like Nokia (NOK).
According to Gartner, 417 million phones sold worldwide during the third quarter of 2010. (That's up 35% compared to last year – huge growth.) One-third of all phones fall into the "other" category, meaning they didn't come from one of the top 10 manufacturers.
Gartner analyst Carolina Milanesi said, "In the third quarter, white-box manufacturers continued to expand their reach outside of China into markets such as India, Russia, Africa, and Latin America."
She added, "We firmly believe this phenomenon will not be short-lived... Although we have seen acceleration in sales this quarter, we expect an even bigger volume in the fourth quarter of 2010."
Here's how that's playing out for Nokia...
As you can see in the table above, these white-box phones are KILLING Nokia. Even though it grew sales by 3.5%, it's losing a ton of market share to these no-name brands.
(Meanwhile, Apple's phone sales have almost doubled over the past year. China's two biggest phone makers, ZTE and Huawei, are growing sales at a 45% and 64% clip, respectively.)
Here's the lesson for investors: Be careful with major phone manufacturers, like Nokia, that sell cheap phones. White-box phone makers will continue to ruin the low end of the market even as the global cell phone market booms over the next year.
The better play is to go with a company like China Unicom, which can make money off high-end iPhone users AND those who buy no-name phones. Regardless of what phone you buy, you have to pay China Unicom to use its network.
Companies that make the small parts for phones are also a solid play. And I still like the big semiconductor index – SMH – as a long-term play on the "gadget boom."
"Verizon isn't growing anymore," Larsen wrote earlier this week. "Neither is AT&T... If you want growth, you have to go to China." See what Chinese "trophy stock" you should keep an eye on here: Meet the Little-Known Company Bringing the iPhone to China.
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