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China's Top Phone Maker Wants to Mobilize
By Alysha Webb, Correspondent
Qiao Xing wants a piece of the country's competitive mobile-phone markets, but investors are nervous.
China's number-one fixed- and cordless-phone handset manufacturer Qiao Xing Universal Telephone (Nasdaq:XING - news) has its eye on the hottest market in China right now -- mobile.
The company plans to begin manufacturing global system for mobile (GSM) mobile phones, and has applied with the Ministry of Information Industry to manufacture code division multiple access (CDMA) mobile phones, as well, says Jeff Feng in the Guangdong-based firm's investor relations office.
Despite the rapid growth of China's mobile-phone market -- with a subscriber base expected to show almost 70% growth in 2000 to 72.2 million, according to International Data Corporation -- industry watchers were mixed in their assessment of Qiao Xing's plan to enter the highly competitive mobile-phone handset market.
``It's going to be a very tough market,'' explains Hong Kong-based Gilbert Choy, head of China research for Dresdner Kleinwort Benson. That's partly because three foreign manufacturers -- Nokia (NYSE:NOK - news), Ericsson (Nasdaq:ERICY - news) and Motorola (NYSE:MOT - news) -- have a stranglehold on China's mobile-phone handset market, with around 90% market share.
Add to that, strong local competitors like Panda and Konka, and ``it will be very difficult to take market share,'' says an analyst at Chinese brokerage Shenyin Wanguo (Hong Kong).
Qiao Xing's share price has been riding a roller coaster as a result of shifting investor sentiment. After announcing in late December 1999 that it would begin manufacturing CDMA phones, the stock shot from around $8 a share to $51 a share. It fell to $22 a share the next day, and has fluctuated from the mid-teens to the $20s since. The shares are at $13 1/8 now.
Listed in mid-February 1999 on the Nasdaq, Qiao Xing is lightly traded, with occasional spikes in volume when the company releases market-friendly news, like the move to manufacture mobile handsets. It's also lightly covered by analysts, so finding out information on the company can be a painful process.
Foreign Stranglehold
In an attempt to break the foreign firms' hold, the government last year announced it would support a group of 10 ``local champion'' mobile-phone manufacturers with preferential policies, and slow or halt approval of new foreign manufacturer projects.
China has 23 officially sanctioned mobile-phone manufacturers. In the first quarter of 2000, they produced 9.08 million cell phones and sold 8.82 million, an increase of 177% and 162%, respectively, over the same period last year, according to the Economic Operation Department of the Ministry of Information Industry.
But Qiao Xing is not among that group. Furthermore, its mobile-phone manufacturing plans are still in the very early stages. It plans to manufacture handsets for both GSM and CDMA mobile technology, but the CDMA manufacturing plan is ``waiting for final approval from the Ministry of Information Industry. We still lack all the applications,'' says Qiao Xing's Feng.
Even after Qiao Xing has all the applications in, the process could still be lengthy. That's because China is in the midst of deciding which CDMA standard to use -- among the possibilities is the Qualcomm's (Nasdaq:QCOM - news) CDMA standard CDMA2000 or a standard used by Nokia, Ericsson, Motorola and Alcatel (NYSE:ALA - news). Those latter four companies have patents and manufacturing stakes in a rival standard, W-CDMA, or TD-SCDMA, which in turn is being developed by government-funded Chinese researchers and Germany's Siemens (OTC:SMAWY - news).
A decision isn't expected until late 2000 or in 2001.
Picking the Right Foreign Partner
Qiao Xing has already chosen a foreign partner for the CDMA manufacturing project -- Korea's Hyundai Electronic Industries. As for the GSM handset, Qiao Xing is still weighing which partners and technology to use, Feng says. Production ``should begin before the end of this year,'' he adds.
Choosing the right foreign partner with the right technology may be a key decision in Qiao Xing's bid to enter the already highly competitive mobile-handset market, says Dresdner Kleinwort Benson's Choy. China already has more than 20 officially sanctioned mobile phone makers. A foreign partner could give Qiao Xing a needed boost.
``They don't have to reinvent the wheel,'' says Choy. Innovation is the key to making it in China's mobile-phone market, he adds.
Unlike some Western countries, where consumers may only buy a new mobile phone when their current model wears out, ``in China, people tend to get a very new mobile phone very often,'' he says.
Even with an innovative foreign partner, Qiao Xing could face tough time ahead. Growth in demand for mobile phones is expected to slow somewhat in 2001, to 45% compared to 2000's projected 67% growth rate, says IDC.
It may be too soon to simply write off Qiao Xing's mobile-phone production plans, however. Though demand growth may slow in 2001, 45% is still a robust rate of growth.
``There are a lot of new companies moving into making mobile phones, and under any other circumstances that would suggest a glut. But with such huge growth, there's room and there will be successful domestic mobile phone companies,'' says Beijing-based Ted Dean of BDA China, a telecom and Internet research and market strategy firm.
Qiao Xing's Calling Card
Mobile phones made by domestic manufacturers are forecasted to take some of this new business. A Sino Market Research Survey of 30 cities conducted at the end of 1999 found 41% of those surveyed said they were interested in buying a Chinese-made cell-phone.
And Qiao Xing's history suggests it can successfully take advantage of market changes. Started in 1992 as a mere fixed-phone original equipment manufacturer for Chinese companies, Qiao Xing began to manufacture its own line of fixed-line phones within months.
In 1996, it introduced a line of cordless phones, and by 1998, it had developed and introduced caller-ID display telephones and coined telephones. Qiao Xing sold 4.2 million sets of all kinds in 1999; in December government awarded Qiao Xing a multi-million dollar interest-free loan and export credit facility.
This may allow it to capture market share overseas in other emerging mobile-phone markets, while Qiao Xing's nationwide chain of 135 sales outlets also gives it leg up on other new entrants into the market, analysts say.
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