Domestic phone firms lagging behind

By Xie Jun Source:Global Times Published: 2017/9/18 21:53:41

Lack of homegrown tech undermining profits


Consumers in an Apple store in New York in July 2016 Photo: IC



Domestic mobile phone makers are finding it harder to make profits than overseas brands like Apple and Samsung, due to factors such as their lack of independent research capabilities, experts said.

According to data compiled by US-based market research company Strategy Analytics (SA) in June, Apple gained 83.4 percent of the profits in the global smartphone industry in the first quarter this year, up from 79.8 percent in the same period a year ago. South Korean brand Samsung ranked second, taking 12.9 percent of global profits.

This means that profitability for domestic smartphone makers is much thinner. For example, Huawei took 3.5 percent of global profits while OPPO took 4.7 percent, according to the SA data.

Part of the reason for this discrepancy is that many smaller companies are operating at a loss, which chips away at profit, Business Korea reported on June 5.

According to Li Yi, a senior research fellow at the Internet Research Center under the Shanghai Academy of Social Sciences, the manufacturing cost of an iPhone X, launched by Apple on September 12, is nearly $400. But an iPhone X costs about 8,388 yuan ($1,279).

Apple told the Global Times on Monday it would not disclose the profitability of any individual products.

In comparison, a Huawei P10 costs about 3,500 yuan, while a Xiaomi Mix 2 costs about 3,300 yuan.

Huawei did not disclose the costs of production for its major phone models when asked by the Global Times on Monday. 

Lack of key technologies

Wang Mengxuan, an analyst at Beijing-based market consultancy iResearch, told the Global Times Monday that most domestic mobile phones' key technologies are reliant upon imports.

"In terms of chips, domestic high-end mobile phones use chips manufactured by [US-based] Qualcomm or Samsung. Although Huawei and Xiaomi have the ability to develop their own chips, they still use Qualcomm chips for their high-end products," Wang noted.

In terms of screens, Samsung screens account for more than 90 percent of global smartphone OLED screens. 

"In terms of mobile cameras, most domestic mobile phone firms use Sony as their supplier, as the Sony cameras have good image quality and advanced functions," Wang said.

In comparison, overseas mobile phone makers tend to use their own components. For example, Samsung has a complete supply chain of its own, and Apple makes its own mobile processors, Li told the Global Times.

"Because key mobile technologies are monopolized by overseas companies, it's very hard for Chinese phone makers to find parts that are cheaper but still have good quality," Li said.

A former employee at Huawei told the Global Times on Monday that many domestic phones' parts are poorly made, adding that they are cheaper to make than those used in iPhones, but only "to a small extent."   



Reluctant to research


Li said that the reason for the technological disadvantage is the fact that many domestic companies are reluctant to develop their own mobile technologies.

"For example, when leading chip structure maker ARM (UK) offered to sell its business in 2016, no Chinese companies participated in the bid. It was finally acquired by Japan's Softbank Group. Examples like this show that domestic companies still lack strategic insight," Li noted.

"Also, when domestic phone makers launch their new products, you often hear them boasting about using imported parts, but you seldom hear them introducing any new technologies. This is in stark contrast with Apple, which always keeps its eye on new technologies and develops them into mature technical applications," Li said.

But the former Huawei employee pointed out that developing technologies is more expensive than importing parts.

The Chinese government has launched policies to support the development of mobile technologies, such as tax exemptions for software companies.

Wang also noted that domestic companies have developed some mobile technologies, such as the screens made by BOE.

Apple targets the high-end market and consumers have already accepted the higher prices it charges, but domestic mobile phones target a market that cares more about price, so they have to engage in price wars, said Wang.

"The room for domestic mobile phone firms to increase their prices is very limited," Wang said.



Posted in: ECONOMY,COMPANIES

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