Presentation prepared for 15th Biennial ITS Conference Berlin September 4-7, 2004
The Distribution Of Mobile Handsets
Connecting Global And Local Distribution
Per Andersson, Associate professor
Bengt G Mölleryd, Ph.D
Stockholm School of Economic, CIC
Evli Bank, Research TMT
P.O. Box 6501, SE-113 83 Stockholm,
Kungsträgårdsgatan 16,
Sweden
SE-117 30 Stockholm, Sweden
voice +46-8-736 95 38
voice +46 8 407 80 38
fax +46-833 43 22
fax + 46 (0)8 407 80 01
e-mail: dpa@hhs.se
e-mail: bengt.molleryd@evli.com
1
Aim
The aim of the paper is to discuss a set of
distribution challenges meeting suppliers of
handsets, operators, and other channel actors in
the global mobile telephony industry.
2
Issues
1.
2.
3.
4.
What are the underlying changes and drivers leading to
an increased focus on distribution issues in the global
market for mobile handsets?
What are the distribution challenges for handset
manufacturers as production increasingly is becoming
global?
What are the distribution challenges when this global
distribution has to be connected to regional and local
distribution and consumption networks with often very
local, specific characteristics?
What role do operators play in this globalization of
distribution process, and what are the challenges for
other actors in the global distribution system?
3
Research Background
• “Distribution channel effects of institutional, technological and
•
•
•
•
•
market changes in the rapidly growing market for mobile telecom
equipment” (Andersson & Mölleryd 1994)
“Distribution system and service consequences of technological
convergence” (Andersson & Mölleryd 1998)
“Increased polarization of distributor-customer relations and retailers’
strategies to cope with this” (Andersson & Mölleryd 1999)
“Market system studies of changes in customers’ buying centers,
buying organizations and buying behavior” (Andersson & Mölleryd
2001)
“The internationalization of distribution” (Andersson 2002)
“A global perspective on distribution channel changes in the mobile
telephony industry” (Andersson & Mölleryd 2004)
4
Empirical Background
Changes in the Global Handset Market
• General rapid growth of new users
• A growing replacement market
• New entrants competing with the Big Six in the handset
market
•
•
Continued regional market variation despite globalization
Internationalization of handset production and changes in
the production value chain
• Internationalization of operators
• The increased importance of the Chinese market in global
distribution
5
The handset market is entering a dynamic
phase…
• The handset market is prospering as the replacement cycle kicks in
-
extensive upgrades to color screens, camera handsets
-
commercial volumes of 3G are around the corner
• The big suppliers keeps a firm grip on the market
-
LG Electronics has now entered the core group
• But the Group other is a force to be recon with, primarily driven by
strong activity in Asia
-
A Chinese handset industry is emerging
-
Extensive development is ongoing in Korea
• Reference designs (platforms) and new chipset pave the way for a
partial disintegration, technology houses and ODMs are instrumental
=> Market volumes are growing strongly and the big ones are set to
benefit as they have sufficient resources to master the entire
production and distribution chain
6
Replacement drives the handset market
H andset mar ket
800
80%
690
700
641
600
60%
520
500
M illion
70%
50%
432
400
40%
300
30%
200
20%
100
10%
0
0%
2002
T o t al mar ket
2003
o f w hich r eplacement
2004E
Replacement r at e
2005E
Replacement r at io
• Increasing replacement ratio: 30% 2004, 31% 2005
• Growing share of subs that have their 3-4-5 handset, drives demand
for mid- and high end handsets
• Segment: SonyEricsson, Samsung, Motorola, sleeper
7
Handset market is worth EUR 71bn 2004
M ar ket value handset s
Volume (m)
2002: 432
2003: 520
2004: 641
2005: 690
76 000
6%
74 000
5%
72 000
4%
70 000
M EU R
Assumption:
ASP (EUR)
2002: 153
2003: 132
2004: 111
2005: 109
68 000
3%
66 000
2%
64 000
1%
62 000
60 000
0%
2002
Source: Evli estimate
2003
Mar ket value (MEU R)
2004E
2005E
Mar ket value gr o w t h y/y
We expect unit growth to be 23% 2004, and 8% 2005
8
Passing 1bn handsets 2010
Reaching 1.3bn handset s by 2015
3500
100%
90%
3000
80%
2500
70%
60%
M illion
2000
50%
1331
1500
1002
40%
30%
1000
20%
500
10%
0
0%
2010
Subscr iber s m
2015
vo lume
r epalcement r at e
r eplacement r at io
Positive long term outlook with huge volumes will trigger
industry dynamics with growing platform business…
9
The big six delivered 74% of all handsets 2003
M ar ket shar es (sell-in) 2003
We have identified 35 suppliers
O t her
25,9 %
N o kia
A consequence of total
sell-in volume of 551m
32,6 %
LG Elect r o nics
LG Electronics
passed
SonyEricsson
During Q4
5,0 %
So nyEr icsso n
4,9 %
M o t o r o la
Siemens
7,9 %
Samsung
13,6 %
10,1 %
Source: Company reports, Evli estimate
The leading six supplied 408m handsets 2003
10
The ‘smaller’ suppliers will sell 160m 2004
T he G r o up O t her est imat ed sales 2004
25
19,2 18,9
20
15
12,0
11,0 11,3
10,0
9,5
10
8,0
7,6
6,6
5,4
4,9
4,5
5
3,5
3,4
3,0
2,7
2,2
1,9
1,2
2,4
2,0
1,2
0,8
0,5
0,9
0,6
0,4
0,5
0,7
0,5
0,6
0,5
0,6
lo
gy
da
P
an
en
B
ch
no
Q
p
on
or
ax
C
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M
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V
ge
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i
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id
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i ta
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se
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en
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ax
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ia
m
al
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ar
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or
co
p
E
c
ro
ct
le
le
Te
E
ta
D
at
C
an
g
hi
ne
se
S
N
Source: Company reports, Evli Bank estimates
ZT
te
ou
S
ni
c
ka
so
on
oi
K
m
A
n
om
ia
E
as
tc
er
ej
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el
ai
bt
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s
su
lip
Fu
j it
hi
hi
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is
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it s
ub
a
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an
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rp
sh
To
at
el
S
ha
em
lc
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in
gb
o
S
ag
o
L
C
ir d
B
K
ic
ra
TC
ce
yo
N
on
as
an
ec
0
P
m illion units
Nec aim to grow
considerable
through
international sales
of WCDMA
handsets
11
The Mobile handset production chain
EMS
Ascomp
Elcoteq
Flextronic
Solectron
Builds up
Design capabilities
ODM
Arima
Benq
DBTEL
GVC
Microcell
Sewon
Pantech
Telson
Suppliers
Nokia
Siemens
• Growing business
• Response to OEMs
ambition to provide
wider portfolios
• Target operators
=> Chipset suppliers go for reference designs to offer complete cellular
systems
=> Know-how and technical competence is now widely spread in the
mobile industry
12
A growing Chinese handset industry
• Amoisonic is primarily targeting the high-end
• We have estimated volumes on 1) reported
market
volumes, 2) reported sales divided with
benchmark ASP, and 3) talked to the companies
• Chinese Electronic Corp works closely with
• We estimated total sell-in volume to be 38m
• Dtang works with CDMA, TD-SCDMA
2003
• Eastcom supplies GSM and CDMA phones
Philips
under own brand, and has a JV with Motorola
T he O t her - C hina shipment 2003
• Haier is the leading white goods supplier in
12
China, has teamed up with Sendo
9,8
10
8,7
• Keijan is a growing player on the Chinese
M illio n u n its
8
market, collaborates with Samsung
6
4
• Konka produces both GSM and CDMA
3,4
3,0
2,7
1,9
2
1,2
0,9
0,6
0,5
0,5
handsets
2,2
0,9
0,6
0,5
0,8
0,4
• Ningbo Bird is a leading supplier on the
E
ZT
c
L
TC
cs
te
Chinese market
E
S
ou
ni
da
le
ct
P
ro
C
an
o
nd
ir d
B
o
ed
gb
S
in
n
N
he
ka
ge
Le
on
K
ia
n
se
en
ej
K
er
is
ai
H
tc
as
E
H
om
gy
n
Te
m
D
co
D
nz
he
• Soutec sells GSM and CDMA hands
S
at
C
an
g
hi
ne
Te
se
le
E
no
ch
n
ia
al
ro
le
lo
ia
p
ax
or
D
C
id
c
ni
ha
ct
A
C
m
oi
br
so
ni
c
ge
0
• TCL leading player on the Chinese market It
uses platforms from Ericsson and Motorola
• ZTE manufactures and sells GSM and CDMA
handsets, is also a infrastructure provider
13
Strong activity in other parts of Asia
South Korea spearheading CDMA
• LG is ambitious and is expanding rapidly
• Maxon primarily produces to other OEMs
• Standard sells under its own brand Nixxo in
Korea, and produces handset for other OEMs
• VK Corp is a small player on the Korean market
T he O t he r s - So ut h K o r e a shipm e nt 2 0 0 3
30
27,7
25
15
10
5
2
0,7
0,55
0
LG Elect r onics
Maxon
St andar d T elecom
VK C or p
T he O t her s - Shipment Japan 2003
18
16,0
16
14,0
14
12
M illion units
M illio n u n its
20
10,9
10
9,0
8,0
8
6,6
5,4
6
4
3,5
2
0,4
0
Fujit su
K yo cer a
H it achi
M it subishi
N ec
Panaso nic
Sanyo
Shar p
T o shiba
Japanese suppliers primarily sell to domestic
operators
• Fujitsu sells to NTT DoCoMo
• Kyocera focus on CDMA
• Hitachi sells small volumes to Japanese operators
• Mitsubishi primarily sells on the domestic
market
• NEC is a leading supplier in Japan, growing
export sales of WCDMA
• Panasonic sold ~10m handsets in Japan, growing
export
• Sanyo supplies CDMA handsets to KDDI, Sprint,
and PDC handsets to Vodafone
• Sharp spearheads camera phones, 2.2m units sold
overseas
• Toshiba is a leading CDMA supplier
14
The Handset Distribution System
Suppliers
Distributors
Retailers
Sellthroug
h
Sell-in
Sell-in:
handsets delivered to
the distribution system
End customers
Inventory : Normalized 6-8
weeks, á 10-12m/w, but it is a
wide range in different regions
Sell-through:
handsets bought by
end-customers
15
General Drivers of Change
• Internationalization and structural change processes
• Technological changes/drivers
• New power-dependence relations and power shifts in the
marketing channels
•
New patterns of competition and cooperation between
firms in and between channels
16
Concluding Discussion
Channel issues facing handset manufacturers, operators
and other channel actors:
1. Important drivers leading to increased importance of
distribution issues
2. Distribution challenges for handset manufacturers with
increased globalization
3. Distribution challenges with global, regional and local
distribution and consumption
4. Role of the operators and challenges for other channel
actors
17
1. Important drivers leading to increased
importance of distribution issues
•
Globalization of markets and growth of markets
for handsets
•
•
Technological changes in channels
Changes in competition and cooperation in and
between channels
18
2. Distribution challenges for handset
manufacturers with increased globalization
•
•
Globalization and weaker brand loyalty
•
Ownership of handset consignments and channel
control
Increased distribution complexity with more
focus on efficient information systems:
19
3. Distribution challenges with global,
regional and local consumption
•
Globalization in combination with apparent local
variations
•
Handling and changing local variations in
demand
20
Distribution is a regional business
US: Operator focus
• Sales to operators over 90%
• Retail 5%
• Distribution 5%
Europe: Fragmented distribution
• Sales to operators over 50%
• Retail 15%
• Distribution 35%
APAC:
Fragmented
distribution
• Sales to
operators over
30%
• Distribution
more than 60%
• Retail 10%
Close connections with operators essential, beneficial for both
Nokia and Ericsson
21
4. The role of the operators and challenges for
other channel actors
•
Branding issues and the battles for channel
leadership
•
Controlling user interfaces and relations with
system integrators
•
Increased focus on professional procurement in
the channel
•
Taking the Distribution Center role
22