China mobile phone design industry to move into consolidation

Handset-design industry in the “world’s fastest growing economy” is expected to enter a phase of consolidation this yer due to rapid declining profit margins.

According to data from China-based market research firm ResearchInChina, average gross margins for China-based handset design companies are expected to drift down to 3% in 2008, compared to 5% in 2007 and 15% in 2006.

The reason for declining margins can be explained with two factors: first, more and more international handset vendors are entering the Chinese handset market market; and, on the other side, a lack of production differentiation among handset design companies.

Most handset design companies in China are using MediaTek’s chipset solutions, making them unable to differentiate their products from each other. To be fair, some companies have begun developing more sophisticated products, including dual-mode, GPS-enabled and 3G models as well as smartphones. However, most such devices are unable to reach an economic scale.

Last year, shipments of China-made handsets built using solutions from China handset-design companies totaled about 101 million units in 2007, and are likely to increase to 122 million units in 2008 and 142 million units in 2009.

[Via: DigiTimes]