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1、,25.9,31.6,2010-2011,70,60,25.0%,October 13,2010China:TechnologyResearch ReportAnalyzing Chinas smartphone market:Six main forces at workChina smartphone shipments to reach 28mn units in 2010E,We estimate that smartphone penetration in China will approach 14%in,RATINGS AND TARGET PRICES,2010E,three
2、years behind North America,but ahead of most emerging,Stock,Ticker,Rating Price target,Price,countries.In China,Symbian currently leads in market share,the iPhone in,MediatekHTC*,2454.TW2498.TW,SellBuy,NT$370NT$1000,410.0712.0,mind share,but Android is taking a larger share and is probably the,ZTE(H
3、 share)0763.HK NeutralZTE(A share)000063.SZ Neutral,HK$29Rmb27,most promising,in our view.We see six forces working on smartphone,Lenovo,0992.HK,Buy,HK$5.5,5.1,growth price,OS,3G,brand,distribution,and adoption of mobile apps.,AAC Acoustic*2018.HKMurata MFG 6981.OS,BuyBuy,HK$215600,17.64495.0,Qualco
4、mm*Broadcom,QCOMBRCM,BuyBuy,$52$44,44.835.7,Price is key;distribution,brand,and adoption also necessary,LarganMarvell,3008.TW NeutralMRVL Buy,NT$650$22,601.016.8,Chinas handset market is very price sensitive,as evident from the inverse,relationship between volume and ASP.The sweet ASP spot for reven
5、ue isUS$100-$125.To achieve 20%penetration,ASPs need to fall to$130,in ourview.However,price is not everything.The high-end iPhone today is sellingmuch better than the mid-end Lephone,which has outsold the low-end$150Android phone.We attribute slow adoption of the$150 Android smartphone toits limite
6、d distribution channel,marketing,and the adoption of mobile apps,although we expect uptake of the$150 smartphone to improve in 12 months.,*This indicates the stock is on a regional Conviction List.Note:All stock prices are as of October 8,2010 except forUS-listed shares,which are priced as of Octobe
7、r 7,2010.Target prices for all stocks are on a 12-month basis,otherthan Marvell and Broadcom which are on a 6-month basis.Source:Goldman Sachs Research estimates,Gao HuaResearch estimates.CHINA SMARTPHONE GROWTH TO ACCELERATE IN,China:three carriers,three 3G standards,one Wi-Fi,China smartphone&pene
8、tration,2006-2012ESmartphone Units(mn,LHS)Smartphone Penetration(%),30.0%25.0%,In 2Q2010,GSM/WCDMA/TD/EVDO represented 51%/27%/19%/4%of total,50,19.0%,20.0%,smartphone shipments.In our view,Chinas three 3G standards have kept,4030,14.0%,60.0,15.0%,its largest sub-group(i.e.China Mobile)from fully en
9、joying the bestWCDMA smartphones,which should continue to outpace TD and EVDO in,2010,9.0,7.0%,9.0%13.0,10.0%15.0,10.0%17.0,28.0,42.0,10.0%5.0%,cost reduction and variety.A potential unexpected outcome is rapid growth,0,2006,2007,2008,2009,2010E,2011E,2012E,0.0%,of Wi-Fi hot spots to alleviate netwo
10、rk congestion and allow China Mobilessubscribers to access the Internet via WCDMA/Wi-Fi phones.Stock implications to handset and component makersWe expect Chinas smartphone market to grow in three phases,driven by:1)the iPhone,Lephone and Nokias smartphone in 2010-2011;2)the$100-$150Android phone in
11、 2011-2012;and 3)the sub-$100 Android phone after 2012.HTC is gaining traction in the$300 phone category.ZTE should benefit fromthe growth of both$150 smartphones and mobile bandwidth.Qualcommshould be a major chip beneficiary,especially in the$150 phone range,whileMediatek should benefit significan
12、tly from growth in the$100 smartphonesegment in 2012.We think Broadcom and Marvell should benefit frompotentially robust demand for Wi-Fi hot spots.Other component beneficiariesunder coverage include Murata,AAC Acoustic and Largan.,Source:ThinkBank.,Donald Lu,Ph.D SAC License No.S1420110030005+86(10
13、)6627-3123 Beijing Gao Hua Securities Company LimitedBeijing Gao Hua Securities Company Limited,Beijing Gao Hua Securities Company Limited and its affiliates do andseek to do business with companies covered in its research reports.Asa result,investors should be aware that the firm may have a conflic
14、t ofinterest that could affect the objectivity of this report.Investors shouldconsider this report as only a single factor in making their investmentdecision.For analyst certification,see the end of the text.Otherimportant disclosures follow the Reg AC certification,or contact yourinvestment represe
15、ntative.Investment Research,2,7,10,12,14,17,2,October 13,2010,China:Technology,Table of contentsThe state of Chinas smartphone market and six forces at workNokia leads market share;iPhone dominates mind share;low-cost Android ramping up slowly,but looks most,promising,5,Price is a key factor for bro
16、ad smartphone adoptionChinas mobile market three unevenly matched carriersThree 3G standards and one Wi-FiEarly adopters of mobile internet tend to be young and on low incomesImplications for handset and component makers under coveragePrices in this report are based on the market close as of October
17、 8,2010.The state of Chinas smartphone market and six forces at workSmartphone shipments of 28mn&14%China penetration in 2010EIn China,demand for smartphones accelerated in 1H2010 due to the introduction of mid-end smartphones priced at approximately US$300 and the introduction of the iPhone.Accordi
18、ng to ThinkBank,a research consultancy,the smartphone shipment and penetrationrate(excluding overseas-sourced and white label goods,e.g.Mediateks phones)shouldincrease from 19mn and 10%in 2009 to 28mn and 14%in 2010E,respectively,according toThinkBank(Exhibit 1).IDC estimates smartphone shipments wi
19、ll reach 26mn in China in2010.ThinkBanks estimate is based on its bottom-up survey in sales channels and does notinclude overseas-sourced or 100%of Mediatek phones.For example,ThinkBank estimatestotal China handset shipments of 200mn in 2010,well below our estimate of 294mn(whichincludes Mediateks t
20、otal shipments in China).Anecdotal evidence suggests many Chinese have been purchasing smartphones such asthe iPhone in HK and the US and are bringing the phones into China.In addition,most ofthese overseas-sourced phones are mid-to high-end phones including smartphones.Therefore,we believe the“real
21、”smartphone market should substantially exceed 28mn,though actual penetration could be slightly below 14%in China in 2010.Note:For the sake of data consistency,our analysis in this report is based on ThinkBanksestimates of smartphone handsets and total handsets in China.Gao Hua Securities Investment
22、 Research,3,October 13,2010,China:TechnologyExhibit 1:Smartphone shipments to reach 28mn and penetration 14%in China in 2010EChina smartphone sales volume and penetration,2006-2012E,70605040,China smartphone&penetration,2006-2012ESmartphone Units(mn,LHS)Smartphone Penetration(%),19.0%,25.0%,30.0%25.
23、0%20.0%,30,14.0%,60.0,15.0%,20,9.0%,10.0%,10.0%,42.0,10.0%,10,9.0,7.0%,13.0,15.0,17.0,28.0,5.0%,0,0.0%,2006,2007,2008,2009,2010E,2011E,2012E,Source:ThinkBank.Adoption of smartphones may differ in emerging marketsChina is approximately three years behind North America in smartphone penetration,butis
24、ahead of most emerging countries except Brazil and Russia(Exhibits 2 and 3).In thefeature phone market,we note Chinese consumers have been less price sensitive thanconsumers in India,Africa,and Latin America.Chinese consumers have also been earlyadapters of multimedia phones.Furthermore,Chinas mobil
25、e applications market is alsoattractive to developers because of Chinas large subscriber base.Therefore,we believeChina can be a good leading indicator of smartphone adoption in other emerging countries.In the 2G feature phone market,emerging and developed markets have differed in demand,distributio
26、n channel,and vendors.Some features,such as dual SIM card,analog TV,andultra-long battery life,have essentially no demand in developed markets,but have becomevery popular in emerging countries.In many emerging countries such as China,distribution channel sells more phones than individual carriers.Me
27、anwhile,the distributionnetwork in rural areas of emerging market is quite rudimentary in nature but complex instructure.Furthermore,emerging markets are often more price sensitive than developedmarkets.We believe these key differences have made Mediateks business model successful.Today,Mediatek dom
28、inates the feature phone market in emerging markets,while Nokia andSamsung still lead in developed markets.In the smartphone market,we believe thatemerging and developed markets also differ,and China is a good case study for thesedifferences.In this report,we focus on six forces that we believe will
29、 determine smartphone growth inChina namely:price,operating system,distribution channel,brand,3Gstandards,and the adoption of mobile applications.Gao Hua Securities Investment Research,45%,4,October 13,2010,China:TechnologyExhibit 2:China is approximately three years behind North America in smartpho
30、nepenetrationSmartphone penetration in North America and China80%Smartphone penetration(as%of handsets)in China and North America70%60%50%40%30%20%10%0%,2006,2007,2008,2009,2010E,2011E,2012E,2013E,China,North America,Source:Company data,Gartner,Global Mobile,World Bank,ThinkBank,and Goldman Sachs Re
31、search estimates.Exhibit 3:China is ahead of most emerging countries in smartphone adoption,exceptBrazil and RussiaSmartphone penetration in China and other emerging markets50%Smartphone penetration(as%of handsets)in EM countries40%35%30%25%20%15%10%5%0%,2006,2007,2008,2009,2010E,2011E,2012E,2013E,B
32、razil,Russia,India,China,Eastern Europe,Middle East&Africa,Source:Company data,Gartner,Global Mobile,World Bank,ThinkBank,and Goldman Sachs Research estimates.Gao Hua Securities Investment Research,5,October 13,2010,China:Technology,Nokia leads market share;iPhone dominates mind share;low-costAndroi
33、d ramping up slowly,but looks most promisingIn terms of operating system,Nokias Symbian has dominated the smartphone market inChina since 2009 and had over 55%market share in 1H2010(Exhibit 4).We attributeNokias strength to its dominant brand image(good durability and voice reception)in firstand sec
34、ond tier cities(where most early adopters reside),its massive sales network of over60,000 direct sales outlets,its relatively mature OVI market for music and map applications,and its moderately priced smartphones(Exhibit 5).All three best selling phones in Chinaare from Nokia(5230,E63,and 5233)and a
35、re priced below US$220.In 4Q2009,China Unicom started to sell Apples iPhone,bundling its WCDMA service inChina.ThinkBank estimates that total official iPhone shipments reached 571,000 in 1H2010.On September 25,China Unicom and Apple introduced the iPhone4 in China and sold over40,000 iPhone4 units o
36、n the first day.The iPhone is suffering supply constraints in China;the wait list at one of China Unicoms branch office in Beijing was over 1,400 according toour checks.China Unicom expects to sell 200,000 iPhone4 units by the second half ofOctober.Our channel checks indicate that Apple might introd
37、uce the CDMA iPhonethrough China Telecom in late 1Q2011 and look to ship 5mn CDMA iPhones to China in thefirst 12 months a figure which that seems optimistic,in our view.The current averageselling price(ASP)of a WCDMA iPhone(16GB)is over US$860,targeting the ultra high-enduser and corporate gift mar
38、ket.Our limited survey indicates that many iPhone users areattracted to the phone itself and are not necessarily avid mobile application users.Windows Mobile-based smartphones are making limited progress in China.Coolpad,alocal Chinese smartphone brand,is based on a revised version of Windows CE.Chi
39、naUnicom has started to subsidize two Windows Mobile-based$150-$200 smartphones madeby Sony-Ericsson and Tianyu.Our channel checks,however,indicate that most handsetmakers are putting most of their resources into the Android platform.On May 17,2010,Lenovo and China Unicom introduced a WCDMA Android-
40、basedsmartphone,Lephone.On September 28,2010,Lenovo and China Telecom introduced theCDMA Lephone.We expect Lenovo to introduce the TD Lephone in the near future,asindicated by the company.We note that the Lephone differs from the iPhone and otherAndroid phones in four ways:It has superior hardware,i
41、ncluding a 1GHz Snapdragon processor and AMOLEDscreen;Its$350 price is well below that of the iPhone and fits in a carriers need for a goodmid-end smartphone in China;Lenovo is developing its own app site for 1,000 most popular applications in order toimprove user experience;andLenovo sells Lephone
42、through both China Unicoms branch and its own IT channel.Lenovo has over 20,000 sales outlets in China.Lenovo plans to ship 1mn and 3mn Lephones in the first 12 and 24 months afterintroduction,respectively.In 3Q2010,HTC,Samsung,Motorola,Lenovo,Sony-Ericsson,Huawei,and ZTE introducedseveral new Andro
43、id models with ASPs ranging from$150-$700.We view the Rmb1,000(US$150)Android phones from Huawei and ZTE as an important milestone for low-costsmartphones because we believe that$150 is very close to the sweet ASP spot of Chinashandset market(discussed in the next section).The two$150 phones are bas
44、ed onQualcomms chipsets and have benefited from strong support from both Qualcomm andGoogle.We believe the WCDMA Android phone is the most promising to bring down theGao Hua Securities Investment Research,6,October 13,2010,China:Technology,cost of smartphones in China for two reasons:the Android sys
45、tem is essentially free ofcharge and most Asia fabless semi companies are focusing on Android solutions.Mediatekis slated to introduce its WCDMA Android solution by mid-2011.Based on our checks,wethink Spreadtrum and others will likely introduce their solutions in 2H2011.Meanwhile,Qualcomm has been
46、proactive in defending its market position in China.We would not besurprised to see a$100 WCDMA Android phone in China by 2011.Interestingly,although important,price is not everything in China.We believe demandfor low-priced smartphones is not nearly as strong as that for the iPhone.For example,Chin
47、a Unicom subsidizes the iPhone(high-end),Lephone(mid-end),and five sub-$200smartphones including Huawei and ZTEs$150 Android phones.China Unicom hasindicated that demand is strongest for the iPhone,good for Lephone,and muted for sub-$200 phones.We attribute the relatively poor demand for the$150 And
48、roid phone to four factors.(1)ZTEand Huawei sell their phones only through carriers that have limited sales branches andlack dedicated salespeople;(2)compared with Nokia,ZTE and Huawei do not have thesame brand recognition and spend very little in marketing expenses likely because of theirsmartphone
49、s low prices;(3)the hardware performance and user experience of the$150Android phone is not yet satisfactory,in our view;and(4)China is still very early in itsadoption of mobile Internet and mobile applications.An HTC salesperson in Beijing commented that only a third of HTC customers understandmobi
50、le applications.We believe that market education and adoption of mobile applicationswill take time.It could take another 12 months before the market is ready for the$150Android phone,in our view,and that meaningful ramp up of sub-$100 smartphones willprobably occur in late 2012,after all six forces
