How & Why Xiaomi Built a Different Eco-System Model ?

We view Chinese Company, Xiaomi as a mobile Internet company, rather than a hardware company, mainly because Xiaomi captures a significant portion of user life time value (LTV) after hardware purchase through a 3-way monetization model (hardware, Internet service and software). On the contrary, hardware companies capture vast majority of the user LTV at hardware purchase.

Hardware, which includes various in-house developed Xiaomi devices such as Xiaomi smartphones, tablets, Xiaomi Router, etc. Xiaomi devices are priced at significantly lower prices vs. competitors, which should drive user acquisition. (more…)

Chinese Regulators’ Smart Move in Clearing Nokia – Microsoft Deal

Nokia Microsoft DealThe Chinese Ministry of Commerce (MOFCOM) approved Microsoft’s acquisition of Nokia’s Devices and Services business, in a somewhat Smart move that will stand to benefit Chinese Consumers and Companies.

The Big Patent Concern
MOFCOM was concerned with certain Microsoft incentives changing post the deal, reflecting Microsoft’s licensing of some essential patents to vendors using Android software where Microsoft has claimed a small royalty fee. Microsoft is committed to licensing its patents on a FRAND basis and will not see injunctive relief against smartphone players in China on the basis of these patents for patents that are (more…)

WhiteBox Mobile Manufacturers Focus on Quality & Sub $200 Models

WhiteBox SmartPhone ManufacturersMany are still under the impression that whitebox market smartphone are of low quality and are barely usable. The business have started to change their mentality and focus more on quality. During our multiple trips to China in the past 6 months, we’ve witnessed a huge improvement in whitebox smartphone quality. With better economy of scale, prices also have come down very rapidly.

Most consumers are willing to pay a premium for branded products over Chinese brand / whitebox smartphone, especially in the mid to high end segment. However, we believe that in the sub US $200 segment, whitebox makers can offer similar form factor design but much better hardware specifications at lower prices. As such, it’s extremely difficult for branded players to compete with whitebox makers. (more…)

MarketShare of SmartPhone Mobile Handsets in China

The China smartphone market is price driven (sub-Rmb1000 or US$150); consensus believes aggressive pricing will continue in 2013. We think the market will remain fragmented, but selective brands in China could benefit in 2013 through enlarged scale. We think share gains at Lenovo and ZTE could help the companies defend margins at the operating level better than peers.

The following Chart Shows MarketShare of SmartPhone Mobile Handsets in China between 2009 and 2013china smartphone marketshare
The marketshare dynamics will change substantially if Apple rolls out a low-priced iPhone to expand share in China, putting greater-than-expected pressure on margins.

Most Sought After / Popular SmartPhones in China

iPhoneThe iPhone remained the favorite mobile phone brand among users, with a 21.2% “attention rate” (the percentage of search queries for a certain brand across all mobile phone-related search queries), up 1.2pp QoQ. Samsung (15.8%, up 0.2pp) overtook Nokia (14.6%, down 1.8pp) to become the second most searched-for mobile phone brand among Chinese users. Although overseas brands continued to fill the 3 most favored mobile phone brands, there were five Chinese domestic brands which managed to enter the top 10, including Xiaomi (8.5%, up 2.1pp), Lenovo (4.7%, up 0.9pp), Huawei (3.2%, up 0.3pp), ZTE (2.7%, up 0.1pp) and Meizu (2.3%, up 0.7pp).

In terms of the most popular mobile phone models, Apple took all top 3 positions with its iPhone4S (representing an 8.4% attention rate), iPhone5 (7.6%) and (more…)