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EDN Europe's Editor Graham Prophet posts a selection of comments and insights prompted by the many items of industry news and rumour that cross the editorial desk or are gathered on his frequent travels to interviews, press conferences and events around Europe - and further afield - and somehow never find their way to the magazine or the web site, recovering some of the information otherwise lost in the noise level...

Wednesday, November 04, 2009

Analyst fingers “grey” cellphones

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Industry analyst iSuppli has issued a press release on a report that claims to put numbers to the “grey” (or gray, as the US-English text says) cellphone market in China, and if the figures are reliable, they are pretty astonishing. “This business,” iSuppli says with no hint of irony, is “one of those things that everyone knows about—but few want to discuss”. The report reckons that grey-market shipments in 2009 will grow to 145 million units, or nearly 13% of the size of the legitimate global cell phone business (assessed at 1.13 billion units), “too big and too lucrative for the mobile handset supply chain to ignore anymore”.
The 145 million figure is “up a stunning 43.6 percent from 101 million in 2008”, says the report. Three decimal places of accuracy in assessing an underground market? – Let’s round that off to a growth of somewhere not far short of half again: impressive for any business sector. In contrast, iSuppli adds, worldwide unit shipments of legitimate cell phones will decline by 8% in 2009. Continuing healthey growth in the grey market will see it peak at 192 million units (those three figures again….) in 2012.
Grey-market handsets are cell phones manufactured in China that are not recognised or licensed by government regulators, and that bypass China’s tax regime. They have counterfeit International Mobile Equipment Identity (IMEI) numbers, and don’t have test/quality certifications or network entry permits.
iSuppli’s report ventures into the sensitive area of where the components for these phones come from. Are they all from suppliers painted in the same shade of grey? You might guess not, and the report adds some confirmation;
“With its large size and rapid growth, the grey cell phone market has become a major revenue driver for suppliers of semiconductors and other components. While MediaTek is one of the primary supplier of semiconductors to the grey market, many other makers of semiconductors for legitimate handset OEMs also sell to grey-market manufacturers. However, the chips sold into the grey market often do not meet quality specifications of mainstream handsets. While this represents a lucrative opportunity for these semiconductor suppliers, it does come with some risks.
“As the gray-market handset gets bigger, component suppliers may get some pressure from the legitimate OEMs and others in the ecosystem to stop selling into this area,” warned Francis Sideco, principal analyst, wireless communications, for iSuppli. “This pressure may come in the form of shrinking design wins and potentially, intellectual property lawsuits.”
You might also guess that this production is made-in-China for use in China; but in this case you’d be wrong; no less than 110 million of those 145 million units will be exported from China, “Ironically, at a time when Chinese consumers are turning away from grey-market phones … and … toward brand-name products”.
And these are basic phones, for the low end of the market? Not necessarily, says iSuppli; they all have 2-megapixel VGA cameras and Bluetooth, and some have Wi-Fi, QVGA-resolution touch-screens and Windows Mobile.
It would seem there’s going to be a lot more of these turning up on street-market stalls all over the world, and not just in emerging markets; looks like one more area that’s going to keep the lawyers busy.

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