In the Rich Feature Phone Market, most of the Chinese / Taiwanese brands are profitable (razor thin margin). Despite higher ASP driven by smartphone, the vast majority of these brands could actually be loss making. In my view, these brands are making even poorer profitability on smartphone than on feature phone due to higher R&D cost, rising marketing expenses, and much shorter product cycle for them to recoup the cost.
With whitebox makers now selling 2G smartphones below US$50 and 3G dual core smartphones around US$100, there is very little room for Chinese brands to make money in the sub-US$100 segment. With the whitebox 2G smartphone dropping below US$50 and 3G below US$100, expect whitebox smartphone to take meaningful market share in other emerging markets in 2013.
The market share loss of global brands is driven mostly by lack of presence in the sub-US$100 segment. The dominance of whitebox smartphone players hurt mostly Nokia’s feature phone and the low-end smartphones of Huawei / ZTE. It has very little impact on Apple, Samsung or other global brands.
In MWC 2012, the Chinese / Taiwanese Whitebox smartphones were mostly single core. Barely 12 months later, almost all the whitebox makers are launching quad core products. As such, most Asian brands start to adopt more premium components such as quad core processor, large HD / qHD display / 8MP camera / premium speaker box. The value proposition is to offer something with only slightly worse hardware specification than Samsung Galaxy S3 / HTC Butterfly (both around US$600) at US$300-350, which is similar to Samsung / HTC’s mid-end models.
Given lack of brand premium, Chinese brands need to offer more value when they compete with global brands in the US$200-350 segment. If Chinese brands successfully penetrate the US$200-300 segment, it is unlikely to have an impact on Apple either but will most likely hurt the mid-end product of HTC, Samsung and LGE.