Taiwan: Low Cost Mobile Handsets Ring In Low Profits

In early 2005, the GSM Association launched what was claimed to be an ultra low cost handset, initially aimed at a cost price below $40. It was ultimately available for below $30 to boost the usage rate of GSM mobile phones. According to GSMAestimates, 80 percent of the world’s population has wireless coverage but 25 percent have yet to use mobile services.



“By addressing the cost of handset ownership directly, we can release to the new ultra low cost market segment an initial volume of 600 million units,” says Craig Ehrlich, chairman of the GSM Association.



Motorola was one of the first companies to support this project by offering a family of products C114 and C115 built around its ultra low cost platform for sale in emerging markets. The company began to ship these products during the second quarter at a price point below $40 (factory price) and developed follow-on products at sub-$30 price by end of 2005.



Following Motorola’s example other vendors such as Nokia, Sony Ericsson and others, which traditionally did well in the middle to high end market, also adopted the low cost strategy so as to have a complete portfolio of models. Chipset makers such as Texas Instruments, Infineon, Freescale, Philips and others also embraced the low cost strategy by launching low cost modules costing between $30 to 50. The modules had basic features like short message service and voice communication.



The strong demand for such low cost devices especially from countries in Asia and Africa, clearly benefited the island’s mobile phone OEMs who now saw a clutch of orders that were outsourced to them by multinational mobile phone vendors.



According to the market data announced by MIC, the total volume of shipment of Taiwan OEMS broke though the 100- million unit mark to reach 113.2 million units. However, the average shipping price of Taiwan OEMs fell to $46.9 per unit. “While manufacturing of low cost mobile phones is an attractive proposition to mobile phone OEMs, it also poses a hurdle. The more units of low cost mobile phone shipped, the worse is total growth because the ASP keeps on dropping,” says Cynthia Chyn, deputy managing director of Market Intelligence Center.



Chyn explains that in 2005, the ASP of an OEM handset fell from $66.6 in Q1 to $46.9 in Q3. The major growth driver is the outsourcing from Motorola’s low end families, she adds. “If the low cost trend continues and the OEMs do not have the capability of producing high end products like W-CDMA and smart phone, I really don’t see how much the OEMs could benefit from the low cost order,” Chyn argues.