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China's budget handset makers facing mass cull

Lenovo, ZTE and Huawei have the low end in their sights

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China’s mobile phone market is set for a massive shake-up as hundreds of so-called 'white box' handset makers based in the country go bankrupt as a result of increasing competition at the low end of the market from established, big name domestic players such as Huawei, ZTE and Lenovo.

Digitimes reported that the three big Chinese handset manufacturers are entering the 1000 yuan (£99) market which previously has been the preserve of the budget manufacturers, and could drive prices for the consumer down to as little as 700 yuan (£69) per device – leaving almost no margin.

They are able to do this thanks to substantial subsidies from China’s three state-run carriers, while their white box rivals are struggling to source cheap components due to the relatively small scale of their operations, the report said.

Compounding the problem for the white box firms is the fact that big name, higher end brands such as Samsung and Nokia are reportedly also dropping their prices to compete.

Citing smartphone sources, the report added that white box players would see a drop in sales of around 30 per cent this year with several hundred expected to go bust as a result of the increased competition and price squeeze.

A change in consumer behaviour is also signalling the death knell for many budget handset manufacturers, with Chinese buyers increasingly looking out for big name brands.

In many ways it was only a matter of time before the big boys started to target the lower end of the market. In a report out in January, analyst Gartner predicted the worldwide market for white box phones would exceed 550m units, with a significant chunk of these sold in China.

The white box phenomenon originally grew out of the market for Chinese shanzhai or fake products.

However, according to Gartner, in or around 2009/2010 it developed into a legitimate industry which appealed to consumers by offering low cost models based on well-known designs but incorporating some features into devices such as multi-SIM capabilities or sub-woofer speakers which played well with local buyers.

Gartner's January Market Insight report argues that “white box vendors are at a turning point”.

“They have to make strategic decisions about building brands, licensing third generation (3G) technology, developing smartphones, and expanding further into international markets,” it continued.

"White-box vendors must now not only compete with each other on price, but also confront push-back from Tier 1 vendors.” ®

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