March 30, 2017 10:00 am JST

iPhone buzz has China's smartphone brands thinking smaller

Huawei, Vivo and Oppo downsize their forecasts; LeEco may call it quits

DEBBY WU and CHENG TING-FANG, Nikkei staff writers

TAIPEI Apple's Chinese rivals are bracing for the iPhone 8 onslaught.

Industry sources told the Nikkei Asian Review that the top three Chinese smartphone brands -- Oppo, Huawei and Vivo -- recently slashed their shipment forecasts for the full year due to growing excitement over the iPhone's 10th anniversary lineup.

"Oppo and Vivo both cut their annual targets by much more than 10 million [units] for 2017," a Chinese chip industry executive said.

Added the executive: "For 2017, they all think the new iPhone will be a very strong competitor and could somehow squeeze their sales for this year. These Chinese brands just want to stay safe and stay at where they are for this year. They don't want to be overly aggressive."

For Huawei, it may be little different. A Taiwanese industry source said the Chinese smartphone maker Huawei Technologies is shifting focus this year.

"Huawei has not been able to make much money with its smartphones, so this year it wants to focus on turning a profit on its handsets instead of increasing shipments," the source said.

Huawei's consumer electronics unit, which includes its smartphone business, generated sales of 178 billion yuan ($25.8 billion) in 2016, up 42% from a year earlier. The company does not disclose its profits from smartphones.

MAJOR MAKEOVER The iPhone 8 has been garnering widespread media coverage, as the premium handset in the iconic gadget's 10th anniversary range is set to undergo a major overhaul after two years of only minor changes.

The flagship model is expected to sport a mildly curved screen for the first time. It will also offer new functions, such as a 3-D sensor.

Joey Yen, an analyst at research company IDC, said looking ahead in 2017, competition in the smartphone market will be even fiercer. Makers of Android-based handsets will not see the same kind of growth they experienced in 2016, she said.

Yen added that if Apple's 10th anniversary iPhone turns out to be a hit as expected, the Android players will feel the effects through the first half of 2018.

According to estimates by Jeff Pu of Taipei-based Yuanta Investment Consulting, Oppo has cut its global shipment forecast for 2017 to 123 million handsets from 140 million, Vivo to 92 million from 100 million, and Huawei to 155 million from 160 million.

Huawei and Oppo declined to comment. Vivo couldn't be reached for comment.

This means Oppo and Vivo -- which took China by storm last year, overpowering Apple in the domestic market -- will see their shipment growth slow significantly in 2017.

Oppo was China's market-share king for the first time in 2016, according to IDC. It ended the year with a 16.8% share, followed by Huawei, at 16.4%, Vivo, 14.8%, and Apple, 9.6%.

Oppo's domestic shipments more than doubled on the year to 78.4 million units in 2016, while Vivo's surged from 35.1 million in 2015 to 69.2 million last year, according to IDC estimates. At Huawei, the figure swelled from 62.9 million in 2015 to 76.6 million in 2016.

Despite Huawei's impressive numbers at home and abroad, it still trailed Samsung Electronics and Apple in terms of global shipments last year, at 139.3 million units. It was far ahead of its domestic rivals, however, with Oppo shipping 99.4 million phones worldwide and Vivo shipping 77.3 million, according to IDC.

FAREWELL, LeEco? Huawei has dropped a lot of hints that 2017 will be a tough year for the non-Apple smartphone camp.

Jim Xu, president of sales and marketing at Huawei's consumer business group, told reporters at the end of February that he did not expect any growth in either the Chinese or global smartphone markets this year.

"This year, there is limited room for overall volume growth in the smartphone market. We think we will see some consolidation in the industry, and some brands will just exit the market," Xu said.

"You will probably see fewer and fewer smartphone brands in the market after this year," he said. "Some brands, for example, still think they can succeed by using e-commerce only, but I don't think that will work. Looking at the market competition this year, I think it will be very difficult for some handset makers."

Troubled Chinese tech company LeEco may be one of the brands putting on a disappearing act in the smartphone market.

LeEco started out as an online video content provider and later branched out into the hardware business, including smartphones, TVs and even automobiles. Leshi Internet Information & Technology is the group's listed arm on the Shenzhen exchange.

"LeEco is not doing much to come up with new smartphones so far this year," Jeffrey Ju, co-chief operating officer of Taiwan's MediaTek, said on Feb 27. MediaTek is the largest mobile chip supplier to China and counts LeEco as a customer.

Yuanta's Pu echoed Ju's remarks, saying LeEco has not launched any new handset plans with its suppliers.

LeEco ran into major financial trouble last year, forcing it to delay payments to its suppliers.

While LeEco does not owe any money to MediaTek, several Taiwanese tech companies have taken a hit due to their relationships with the embattled Chinese company.

Taiwanese electronics assembler Compal Electronics said on March 28 it had included 695 million New Taiwan dollars ($22.8 million) for doubtful accounts in its fourth-quarter results, suggesting it may not be able to collect all the money LeEco owes it.

Compal announced at the same time that it is paying 700 million yuan ($101 million) for a 2.15% stake in a LeEco subsidiary via a subsidiary, which market watchers say is a move by the Taiwanese company to secure some collateral from its Chinese debtor.

Pegatron, a key iPhone assembler, told analysts in March it had included NT$200 million in bad debt in its fourth-quarter results due to its dealings with LeEco.

A LeEco spokesperson declined to comment on the company's smartphone plans, but said it is paying back suppliers according to a mutually agreed schedule.

Asia300

Samsung Electronics Co., Ltd.

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Market(Ticker): KRX(005930)
Sector:
Industry:
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Market cap(USD): 299,712.96M
Shares: 148.18M
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MediaTek, Inc.

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Market(Ticker): TAI(2454)
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Pegatron Corp.

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Market(Ticker): TAI(4938)
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Market cap(USD): 7,942.40M
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