Asia mobile phone makers: dinosaurs in making

By Jennifer Tan - Analysis

SINGAPORE (Reuters) - Struggling to boost sales in a maturing mobile phone industry gripped by cut-throat competition, several Asian handset makers are heading for extinction.

NEC Corp. (6701.T) of Japan, Taiwan's BenQ Corp. (2352.TW) and China's Ningbo Bird Co. Ltd. (600130.SS) are among those suffering from the absence of economies of scale in production and distribution to compete with leaders like Nokia and Motorola.

But a handful could survive by growing their partnerships with telecoms carriers in developed and emerging markets, and supplying them with attractive, quality phones.

"The trend is that regional players are struggling and global players are winning," said Bengt Nordstrom, chief strategy officer with research firm inCode. "For a smaller Asian handset maker to compete with Motorola (MOT.N) and Nokia (NOK1V.HE) in the low-end segment is almost mission impossible."

Some small South Korean players are already teetering on the brink. Pantech Co. Ltd. 025930.KS and Pantech&Curitel Communications Inc. 063350.KS are undergoing debt restructuring, hit by heavy losses from stiff competition and eroding margins, while VK Corp., once known for its ultra-slim phones, was placed under court receivership this month.

BenQ, Taiwan's top mobile phone vendor, posted its fifth straight quarterly loss earlier this week, dragged down by its ailing handset business after it declared its German unit insolvent late last year, and warned of weaker sales.

Even sector heavyweight Motorola has not been spared. The U.S. firm warned on Wednesday of a first-quarter loss and a worse-than-expected 2007 outlook due to weak sales and pricing pressures, despite growing its global share last year.

Industry leader Nokia expanded its market share last year, while Sony Ericsson (6758.T)(ERICb.ST) overtook South Korea's LG Electronics Inc. (066570.KS) to grab fourth position.

TARGETING NICHE STRATEGIES

But most of the smaller Japanese cellphone makers, which command less than 1 percent share of the global market, are suffering. Many have retrenched staff over the last few years, hit by the industry's competitive environment.

These players could grow their miniscule share by offering revolutionary products ahead of their larger rivals, such as fuel cell-powered phones and handsets capable of ultra-fast data transmission, said Gartner analyst Michito Kimura.

The niche strategy of supplying premium handsets to operators in developed overseas markets, which has boosted margins and profits for these firms, would also ensure their survival, said Gartner analyst Ann Liang.

Japan's top mobile phone supplier Sharp Corp. (6753.T) works with Britain's Vodafone Group Plc (VOD.L), while Toshiba Corp. (6502.T) has partnered with Orange in Spain and France.

"It's hard to imagine a global player emerging from Japan at this late stage, although one exception to the rule might be Sharp," said Neil Mawston, analyst with Strategy Analytics.

Sharp has built a healthy niche position in third-generation (3G) mobile technologies across western Europe, thanks to its advanced offerings and attractive phone designs.