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cheaper phone, it breaks in a short time, but a quality phone you'll have for a long time."
Boosting quality so local producers can dominate the Chinese handset market quickly is a key goal
of the Chinese government. While domestic makers' share of China's handset market is only 13% to
15% today, the government has set an ambitious goal of 80% by 2005. Key to meeting that goal are
U.S. makers of digital-signal processors (DSPs), which have been busily seeding the market by
promoting their processors and reference designs. Intel, Texas Instruments, Motorola, Analog
Devices and Agere Systems all are pushing their chips and designs in this burgeoning market. As
Chinese manufacturers become more skilled, they obviously are looking further down the road to
exporting to the rest of the worldperhaps in competition with the multinational giants that are
helping them now.
In many ways, what's happening in the handset market is a replay of earlier developments in the PC
market. "Ten years ago, all the PCs were designed, assembled and sold by U.S. companies," notes
Joe LaValle, director of sales in Asia Pacific for Intel Corp.'s Communications Sales Organization in
Hong Kong. "Then the design was done in the United States and manufacture shifted to Taiwan.
Before you knew it, Dell and Gateway stopped all design activities and the original design
manufacturers [ODMs] in Taiwan did all the design. Then the manufacturing shifted to China.
"The PRC [People's Republic of China] phone market is clearly the hottest market in the world," says
LaValle. Santa Clara, CA-based Intel now sells flash memory to Chinese handset makers and helps
local OEMs design products through its Intel Wireless Competency Center in Beijing. Intel plans to
enter the Chinese baseband market soonit won't specify a datewith its own chipset and
reference system for a General Packet Radio Service (GPRS) handset. Intel's baseband chipset,
which includes a DSP, will capitalize on Intel's expertise in data, while competing DSP makers'
strengths lie in traditional voice transmission, says LaSalle.
Global System for Mobile Communications (GSM) handsets, or both, although not all have started
production (see table, below). Agere has targeted only two or three Chinese handset makers, "so
that leaves a lot of room for the other [DSP] companies," says Zhou.
Schaumburg, IL-based Motorola Inc., which manufactures both semiconductors and cell phones, last
summer began licensing to Chinese customers all the technology needed to build a basic mobile
phone. Its i.250 (pronounced eye-dot-250) platform is billed as a "comprehensive silicon-to-software
solution" for building 2.5G GSM GPRS wireless handsets. It consists of chips (including Motorola's
DSP56621), the design layout for the computer board, software, development tools and testing tools.
Motorola says this approach reflects a realization that the basic technology to build a mobile phone
is so standardized that it no longer differentiates a company. "No one can compete by saying 'my
GSM is better than your GSM'," says Stephen Tsao, senior technical marketing manager for
Motorola Semiconductors' Asia Pacific Wireless and Broadband Systems Group in Hong Kong.
Motorola will compete by offering advanced features and designs, he says.
"One year ago, the local OEMs were basically manufacturing off the manufacturers
reference board. Now some of them are beginning to have their own design capability."
Joe LaValle, director of sales in Asia Pacific, Intel Communications Sales Organization
Motorola won't name the Chinese customers who've bought i.250. "Some of our customers don't
want anyone to know whose platform they are using until they've brought the product to market,"
says Tsao. The only publicly announced customer is Taiwanese competitor Benq Corp. (formerly
Acer Communication and Multimedia Inc.) of Taipei. Benq plans to market the first GPRS phones
based on this platform in the first quarter of 2003, selling them at first only in Taiwan, according to
Alex Liou, a top Benq executive.
Agere Systems is trumpeting success of its own. Beijing's government-owned Capitel Group is
using Agere's semiconductor and software system-level platform for what Capitel claims is the
world's smallest and lightest commercially available GSM phone. About 30% smaller than a business
card when closed, the company's C6088 and C6288 models weigh only about 2.4 ounces each, about
70% lighter than the mean weight of wireless handsets. The models debuted on the Chinese market
in September.
The Capitel models use Agere's Sceptre system-on-a-chip, which integrates the company's DSP16000
architecture, a microcontroller, mixed signal functionality and other circuitry, as well as the Agere
integrated baseband with its W3020 GSM radio frequency chip. The Capitel deal is significant
because "this is the first [Chinese] customer that took our platform and designed their own handset
with their own IP [intellectual property] in it," says Agere's Zhou. "This is our first localized
manufacture and design of the handset."
But Intel's LaValle suspects the Big Three are glancing nervously over their shoulders. "I've got to
believe all of the MNCs are paying very careful attention to the local OEMs," he says. "In some
cases, they're doing ventures to try to share in that business, and in some cases they're looking at
them as serious competition in the world market for five to 10 years down the road."
Then he chuckles and offers some free advice to the Big Three, quoting the title of Intel founder
Andy Grove's best-selling book: "Only the paranoid survive."
Kitty McKinsey is a freelance writer living in Hong Kong. She is a former staff writer for the Far
Eastern Economic Review. Contact her atk.mckinsey@att.net.
HANDSET DEMANDin millions of units
China Global China as % of global demand
1998 11.9
164
7.2%
1999 18.4
277
6.6
2000 44.2
409
10.8
2001 68.9
400-410 16.8-17.2
2002* 87.5
450-480 18.2-19.4%
*Estimate.
SOURCE: MFC INSIGHT
NUMBER OF MOBILE SUBSCRIBERSin millions
China Global
1998 24.7
307
8%
1999 43.0
474
9.1
2000 87.6
721
12.1
2001 144
981
14.9
2002* 220
1,220-1,240 16.2-16.5%
*Estimate.
SOURCE: MFC INSIGHT
LICENSED TO CELLMobile-phone producers licensed by the Chinese government
Chinese manufacturers
GSM CDMA
Amoisonic
China Kejian
Datang Telecom
Haier
HiSense
Konka
Ningbo Bird
Panda
X
X
X
X
TCL
Telsda (Lehua)
Top
Foreign manufacturers
Alcatel Suzhou
Beijing Ericsson
Beijing Nokia
Beijing Panasonic
Dongwa Nokia
Motorola (China)
Philips Sangda
Samsung
SVA (Siemens)
Wuhan NEC
279.6
14.6%
2000 54.3
462.4
11.7%
2001 80.0
347.4
23.0%
27.0%
*Estimate.
SOURCE: MFC INSIGHT
HOMEMADE HANDSETSChinese companies' percentage of domestic Chinese market for handsets
1999
3%
2000
8%
2001
13%-15% (estimate)
2003
45% (goal)
2005
80% (goal)