Having an early presence in the China TD-SCDMA chip solution market, NXP Semiconductors reiterates its confidence about the penetration of the TD-SCDMA standard in China in 2008 amid anticipated positive catalysts stemming from the upcoming Beijing Olympics. While projecting positive handset demand growth this year, however, uncertainties still exist.
Digitimes recently had the opportunity to talk with NXP company vice president of the Greater China region, Stephen Lin, about TD-SCDMA penetration in China as well as the projection of handset demand for the year.
Q: Can you provide an update about the deployment of the TD-SCDMA standard in China? How is demand going to trend in 2008? And, will it be the next mainstream 3G standard in China?
A: I think China is planning to transit from being a big consumer to a big supplier in the telecommunications industry, and the deployment of TD-SCDMA is the first step in meeting this ambition. China's proprietary TD-SCDMA standard, to a certain extent, has no backdoor for failure. The Chinese government is laying down a solid technology foundation by growing the number of professionals, employment opportunities and production value through customizing a product/technology standard.
Factoring in the aforementioned reasons, TD-SCDMA will have a good opportunity to see a big boost in 2008 and its role as the next mainstream 3G standard in the region should be secured accordingly.
Currently, TD-SCDMA is being used by the largest mobile communications operator in China, China Mobile Communications. China Mobile has already released 75,000 orders for the first-stage of bidding projects, with another batch of 330,000 orders about to launch. After these two bidding projects, channels will be completely opened.
Handset vendors, including Motorola and Samsung Electronics, as well as local vendors, all have TD-SCDMA handsets ready. When the number of subscribers expand, this will also help boost penetration.
Q: What is your projection about China's handset demand in the second quarter?
A: The previous heavy snowstorms in China as well as the relatively high inventory in the entire supply chain did affect handset demand in the first quarter. But as inventory issues have mostly been resolved after the Lunar New Year and customers are growing orders in March, customers are optimistic about the second-quarter outlook, based on present conditions. A detailed growth rate is hard to assess, though.
As the usual week-long Labor Day holiday will be canceled in China for the first time this year, a cautious observation about whether a pre-peak season procurement has to be made. Vendors of handsets that support EDGE and TD-SCDMA standards are very likely to take advantage of the opportunity that stems from the Beijing Olympics since handset vendors will focus on marketing handsets with rich multimedia functions. EDGE and TD-SCDMA handsets that meet this requirement will have their sales spurred accordingly.
Q: Can you comment further on the China handset market, as well as the market's pressure in terms of competitiveness?
A: Most industry watchers estimate that handset demand in China reached about 200 million units in 2007, with a 10-15% on-year demand growth expected in 2008. Yet, as there still are uncertainties as to the economic trends in Europe and the US and with China still enacting macroeconomics control measures, inflation is unlikely to ease, which will bring more uncertainties to the Chinese handset market and make predicting actual demand hard. However, given that handset coverage only averages at 45-47% in cities, and less than 25% in rural areas, further growth in demand on a yearly basis is likely.
Regarding competitiveness, the magnitude of the erosion in the average selling price (ASP) of chips is rapid and is going to persist. This is because of the absence of a killer application in 2008, limited interest for Bluetooth and GPS functionalities from second- and third-tier cities, as well as limited differentiation among vendors.
Q: After seeing a series of reshuffles in the China-based telecom industry, what is the impact of this on the local handset market?
A: I believe all telecom service carriers are consolidating their mobile phone and fixed network operations, with China being no exception. Currently, the business reshuffles seen at China Mobile, China Unicom and China Telecom, have no unfavorable impact on the handset industry in China.
Handset demand from China will see a double-digit on-year growth in 2008. China Mobile is expected to dedicate efforts to its TD-SCDMA deployment after gaining related licenses. After seeing successful testing in ten first-tier cities, China Mobile is expected to expand its coverage to 100 cities, implying a noticeable growth in demand.