BMI Vietnam Consumer Electronics Report Q2 2016

Q2 2016
www.bmiresearch.com
VIETNAM
CONSUMER ELECTRONICS REPORT
INCLUDES 5-YEAR FORECASTS TO 2020
Published by:BMI Research

Vietnam Consumer Electronics Report Q2
2016
INCLUDES 5-YEAR FORECASTS TO 2020
Part of BMIs Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: March 2016
ISSN: 2040-9494
BMI Research 2016 Business Monitor International Ltd

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Vietnam Consumer Electronics Report Q2 2016
CONTENTS
BMI Industry View ............................................................................................................... 7

Latest Updates And Industry Developments ................................................................................................... 8
SWOT .................................................................................................................................... 9
Industry Forecast .............................................................................................................. 11

Latest Updates ....................................................................................................................................... 11
Structural Trends ................................................................................................................................... 11
Table: Consumer Electronics Overview (Vietnam 2014-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Consumer Electronics Risk/Reward Index ..................................................................... 17

Industry Risk Reward Index ....................................................................................................................... 17
Table: CE RRI Breakdown By Region, Q216 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table: Asia CE Risk/Reward Index - Q216 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Market Overview ............................................................................................................... 21

Computers ............................................................................................................................................ 21
Table: PC Sales (Vietnam 2014-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
AV Devices ........................................................................................................................................... 27
Table: AV Sales (Vietnam 2014-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Mobile Handsets .................................................................................................................................... 30
Table: Mobile Communications (Vietnam 2014-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Industry Trends And Developments ................................................................................ 36
Regulatory Development .................................................................................................. 41

Table: Government Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Competitive Landscape .................................................................................................... 45

International Companies ......................................................................................................................... 45
Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Local Companies ................................................................................................................................... 49
Table: Q-Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Demographic Forecast ..................................................................................................... 50

Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Methodology ...................................................................................................................... 55
Business Monitor International Ltd Page 4

Industry Forecast Methodology ................................................................................................................ 55

Sector-Specific Methodology .................................................................................................................... 56
Sources ................................................................................................................................................ 56
Risk/Reward Index Methodology ............................................................................................................... 57
Sector-Specific Methodology .................................................................................................................... 58
Table: Consumer Electronics Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

BMI Industry View

BMI View: Vietnam's consumer electronics market was boosted by tariff reductions and retail sector
liberalisation in 2015, factors that will diminish and so spending is forecast to decelerate to a CAGR of
6.5% over 2016-2020. The growth story is still positive, based on rising household incomes in a market
where device penetration rates are still low. This will see volumes and value increase as consumers acquire
their first devices alongside an easing of price sensitivity in higher value consumer segments. Our bullish
core scenario is, however, susceptible to downside risks including a hard landing in China or a broader
emerging market debt crisis, and potential for overcapacity and intense vendor competition to erode
margins.
Smartphone Upgrades To Sustain Handset Spending Outperformance

Consumer Electronics Forecast By Segment
6,000
4,000
2,000
0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Vietnam - Computer hardware, USDmn Vietnam - Audio visual, USDmn
Vietnam - Handsets, USDmn
e/f = BMI estimate/forecast. Source: BMI.

Latest Updates And Industry Developments

Computer Hardware Sales: USD1.7bn in 2016 to USD2.1bn in 2020, a compound annual growth rate
(CAGR) of +6.2%. Outlook downgraded in Q216 due to expectation for greater cannibalisation of tablet
purchases by smartphones, but overall outlook still positive due to income growth trends.
AV Sales: USD1.2bn in 2016 to USD1.5bn in 2020, a CAGR of 4.4%. Rising incomes and digital
migration will support expansion of flat-panel TV set sales, which has substantial potential when
compared to higher income emerging markets.
Handset Sales: USD3.4bn in 2016 to USD4.5bn in 2020, a CAGR of 7.4%. First-time smartphone
upgrade potential is still significant, with penetration estimated at around 35% at YE15, and will continue
to drive handset spending growth for the duration of our forecast period.

SWOT
SWOT Analysis
Strengths
Relatively low penetration in key device categories means the domestic market is still
in a rapid growth phase, with trade liberalisation and growing affordability driving
projected double-digit growth.

Broad-based income and GDP growth are increasing device affordability, with a huge
and relatively untapped market in the rural and suburban areas.

Rapid development of local production facilities and rising electronics exports, driven
by major investments from leading global vendors such as Samsung Electronics,
Intel, Apple, Nokia and LG Electronics.
Weaknesses
Low incomes and digital inequalities mean high price sensitivity and low demand in
rural areas.

Low broadband penetration continues to be a drag on demand for consumer
electronics devices.
Opportunities
Smartphones, particularly low-cost Android devices are popular with consumers, with
penetration rates rising rapidly.

Notebooks, and hybrid notebooks, are a source of continuing growth opportunities in
the PC market.

Operator investments in data networks are boosting demand for connectivity devices,
particularly into underpenetrated rural and lower income areas.

TV set demand will be boosted by the process of broadcasting digitisation, set to take
place in 2014-2020, while Ultra-HD sets are having an impact in the high-income
urban niche.

Digital set-top boxes, with the Vietnamese government offering support to lower-
income families to purchase decoders as part of its digitalisation programme.
Threats
Lack of political will for economic and social reform may impede market development.

SWOT Analysis - Continued

Relentless pressure for lower prices in key product categories like TV sets, tablets
and smartphones putting pressure on margins as Chinese OEMs achieve higher
standards.

Industry Forecast
BMI View: We have a bullish medium-term outlook for consumer electronics device sales in Vietnam over
the medium term. Our Country Risk team's assessment of household income growth trends, combined with
low penetration rates, an expansion of local electronics production, and liberalisation of imports and retail,
underpin our positive outlook. We forecast total device spending will increase at a CAGR of 6.5% over
2016-2020 to USD8.1bn in 2020. There are, however, downside risks including regional economic
uncertainty and the potential for industry overcapacity to result in faster price erosion, which will threaten
vendor margins.
Latest Updates
Broad-based economic growth is expected to underpin rising spending on devices in Vietnam as
households acquire sufficient disposable income to acquire devices.
Our bullish outlook is underpinned by income growth within the context of relatively low penetration
rates in key product categories, particularly big-ticket items.
Small downgrade to the computer segment forecast where we now envisage a weaker growth dynamic for
tablets, particularly for low-end small screen devices, as consumers show a stronger preference for
smartphone ownership.
Structural Trends
2016 Outlook
The economic environment is expected to continue to be supportive of consumer electronics spending

growth in 2016. We forecast real GDP growth of 6.6% and real growth of private final consumption of
6.4%, growth rates that will support a buoyant devices market given the relatively broad-based complexion
of economic growth in Vietnam. There is downside, however, due to the potential for credit tightening as a
result of worsening sentiment on EM debt levels globally and the start of rate rises in the US, but Vietnam
has been relatively proactive in tackling bad debt and a broader emerging market is not our core scenario.
The official rate of non-performing loans was down from 4.2% in December 2012 to 2.9% in September
2015, while the State Bank of Vietnam is leading banking industry consolidation to reduce the number of
banks from 40 to 15, which will help to insulate against shocks. Furthermore, with access to credit a
traditional drag on market development in Vietnam, a number of partnerships were formed between banks
and retailers in 2013, leaving the industry in a stronger position come future episodes of credit tightening.
We forecast that the PC market will be strong in 2016, with growth forecast for desktop, notebook and
tablet shipments as rising incomes and declining device prices promote first-time buyer and upgrade sales.

Notebooks (including hybrids) and tablets will register stronger growth than desktops based on the
preference for mobility and greater affordability of devices, while Windows 10 tailored devices are also
expected to trigger upgrades. Another important role of the government is promoting the development of
the local electronics industry in Vietnam. An important component is the government's Hi-Tech Park
policy, which was extended in June 2015, with new parks set to be constructed between 2015 and 2030
through a combination of central government direction, local government funds and private capital. In
addition to creating new parks, it also plans to further develop existing facilities including Hoa Lac Hi-Tech
Park in Hanoi City, Saigon Hi-Tech Park in Ho Chi Minh City and Danang Hi-Tech Park. BMI expects the
growth of Hi-Tech Parks to generate demand for IT products and solutions directly, as well as contributing
to the broader dynamic of economic modernisation.
Consumer Electronics Demand

(2014-2020)
10,000
7,500
5,000
2,500
0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Vietnam - Consumer electronics devices, USDmn
e/f = BMI estimate/forecast. Source: BMI
Drivers
One prominent feature of the Vietnamese market is the division between a rural market with low
penetration of devices, but sales are limited by lack of purchasing power - and a more developed urban

market in Hanoi and Ho Chi Minh City that still accounts for most sales in the country. This divide is
especially deep in terms of big-ticket items such as flat-screen TVs and computers that are still out of reach
of the majority of rural consumers, even as access to credit has improved.
However, with the price of products such as tablets and smartphones declining sharply in price due to
competition from local and Chinese original equipment manufacturers producing Android powered devices,
such devices have become mass market products and even gained some traction in rural areas in 2014. We
expect this trend to continue over 2016-2020, and this rural growth pattern has partly informed our
relatively bullish market outlook.
Our analysis of household income distribution and medium-term trends supports our bullish outlook for
Vietnam's consumer electronics devices market. The data clearly illustrate both the low-income status of the
Vietnamese economy in 2016 and the huge migration of households to the higher-income levels envisaged
by our in-house Country Risk team for 2016-2020 (see chart below). Despite progress in Vietnam in recent
years, BMI forecasts that 83% of Vietnamese households will earn USD5,000 or less in 2016 - the level we
consider a household to be external to the devices market due to a lack of purchasing power in global
markets (with the exception of 2G handsets/featurephones, and increasingly low-end smartphones). This
gives Vietnam one of the highest percentages of low-income earners in the region.
We envisage substantial numbers of households will migrate to higher incomes over the medium term.
More than 6.1mn additional households will sit above the USD5,000 annual income threshold by 2020. This
migration reflects broad-based economic growth momentum in Vietnam and will directly benefit retail
hardware vendors as households acquire their first PCs and individuals begin to acquire personal devices.
The outlook is one of the strongest globally for a deepening of the mass market, and is key to our view for
Vietnamese consumer electronics spending growth outperformance over the medium term, while there is
scope for further gains beyond the timeframe of our forecast.

Device Demand To Rise As Household Incomes Rise

Vietnam Household Income Breakdown (2016-2020)
40,000
20,000
0
2016f 2017f 2018f 2019f 2020f
Households '000 Net Income USD50,000+
Households '000 Net Income USD25,000-50,000
Households '000 Net Income less than USD1,000
f = BMI forecast. Source: BMI, National Sources
Another development that should drive growth higher is the digitisation of TV broadcasting and
transmission in Vietnam. The Vietnamese government plans to digitise television broadcasting and
transmission by 2020, and the first five cities to migrate to digital services will be Hanoi, Ho Chi Minh City,
Haiphong, Danang and Can Tho. The deadline for conversion to digital for these cities was December 31
2015, and they account for a considerable share of Vietnam's 22mn TV households.
Meanwhile, the ASEAN Economic Community (AEC) will have major implications for the telecoms, IT
and Consumer Electronics industries among the ASEAN states. We see developments in the telecoms sector
as being slower to emerge and subject to a number of key risks. However, IT and Consumer Electronics will
be the major beneficiaries as tariffs are reduced and regional specialisation increases. For the ICT space, we
have seen tariffs on hardware and software products reduced to 0% across virtually all ASEAN countries.
Segments
BMI estimates that mobile handset sales accounted for the largest part of consumer electronics spending in
2015, at 52% of the total. The boom in smartphone volumes since 2012 raised the average selling price of

the handset market as a whole, resulting in large increases in market value. However, we expect growth to
decelerate as a consequence of rising smartphone penetration and price erosion, as vendors compete
aggressively for market share, meaning handset spending growth will underperform the PC market in the
later years of our forecast.
Spending on computer hardware is forecast to accelerate over the medium term, with a CAGR of
6.2% envisaged for 2016-2020. Growth in computer spending has trailed handset spending growth due to
the higher ASP of computers limiting the addressable market to a smaller share of higher income
households, but as incomes rise, credit access improves and device prices decline, we expect faster
computer spending growth.
Consumer Electronics Demand

(2014-2020)
10,000
7,500
5,000
2,500
0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Computer hardware, USDmn Handsets, USDmn
Audio visual sales, USDmn
Finally, the AV segment was the smallest market segment in 2015 and is forecast to remain so for the
duration of our forecast. However, with the move to digital broadcasting and significant potential still
existing for flat-panel TV set upgrades, we expect AV spending growth will be robust over the medium
term, with a forecast CAGR of 4.4% over 2016-2020. We also highlight the boost to AV spending from

major sporting events, for instance the fastest growth is expected to occur in 2018, with flat-screen demand
boosted by the FIFA World Cup.
Table: Consumer Electronics Overview (Vietnam 2014-2020)
2014 2015e 2016f 2017f 2018f 2019f 2020f
Consumer electronics devices, USDmn 4,996.76 5,761.55 6,256.45 6,750.82 7,213.13 7,618.93 8,054.94
Computer hardware, USDmn 1,561.76 1,611.55 1,653.69 1,719.94 1,824.51 1,961.20 2,107.22
Audio visual, USDmn 1,007.00 1,146.00 1,229.27 1,289.69 1,355.60 1,402.90 1,458.86
Handsets, USDmn 2,428.00 3,004.00 3,373.49 3,741.20 4,033.02 4,254.83 4,488.85

Consumer Electronics Risk/Reward Index

Industry Risk Reward Index
BMI View: Asia Pacific (APAC) is by far the largest region in terms of population, and is also the
preeminent global growth opportunity as household incomes rise over the medium term. This opportunity is
however primarily in the region's emerging and frontier markets, and as a result there are major risks -
economic, political and industry specific - that vendors must counterbalance against the huge growth
potential. This downside is reflected in the further decline in the APAC consumer electronics (CE) Risk/
Reward Index (RRI) in Q216 as uncertainty around the potential for a hard landing in China in January
2016 resulted in a deterioration in economic sentiment for the region as a whole.
BMI's CE RRI score is based on inputs from four categories that evaluate the short- and medium-term risk
reward factors for the PC, computer peripherals, TV set, digital camera, handset and smartphone markets.
The Industry Rewards category evaluates the growth potential and maturity of the market, based on our
proprietary forecasts. The Country Rewards index assesses the potential for consumers to spend on devices
based on a number of key macroeconomic indicators, and the costs associated with vendors reaching
them. The Industry Risks category reflects the barriers to entry, the strength of intellectual property (IP)
protection and overall ICT policy. Finally, the Country Risks category assesses external factors including
short-term external and financial risk, trade bureaucracy, legal frameworks and corruption perception.
Regional Context
The APAC RRI is down 2.1 points q-o-q in Q216, with nine of the 14 markets in the RRI receiving lower
scores than in Q116. This reflects the weakening economic sentiment in the region as concerns about
China's economy escalated in January 2016 as equity markets across the region declined. The declines share
similarities with the sell-off in August 2015, and represent increased downside, but our core scenario
continues to be for a slow down in Chinese growth rather than hard landing, and as such the trends in equity
markets are not considered a leading indicator for major disruption in CE markets in 2016 or over the
medium term.
Under our core scenario for Q216 APAC is still the largest global emerging and frontier market device sales
growth opportunity globally, reflected in its position above Latin America and Central and Eastern Europe.
Emerging APAC scores particularly highly in the industry rewards category due to the large population and
huge growth potential, but low incomes in 2016 and challenging geography mean it scores poorly in the
country rewards category.

Meanwhile, developed APAC markets score much closer to the US and Western Europe in all but the
industry rewards category. High incomes and strong political and economic institutions support these much
higher scores compared to emerging APAC. The fact developed APAC contains several relatively small
markets in terms of population, especially the city states of Hong Kong and Singapore, explains the low
score in the industry rewards category.
Table: CE RRI Breakdown By Region, Q216
Consumer
Industry Rewards Country Rewards Industry Risks Country Risks Electronics Rating
USA 78.5 72.5 80.0 81.3 77.7
Western Europe 70.0 70.0 90.0 81.3 74.4
Developed APAC 57.6 68.0 81.0 78.4 66.7
MEA 42.1 57.5 55.8 62.0 51.1
Emerging APAC 47.8 23.6 58.9 70.5 47.3
Latin America 40.7 42.9 52.5 53.5 45.0
Central And
Eastern Europe 39.2 32.8 59.4 61.8 44.1
Source: BMI
Latest Developments
As noted above, the majority of APAC markets received lower CE Ratings q-o-q, and these trends are
primarily related to concerns about Chinese economic growth, but there are also significant domestic
developments to be aware of. Japan is the top market in our Q216 RRI, as the largest of the high income
markets, but there is downside risk due to weak domestic economic growth, an ageing population and an
escalation of regional economic uncertainties. There could however be some upside to the outlook as BMI's
Japan Country Risk team believes there is potential for significant yen strengthening over the first few
months of 2016 against the US dollar, which would have a positive impact on our CE devices forecast
priced in USD.
Australia remains in second place, ahead of Singapore, and its score downgrade is the largest of any
developed APAC market in Q216. This reflects the extent of exposure to the Chinese economy through a
reliance on commodity exports, for which global prices have fallen substantially, and has affected the CE
market through local currency depreciation that has eroded purchasing power for imported devices.
Singapore and Hong Kong are in third and fourth positions respectively in Q216 and remain attractive due

to high incomes and the low cost of operations for vendors in city states, but are both vulnerable to China
economic uncertainty. South Korea is the lowest scoring developed APAC market in Q216, but with its
substantially larger domestic market could easily move above Hong Kong in the coming quarters depending
on the path of economic events.
In emerging APAC the only positional change was the move of Indonesia above India to tenth place, but
there were score changes for all the markets in the region. The extension of our forecast period to 2020 in
Q216 resulted in higher industry rewards category scores for several markets by weighting the forecast
period to a greater extent away from the disruption of 2015 and 2016 towards stronger growth expected
later in the forecast. For some markets this benefit is however outweighed by the impact of regional
economic uncertainties on scores in the risk categories.
While regional and macro trends dominate developments in BMI's RRI in Q216 there are also industry
trends of significance. For instance, we downgraded the smartphone value forecast for India, which filtered
through to a lower industry rewards score. This view is based on our belief that industry overcapacity and
intense vendor competition in what is a very low income market will result in price erosion that ultimately
limits the return to vendors. Even with our more bearish assessment, it is still the case that we forecast
robust smartphone volume growth in India, and price competitive vendors will still be able capture major
gains.
Meanwhile, in the case of Indonesia slow policy implementation at regional levels and infighting among
ministries continues to hamper policy effectiveness, while terror attacks in January 2016 reiterated security
risks that the country continues to face. Finally, in Thailand a climate of political uncertainty as a result of
the military government is a drag on economic confidence and suppressing device spending growth.

Table: Asia CE Risk/Reward Index - Q216
Rewards Risks
Industry Country Industry Country Consumer Electronics
Country Rewards Rewards Risks Risks Rating Rank Previous Rank
Japan 70.0 72.5 85.0 75.6 73.4 1 1
Australia 58.3 70.0 85.0 74.6 67.3 2 2
Singapore 50.0 70.0 85.0 84.5 65.3 3 3
Hong Kong 51.6 72.5 80.0 72.0 63.8 4 5
South
Korea 58.3 55.0 70.0 85.0 63.7 5 4
Taiwan 53.3 42.5 70.0 85.9 58.5 6 6
China 68.3 22.5 55.0 70.7 55.9 7 7
Malaysia 46.7 37.5 70.0 79.3 53.1 8 8
Philippines 45.0 27.5 70.0 72.9 48.7 9 9
Indonesia 46.7 25.0 60.0 69.0 47.0 10 11
India 55.0 10.0 60.0 66.3 46.6 11 10
Thailand 43.3 20.0 55.0 74.0 44.5 12 12
Vietnam 36.7 17.5 50.0 67.8 39.2 13 13
Pakistan 35.0 10.0 40.0 48.3 31.9 14 14
Average 51.3 39.5 66.8 73.3 54.2 - -
Scores out of 100, with 100 the best. The Consumer Electronics (CE) Index is the principal rating. It comprises two sub-
indices, Rewards and Risks, which have a 70% and 30% weighting respectively. In turn, the Rewards index comprises
Industry Rewards and Country Rewards, which have a 65% and 35% weighting and are based on growth/size of the CE
industry (Industry) and the broader economic/socio-demographic environment (Country). The Risks index comprises
Industry Risks and Country Risks, which have a 40% and 60% weighting and are based on a subjective evaluation of
barriers to entry and the regulatory environment (Industry) and the industry's broader country risk exposure (Country),
which is based on BMI's Country Risk Index. The index structure is aligned across all industries for which BMI provides
Risk/Reward Indices. Source: BMI

Market Overview
Recent Developments
In contrast to many emerging markets globally, Vietnam's consumer electronics devices market
continued to expand in 2015 in both local currency and US dollar terms.
The PC market contracted in volume in 2015, after a sharp boom in tablet sales in 2014 and concentration
of desktop upgrades due to XP support withdrawal, but underlying conditions are positive and we expect
a return to growth from 2016.
Handset segment outperformed again in 2015 and following our upward revision in the Q216 update we
envisage outperformance to be maintained over the medium term.
Computers
Table: PC Sales (Vietnam 2014-2020)
2014 2015e 2016f 2017f 2018f 2019f 2020f
PC sales, USDmn 1,405.44 1,449.56 1,486.58 1,546.17 1,640.64 1,764.02 1,895.89

PC sales, '000 3,369.30 3,199.00 3,367.60 3,564.56 3,750.38 3,933.00 4,103.66
Desktop sales, '000 883.30 844.00 859.19 878.95 896.53 912.67 928.19
Notebook sales, '000 1,298.00 1,317.00 1,405.24 1,516.25 1,617.84 1,714.91 1,800.66
Tablet sales, '000 1,188.00 1,038.00 1,103.17 1,169.36 1,236.01 1,305.41 1,374.82
Vietnam's computer hardware market slowed slightly in 2015 as the desktop and tablet markets contracted,
with moderate growth in notebooks insufficient to keep total PC volume growth in positive territory. The
slowdown resulted from a combination of regional economic uncertainty and the fact that some upgrade
demand was brought forward to 2014 by Microsoft support withdrawal for XP, while there is also the
downside that smartphone ownership proliferation has reduced PC adoption potential in Vietnam where
there is a relatively small legacy of PCs in households.
Despite this downside and a drag from dong depreciation against the US dollar over 2016-2018, BMI has a
positive assessment of medium-term computer hardware spending growth. Broad-based wage growth and
enterprise modernisation should drive investment in computer hardware, and we expect Vietnam to be a
regional outperformer over the medium term. We forecast a compound annual growth rate (CAGR) of 6.2%
over 2016-2020 to USD2.1bn in 2020.

Computers: Demand
(2014-2020)
2,000 6,000
1,500
4,000
1,000
2,000
500
0 0
2014 2015e 2016f 2017f 2018f 2019f 2020f
PC sales, USDmn (LHS) PC sales, '000 (RHS)
PC Market: PC (desktop, notebook and tablet) unit sales decreased 5.1% in 2015 to a total of 3.2mn, with
spending on desktop and notebooks squeezed by a concentration of upgrade demand in 2014 by the
withdrawal of Microsoft support for the XP operating system. A bigger drag in volume terms was the
negative turn in the tablet market, with volumes estimated at 1.0mn in 2015, a decline of 12.6%. There was
a boom in 2014 as the lower-cost tablets flooded the market, and subsequently there was diminished first-
time buyer potential in 2015 and a cooling of the market, a development that was exacerbated by regional
economic uncertainty.
We forecast that volume growth will return in Vietnam's PC market over the medium term, with a unit
growth CAGR of 5.1% forecast for 2016-2020, and the total expected to reach to 4.1mn units in 2020. The
desktop market will underperform due to the popularity of notebooks and tablets in the retail market, but
there is scope for very modest growth due to relatively low penetration in enterprises.
Mobile form factors will outperform, and it is notebooks that we expect to see the strongest growth, with
tablet volumes expected to grow at a moderate pace over the medium term under our core scenario due to a

diminished pool of first-time buyers. Notebooks, including hybrids, are expected to far relatively well
among Vietnamese consumers due to the greater functionality offered compared to low-cost tablets, which
will be a strong selling point in a low PC penetration market where tablets are not just used in combination
with desktops or notebooks, as is most often the case in developed markets. An additional factor is the
increase in the cost competitiveness of notebooks after OS licensing fee cuts by Microsoft on low-end
devices in 2014.
The core reason for the positive medium-term outlook for PC sales in Vietnam, which is in stark contrast to
developed markets, is the combination of rising incomes and low device penetration rates. BMI believes
there is considerable potential for vendors to tap into the first-time buyer market in Vietnam as PC
ownership is still relatively limited. Household PC penetration data also reflect the low level of PC
ownership in Vietnam, at 19% in 2013, and was estimated to be around 21% for the country as a whole by
the end of 2014. This is considerably lower than other emerging markets in South East Asia, reflecting the
medium-term opportunity for vendors.
Given these low penetration rates, there is a sizeable opportunity for vendors in terms of the first-time buyer
market. However, with GDP per capita estimated at USD2,065 in 2015 and forecast to reach just
USD3,116 in 2020, vendors will need to be aware of consumer patterns in Vietnam. With a large number of
first-time buyers, consumer choice in terms of form factors is uncertain.

APAC Household PC Penetration (%)

2013
Source: National Sources, WEF, BMI
Form Factor Evolution: Despite being a global leader in the tablet market, Apple - unsurprisingly given
its premium price orientation - has had limited success in Vietnam where its devices are not affordable for
the vast majority of the population. That said, it has still been able to concentrate on a large number of high-
income consumers given Vietnam's large population.
There is significant uncertainty in a low-income and low-penetration market such as Vietnam over the
adoption pattern of consumers more familiar with smartphones, while vendor innovation with low cost PCs
is another unknown quantity. We believe there is potential for a medium-term blending of form factors
through vendor innovation that will make the Apple defined smartphone-tablet-notebook distinction more
fluid device categories in terms of functionality and usage.
In the Android ecosystem (as well as with Apple's move to phablets) there is competition for tablets,
particularly small screen devices, from phablets that is significant in Vietnam where smartphone penetration
is much higher than PCs. Meanwhile, Microsoft partner vendors are using Windows and new CPU
technologies to innovate with hybrid notebook designs that threaten vendors at the premium end of the

tablet market - evident in Apple's iPad Pro announcement, which is an attempt to replicate Microsoft's
success with its Surface range. Windows has a traditional strength in productivity-use cases and software,
with the OS being central to the enterprise market and Microsoft's Office Suite ubiquitous. There is
therefore an opportunity for vendors to leverage this strength over rival iOS and Android devices by
designing tablets with strong productivity functionality alongside the passive media consumption features.
More speculatively, but an insight into innovation trends, is Microsoft Continuum, which enables Windows
Phone users to connect their smartphone through a dock or wirelessly to use their phone as a PC with
monitor and accessories. Due to the small footprint of the Windows Phone, the short-term impact will be
limited, but is an indication of the potential for further squeezes on traditional PC sales, and even tablets
over the medium term. This development would gain additional momentum if Google offers a similar
product, the potential for which will increase with the expected unification of Android and Chrome by 2017
(mirroring Microsoft's device unifying Windows 10 OS).
Meanwhile, in terms of hardware-led innovation, there are an increasing number of vendors releasing 'PC
on a stick' devices that use a portable HDMI device that can turn a monitor (or TV) into a PC running
Windows 10. They are primarily low cost devices, which are necessarily vastly underpowered compared to
a traditional desktop or notebook, but again show the potential for further blending of form factors over the
medium term, as well as being very low cost so having applicability in emerging markets. These include
Intel's Compute Stick (around USD150), Lenovo's Ideacentre Stick 300 (USD150) or Taiwan based global
notebook ODM leader Quanta Computer's white-label NH2 that comes with up to 64GB of storage, Intel's
Cherry Trail T3 Atom CPU (1.44GHz), 2GB of RAM and microSD expansion and could undercut the brand
vendors on price and specifications.

PC Volume Forecast
(2014-2020)
2,000
1,500
1,000
500
0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Vietnam - Desktop sales, '000 Vietnam - Notebook sales, '000
Vietnam - Tablet sales, '000
Vendor Developments: The Vietnamese PC market is surprisingly competitive, with most of the major
laptop vendor players having below a 10% local market share. In 2014, IDC reported that Dell maintained
its leadership of the Vietnamese PC market, ahead of a strong challenge from ASUS. Meanwhile, Lenovo
and Acer are the third and fourth largest vendors, but some distance behind Dell and ASUS.
As already noted, ASUS has benefited from efforts to strengthen its distribution channel. In 2011, ASUS
launched a new partnership with local company FPT Distribution, a member of FPT Trading
Group, which has a nationwide network of 400 dealers. FTP also distributes a portfolio of other leading PC
brands, including Dell, Lenovo and Acer. ASUS, which first entered the Vietnamese market only three
years ago, is also focusing on service as a competitive differentiator.
In August 2015 Apple selected FPT Shop and The gioi di dong (Mobile World) as its retail partners for
Vietnam, enabling them to directly import iPhones, iPads and Macs from Apple Singapore, rather than
through FPT Trading. Vietnam was also moved to the third tier of markets, meaning it will still wait after
launch, but less than under previous arrangements.

AV Devices
Table: AV Sales (Vietnam 2014-2020)
2014 2015e 2016f 2017f 2018f 2019f 2020f
Audio visual sales, USDmn 1,007.00 1,146.00 1,229.27 1,289.69 1,355.60 1,402.90 1,458.86
Audio application sales, USDmn 102.00 125.00 133.74 140.47 147.78 152.80 158.76
Video application sales, USDmn 905.00 1,021.00 1,095.53 1,149.21 1,207.82 1,250.10 1,300.10
LCD TV set revenues, USDmn 572.00 651.00 705.68 746.61 787.68 815.25 849.49
BMI estimates Vietnam's AV market expanded by 13.8% in 2015 to USD1.1bn, a sharp trend reversal after
contraction of 3.7% in US dollar terms in 2014. There was robust demand growth for flat-screen TV sets,
the largest AV product category, while there was also increased spending on home audio systems.
Additionally, there were reports from local retailers in 2015 of strong demand for digital cameras in
Vietnam - in stark contrast to developed markets where digital camera demand has been extensively
cannibalised by the proliferation of smartphone ownership.
We expect AV spending growth will decelerate in 2016 as the market performed particularly well in 2015
as a result of tariff cuts as part of Vietnam's WTO Free Trade Agreement and a liberalisation of retail that
allowed foreign companies to have full ownership of businesses under the new commercial law.
Performance will nonetheless remain strong, particularly when compared to developed markets, and BMI
forecasts a CAGR of 4.4% for AV spending over 2016-2020 as household incomes rise.
TV Market: The overall TV set market saw strong growth in 2013 and 2015, with revenue growth coming
from flat-panel upgrades that were unlocked by migration to digital and declines in the price of sets due to
increased competition from Chinese OEMs, particularly in the LED segment. However, TV set spending
was weaker in 2014 as tighter domestic credit environment overpowered the positive trends, demonstrating
the downside risk of Vietnam's highly price sensitive market even under our positive medium term outlook.
TV sets are big-ticket items for the vast majority of Vietnamese households; meaning confidence levels and
access to credit are important enablers for household spending.
Flat-panel set upgrades will continue to benefit from the Vietnamese governments digitisation of television
broadcasting and transmission plan to 2020. Beginning in 2014, manufacturers were required to integrate
digital terrestrial signal receiving functions in their TV sets sold in the Vietnamese market. The requirement

applies to TV sets with a display of over 32 inches from April 1 2014, and to sets with a display smaller
than 14 inches from April 1 2015.
The majority of the transition will occur by 2018, enabling LTE to be launched in the low frequency bands.
In 2014 there were 22mn TV households in Vietnam, with 5mn pay-TV subscriptions, 3.5mn households
using STBs with the DVB-T standard, and 12.5mn using analogue TV antennas. The move to digital will
improve TV broadcast quality, increase the number of available channels, and free up spectrum for
development of mobile broadband services.
The government has also committed to assist low-income families to buy set-top boxes to decode digital TV
signals. It is thought that around 10% of Vietnam's 22mn households are potentially eligible for the scheme.
The government has pledged to help these households to buy decoders, with the prices of these devices
starting at around VND500,000, according to government figures. The budget for the subsidy will come
from the public telecommunications fund.
AV: Demand
(2014-2020)
1,500
1,000
500
0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Audio application sales, USDmn Video application sales, USDmn

Next Generation TV Sets: With falling prices and growing penetration of flat-panel TV sets, vendors have
looked to product innovation such as Ultra-HD and internet-enabled Smart TV sets to drive growth. Smart
TV sets appeal to consumers who increasingly demand that TV sets should be entertainment devices able to
deliver smart contents and services such as games and real time information, rather than merely
broadcasting. It is relatively inexpensive for vendors to add internet capabilities to a digital TV set, meaning
that by the end of BMI's five-year forecast period to 2020, the majority of new TV models are expected to
be internet-enabled.
The introduction of more HD sets is expected to fuel the preference for larger screen sizes. In 2013 and
2014 vendors introduced Ultra-HD and OLED models, which offer a higher-quality resolution, yet even
after steep declines in 2014 and 2015 are still too expensive for most consumers in developed markets, let
alone emerging markets. Despite the steep declines in price, with an LG UHD set available for VND11.9mn
in December 2015, this is still almost eight times the price of a similar screen size non-UHD flat-panel set.
BMI expects Ultra-HD sets to only make a contribution to TV volumes in Vietnam in the latter years of our
forecast once the price of UHD panels declines markedly, and even then demand will be limited to an ultra-
high value niche in the major urban centres. Despite limited volume growth the UHD market will however
have a disproportionate impact on market value due to the high price of sets.
Games Consoles: The games console market is undeveloped in Vietnam, as a result of the high cost of
consoles, with little legacy of console ownership and a higher weighting of PC and online gamers, and
casual tablet/smartphone gamers. According to market research firm Pearl Research, top online games in
Vietnam can attract up to 200,000 gamers.
Vendor Developments
Foreign brands dominate the video and audio segments in Vietnam and multinational vendors continue to
regard Vietnam as a growth opportunity, with LG and Sony launching new high-end flat-screen TV sets.
Samsung has a strong position in the Vietnamese LCD TV set market with a market share of around one-
third, 10% ahead of the nearest competitor, with its major market distribution partners, Pico, having
particular strength in the capital, Hanoi. Pico also partners other major consumer electronics vendors such
as LG, Sony, Panasonic and Sharp.
Meanwhile, domestic brands, mainly of TV sets, are weak and account for only about 10% of the
market. The inability of the domestic electronics industry to supply components makes it difficult for
companies such as Darling, Belco, Favi and SAM to compete on level terms. The same goes for other local

vendors, such as East Asia Company and Chau Electronics, whose TVs, DVD players and other products
are also unable to compete with those of leading foreign vendors.
Mobile Handsets
Table: Mobile Communications (Vietnam 2014-2020)
2014 2015e 2016f 2017f 2018f 2019f 2020f
Mobile handset sales, USDmn 2,428.00 3,004.00 3,373.49 3,741.20 4,033.02 4,254.83 4,488.85
Smartphone sales, USDmn 2,004.00 2,688.00 3,147.65 3,566.29 3,894.38 4,139.73 4,396.39
Mobile handset sales, '000 28,578.70 29,442.45 30,266.84 31,114.31 31,674.37 32,054.46 32,375.01
Smartphone sales, '000 11,494.54 15,896.06 19,142.18 21,998.82 24,283.63 25,728.79 27,275.95
Summary: The smartphone market in Vietnam boomed again in 2015 as lower cost devices deepened the
market and smartphone sales outnumbered 2G handsets/featurephones for the first time. We believe there is
continued growth potential in Vietnam's handset segment, with the first-time smartphone upgrade growth
engine still holding significant potential, with smartphone penetration estimated at 35% of adults aged 15+
at YE15. Vietnam's handset segment has among the strongest growth prospects in the region, and we
believe income growth will help to counterbalance the price erosion trend from vendor competition, but
BMI cautions that industry overcapacity could see prices decline faster than under our core scenario as
smartphone market growth becomes reliant on low income segments.
Mobile Subscription Trends: The VNTA reported that there were 136mn mobile subscriptions in Vietnam
at YE14, which declined 11.5% to 120.3mn at the end of 2015 as operators rationalised subscriber bases,
giving a more accurate reflection of the market. We forecast only moderate overall subscription growth due
to high penetration, but stronger 3G and 4G subscription growth as networks are expanded and smartphone
ownership continues to broaden.
The Vietnamese mobile service market is highly competitive with five operators competing aggressively
across the country - and increasingly using handset and smartphones as a means of securing net additions.
The leading operator continues to be state-backed Viettel with over 40% market share. It remains ahead of
MobiFone, which was sold in June 2014 by government-owned Vietnam Posts and Telecommunications
(VNPT), and Vinaphone, still owned by VNPT, which had shares of around 30% and 20% respectively.
The rest of the market is shared by Vietnamobile and Gmobile.

Industry Trends - Mobile

(2013-2020)
150,000 150
100,000 100
50,000 50
0 0
2013 2014 2015 2016f 2017f 2018f 2019f 2020f
Cellular Mobile Phone Subscribers, '000 (LHS)
3G & 4G phone subscribers, '000 (LHS)
Mobile Phone Subscribers/100 Inhabitants (RHS)
e/f = BMI estimate/foreacst. Source: BMI, Operators, VNTA
Handset Market: Rapid value growth in the mobile handset market is being driven by a deepening of the
smartphone market that pushes up the average selling price of handsets even as smartphone prices fall, with
the volume growth more than offsetting unit price declines. Meanwhile in volume terms the Vietnamese
handset market is more stable and by 2016 BMI considers it to be a mature market that has already passed
through the period of rapid unit growth associated with expansion of mobile services. We forecast a handset
volume CAGR of 1.7% over 2016-2020 and this trend will mean vendors become increasingly concentrated
in the replacement market, with first-time buyer opportunities only remaining in low-income and rural
areas.
The availability of lower cost smartphones between 2012 and 2015 was a push factor for upgrades from
featurephones - and in 2015 smartphone volumes took over 50% of handset sales for the first time. We
expect the trend of a deepening smartphone market to continue over the medium term, reflecting both the
availability of low cost devices and our outlook for broad based economic growth that underpins a positive
view for private consumption 2016-202. BMI forecasts total handset market value will grow from
USD3.4bn in 2016 to USD4.5bn in 2020.

Although smartphone adoption is eroding the installed base of traditional handsets, the 2G/featurephone
market will remain significant in a country where there is a large low-income population, meaning demand
for low-cost phones, particularly in rural areas. Rural areas and to a lesser extent provincial cities beyond
the major hubs of Hanoi and Ho Chi Minh City are where we expect 2G/featurephones will prove most
stable where low incomes make smartphone ownership prohibitively expensive.
Mobile Handsets: Demand

(2014-2020)
6,000 40,000
30,000
4,000
20,000
2,000
10,000
0 0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Mobile handset sales, USDmn (LHS) Mobile handset sales, '000 (RHS)
Smartphones
BMI estimates the smartphone penetration rate among the population aged 15-plus reached 35% at the end
of 2015 - corresponding to a total installed base of 25mn smartphones users, a downgrade from the Q116
update based on the latest analysis of operator data on wireless data subscriptions. Smartphone penetration
has risen sharply since 2013 and there are still large numbers of first-time smartphone buyers entering the
market, a figure we estimate at 7.4mn of the total of 15.9mn smartphone sales in 2015. This deepening of
the market has been enabled by the wider availability of lower cost Android devices from both international
and local vendors that resulted in an extended peak of first-time buyers 2013-2015. Looking ahead, BMI

forecasts smartphone unit growth will slow from 38.3% in 2015 to a CAGR of 9.8% 2016-2020 as a result
of a diminishing pool of first time buyers. We expect first-time smartphone buyer numbers will decline
from over 7mn 2014-2016 to 3.8mn in 2020, and over this period first-time smartphone sales will become
more concentrated in the lowest income population segments in Vietnam. We envisage total smartphone
unit sales will reach a total of 27.3mn in 2020.
BMI forecasts the smartphone market will grow slightly slower in value terms 2016-2020 as vendors target
lower income groups, but trend will be partially offset by income growth, enabling some new consumers to
buy higher priced devices at the other end of the market. There is however downside as a result of fierce
competition among local, Chinese and global vendors, which if combined with industry overcapacity could
will result in further significant price erosion. BMI forecasts smartphone market value growth at a CAGR
of 8.7% 2016-2020 to USD4.5bn in 2020.
The growth in smartphone sales has been fuelled by the popularity of Android-based models, which
according to vendor estimates accounted for above 90% of smartphone sales in 2013 and 2014. Strong
performance from Samsung Electronics and other vendors helped to maintain Android's positive trajectory
as these vendors tapped into demand for affordable handsets. BMI expects Google's OS to retain its top
position over the duration of our forecast period. However there were signs of a shift in 2014 as IDC
reported a relatively steep decline in market leader Samsung's market share to 26% - down from a high of
54% in 2012.
Over 2013 to 2015, consumers continued to opt for lower cost smartphones. Smartphones with a value of
VND1.5-3mn have grown in popularity according to the Nguyenkim distribution chain. Lenovo, OPPO,
Alcatel, Sharp and Huawei have all released low-cost models to tap demand in Vietnam, challenging
domestic brands such as Q-Mobile and F-Mobile.

Mobile Handsets: Demand - 3G
(2014-2020)
30,000 6,000
20,000 4,000
10,000 2,000
0 0
2014 2015e 2016f 2017f 2018f 2019f 2020f
Smartphone sales, USDmn (RHS) Smartphone sales, '000 (LHS)
The continued success in Vietnam and the low-cost advantages offered had prompted Nokia to increase
investment in Vietnam. In Q413 it opened its first USD320mn production facility in Vietnam to produce
featurephones. In 2014, following the acquisition by Microsoft, Nokia announced it was relocating its
smartphone production lines from China, Hungary and Mexico to Vietnam, with 30 production lines
relocated by YE14.
Apple appeared to be positioning for the medium term opportunity in Vietnam when in revised its retail and
distribution operations in August 2015. Apple appointed FPT Shop and The gioi di dong (Mobile World) as
retailers in Vietnam, enabling them to import iPhones direct from Apple Singapore. It also moved Vietnam
to a third-tier market in its grouping system, higher than before and behind markets including the US, Japan
and China (Tier one) and Singapore, Australia and Hong Kong (tier two). The deal will also mean that FPT
Shop and gioi di dong will no longer rely on distributor FPT Trade, while enabling Apple to offer a higher
level of customer care and after sales service through direct relationships.

In April 2014, Q-Mobile signed a memorandum of understanding with Microsoft to begin promoting
Windows Phone devices. Q-Mobile claimed Windows Phone was growing 6 times faster in Vietnam than
the worldwide growth rate, with 20% share of sales in Q114.
In addition to the Q-Mobile brand, owned by ABTel, there is also the F-Mobile brand of FPT, Vinaphone's
Avio and Viettel's Zik 3G. The Vu Huy Hoang company owns three Vietnamese brands: Mobell, Cayon
and K-Touch. CMC launched its Bluefone cellphone and has ambitions to become another leading
Vietnamese mobile phone brand. Leading electronics vendor Hanel launched handset products, as did
HiPT and CMC while Digiworld launched Mobistar phones.
Meanwhile, network operators have also entered the market with their own-brand handsets. These include
S-Fone's Eco handset, Vinaphone's Alo and Viettel's VT handset brand. The main driver of this trend has
been price, with about 70% of phones in the market now priced below VND2mn.

Industry Trends And Developments

Apple Investment To Support Regional Services Strategy
In March 2016 it was announced by the Vietnam Chamber of Commerce and Industry (VCCI) that Apple
will invest up to USD1bn, which will be Apple's first investment into the country, with reports stating that
the investment could focus on a regional datacentre and research and development (R&D) hub.
Handset Exports Increase Sharply In 2015
Data from the General Statistics Office of Vietnam showed a 57.8% y-o-y increase in handset exports to
USD8.7bn in the first seven months of 2015. Meanwhile, telephone and component imports increased 35%
to USD6.1bn over the same period. The main export destinations for handsets produced in Vietnam were
the EU, UAE and US markets. China continued to be the primary source of handset and component imports,
at 64.2% of the total.
Samsung Drawn To Vietnam's Low-Cost Manufacturing
In August 2015 Samsung Display, part of the Samsung Electronics Group of South Korea, announced an
investment of an additional USD3bn to augment its display module production capabilities in Vietnam. The
investment will be spread over five years, ending in 2020 and the equipment manufactured by the facility
will be used in a broad range of Samsung's consumer electronics devices, ranging from flatscreen TV sets,
to tablet computers and smartphones. The company hopes lower production costs will allow it to become
more price competitive and revitalise falling sales.
In December 2015 Samsung Asia secured approval from the Vietnamese government to increase its
investment in the Saigon Hi-Tech Park (SHTP) in Ho Chi Minh City. Samsung Asia will raise its
investment in the electronics plant from USD1.4bn to USD2bn. The additional USD600mn will be spent on
production of Samsung's smart TVs and other electronic goods, as well as research and development. In
March 2016 a USD300mn R&D investment by Samsung was approved by Vietnam's prime minister, with
the investment taking place in Hanoi and supported by a 50 year rent-free land deal.
Hi-Tech Parks
In March 2013 the chairman of the Ho-Chi Minh City (HCMC) People's Committee said the board of the
Saigon Hi-Tech Park (SHTP) should establish a mechanism to attract foreign capital. The HCMC

government approved the second phase of SHTP development in 2012, which will see investment of
VND8trn by 2020 for functions such as traffic, water drainage, water and electricity supply. The
government has stated the SHTP must accelerate the development of infrastructure in order to attract
investors, especially technology firms. It is considering approval for private capital to be used in developing
SHTP infrastructure. So far, ten investors have registered to invest in the project, with combined capital of
VND111mn, 69.5% of the SHTP target.
In June 2015, the Hi-Tech Parks plan was extended with new parks set to be built between 2015 and 2030
through a combination of central government direction, local government funds and private capital. In
September 2015 Ho Chi Minh City officials stated a new technology park would be created in the city,
covering nearly 200 hectares, with construction to take place over five years, starting in 2016. Plans for the
second facility are based on the success of the first, which by 2015 had attracted 80 investment projects
worth over USD4.3bn, with 31 of the projects and USD3.5bn of the investment coming from overseas (and
accounted for 48% of HCMC FDI in 2014). Investors in Vietnam's Hi-Tech Parks benefit from a corporate
tax rate of 10% for the first 15 years, plus a complete exemption from corporate income tax in the first four
years and a 50% reduction for the subsequent nine years.
In addition to creating new parks, it also plans to further develop existing facilities including Hoa Lac Hi-
Tech Park in Hanoi City, Saigon Hi-Tech Park in Ho Chi Minh City and Danang Hi-Tech Park. For
instance, Hanoi authorities submitted a proposal in June 2015 to the Prime Minister to invest VND10.5trn
(USD480mn) to build an IT park in the Long Bien District that will specialise in software. Under the
proposal the park will be developed by Hanel and cover 43 hectares, with implementation scheduled for
2015 to 2019. Hanoi already has one Hi-Tech Park in the Cau Giay District, but is fully occupied, meaning
expansion is required to meet demand.
The expansion is based on the success of Vietnam's development goal of promoting high-tech
manufacturing as a source of higher productivity employment, as well as benefiting Vietnam through
technological transfer. In H115 investment flows remained strong, for instance the Hanoi People's
Committee approved USD64mn in foreign IT investment across 85 projects, up 93% y-o-y. Japan was the
leading source of investment, accounting for 39% of the total, ahead of South Korea at 13%.
Government Electronics Industry Plan
The government has outlined a strategy to raise the technology level of Vietnam's manufacturing. The plan
focuses on six hi-tech industries, with the first being electronics-information technology. The government
has set a target of increasing investment in scientific research for these industries to 3.5-5.0% of revenues

by 2015 and 8-10% by 2020. The current level is 0.2-0.3% of revenues. Investment in technological
upgrades will be raised from the current 8-10% to 10-15% by 2015 and to 20% by 2020.
The government will also prioritise technology skills and training. The aim is to enable the high-tech sector
to meet domestic demand while at the same time integrating Vietnam into the global electronics industry
chain. The government has identified a number of barriers to high-tech development. These include slow
progress in building high-tech industrial zones.
Another government policy that may boost demand for computers is a two-year plan to enhance IT use by
government agencies. The plan, outlined by Vietnam Prime Minister Nguyen Tan Dung, requires basic
public services such as information exchange, sending and receiving documents as well as making
payments online to be provided to citizens and enterprises. By 2010, about 50% of directives from central,
municipal and province governments are to be published online, according to the target.
However, in July 2014 a group of leading local technology vendors cast doubt on the government's
development strategy. A group of companies including FPT and Viettel doubted the feasibility of the
government's growth targets, stating they were overly ambitious. The vendors argued that Vietnamese
brands would be unlikely to brands in the PC and smartphone markets internationally, while Vietnam's
proximity to China was argued to be a limitation due to low cost of operations in China.
Meanwhile, in June 2015 Prime Minister Nguyen Tan Dung agreed the addition of a chip production project
at Saigon Industry Corporation (CNS) to development plan. CNS will eligible for loans worth up to 60%
of the total investment cost from Vietnam Development Bank, while the project will be granted an
exemption from inputs import tax for the first five years. There is also the possibility it will be exempt from
VAT on imported equipment and supplies for R&D. As a high technology project it will be eligible for a
30-year, 10% corporate tax rate.
Vietnam Is Asia's New Tech Manufacturing Hub
The Ministry of Information and Communications (MIC) reported in June 2014 that Vietnam's IT sector
earned a total of USD37bn in 2013 - up 48% from 2012. USD3bn was attributable to software sales, but it
was FDI generated hardware revenues that drove overall performance. Samsung Electronics alone generated
USD23.9bn in exports in 2013.
Vietnam is well-positioned to be the new Asia's electronics hub. Global tech firms such as LG Electronics,
Intel, Nokia Corporation, Samsung and Fuji Xerox have based their new production plants in Vietnam

instead of China, a trend we see continuing. BMI expects this shift to persist given Vietnam's expanding
young working population and lower labour cost. The falling average selling price of smartphones will
further accelerate this trend.
Vietnam is increasingly being chosen over China as Asia's IT manufacturing hub. The trend of companies
shifting to Vietnam from China will continue for the next two to three years, largely because of China's
increasing labour costs, according to BMI's Country Risk team. A report by news publisher Vietnamnet
estimates labour costs in Vietnam are one-third of the cost of a Chinese employee.
During 2013, Samsung invested USD2bn in establishing a handset production plant in Vietnam that will be
capable of producing at least 40% of its global smartphone stock by 2015. The facility entered operation in
February 2014 and Want China Times reports that Samsung's management - encouraged by the relatively
low operating costs incurred by the plant - could move additional production capacity from China to
Vietnam within the next three years as it pursues wide-ranging cost-cutting measures. Up to 80% of
Samsung's global smartphone output could be relocated to Vietnam, it claims.
Samsung invested USD2bn to build a second factory in Thai Nguyen, Vietnam in March 2014, a move that
doubles the production capacity of Samsung in Vietnam, joining LG Electronics and Nokia Corporation. In
June 2013, Nokia also opened its first USD300mn factory in Vietnam-Singapore Industrial Park in Bac
Ninh province, about 20 kilometres from the capital, Hanoi.
Furthermore, it was reported in October 2014 that Samsung will invest USD560mn to build a new consumer
appliances production centre in Vietnam over an unspecified timeframe. It states that the new 700,000
square metre facility will mainly produce digital TV sets that can be exported globally. This follows news
earlier in 2014 that it would invest USD2bn to build a second smartphone manufacturing factory in Vietnam
while Samsung Display has already committed USD1bn to set up a new display module assembly plant in
the country. Samsung's decision to build a new TV set production facility in Vietnam highlights our view
that the country is rapidly becoming Asia's new electronics hub.
Like many of its peers in the consumer electronics sector, Samsung has been outsourcing its manufacturing
and assembly operations to China, where a vast unskilled labour market and low wages have been tapped to
keep costs down and profit margins stable. However, the booming Chinese economy and rising standards of
living - along with intense competition for the resources of Chinese manufacturing companies - have pushed
production costs up once more, forcing firms like Samsung to consider moving to emerging lower-cost
markets such as Vietnam.

For the largest emerging Asian markets - such as China, India, Indonesia, Malaysia and Thailand - we
forecast the value of consumer electronics sales to grow from USD4.405mn in 2013 to USD7.100mn by
2019. TV sets, smartphones and tablet computers will be the principal drivers of growth over this
timeframe.
Intel Launches First CPU Made In Vietnam
In July 2014 leading global chipset vendor B announced the launch of its first central processing unit (CPU)
manufactured at its factory at the Saigon Hi-tech Park. The CPU is from the fourth 'Haswell' generation of
CPUs. By the end of 2014 Intel stated it expected 80% of its CPUs for desktops globally would be produced
in Vietnam. Intel has been producing notebook and mobile chipsets in Vietnam since 2010, and in 2013 the
company contributed around USD2bn to Vietnam's export turnover.
AEC: Boost For IT And CE Markets From Reforms
The ASEAN Economic Community (AEC) will have major implications for the Telecoms, IT and
Consumer Electronics industries among the ASEAN states. We see developments in the telecoms sector as
being slower to emerge and subject to a number of key risks. However, IT and Consumer Electronics will
be the major beneficiaries as tariffs are reduced and regional specialisation increases. This is the second of
two articles looking at the impact of the AEC on the telecoms and ICT industries.
The deadline of December 31 2015 for the official creation of the AEC is unlikely to be met; however, there
has been strong progress towards achieving this goal in a variety of different sectors. For the ICT space, we
have seen tariffs on hardware and software products reduced to 0% across virtually all ASEAN countries.
ASEAN is also working towards the elimination of non-tariff barriers by 2015. However, with regards to
the further liberalisation of the telecom sectors in each market to open up to foreign direct investment,
progress has been a lot slower.

Regulatory Development
Table: Government Authority
Ministry of Information And Communications (MIC) Minister: Nguyen Bac Son
Source: BMI
The Ministry of Information and Communications of the Socialist Republic of Vietnam is the state
administration in charge of policymaking and regulatory matters in posts, telecommunications, information
technology, electronics, internet, radio transmission and emission techniques, radio frequency management
and national information infrastructure, and management of public services. It also has control over, on
behalf of government and as stipulated by laws and regulations, the state capital in posts,
telecommunications and information technology enterprises. Its main functions include the following:
Submitting to the government drafts of laws, ordinances, regulations, strategies and development plans
on posts, telecommunications and information technology
Giving guidance in implementation of laws, ordinances and regulations, as well as development strategies
and plans related to posts, telecommunications and information technology
Regulating the electronics and information technology industry development plan
Regulating the quality of posts, telecommunications and information technology networks, plants,
products and services
Conducting international cooperation activities in posts, telecommunications and information technology;

and as stipulated by law
Assigning and organising the implementation of regulations in fields of copyright and intellectual
property rights regarding press, publications, information technology services, related inventions
Taking actions to protect organisations and individuals in the fields of copyright and intellectual property
rights
Inspecting all activities and settling all regulatory breaches in the fields of its legal functions
IT Plan
In 2012, the Vietnamese government unveiled ambitious plans for developing the country's IT industry.
According to a draft plan released in May 2012 by the Information Technology Department of Vietnam's
Ministry of Information and Communications, the government has pledged to invest VND2.4trn
(USD415mn) from the State Budget in the ICT sector by 2020.

In August 2013 a draft resolution from the Ministry of Information and Communications proposed
allocating at least 2% of the state budget for boosting the IT sector each year. The fund will be used to help
Vietnam catch up with regional rivals and move up the value chain in areas such as outsourcing and
software development. In addition, the Ministry argued that the development of the IT sector would make a
positive contribution overall through modernisation of other industries - thereby improving international
competitiveness.
The plan will focus on six 'pillars', namely improving the policy environment, developing IT human
resources, developing IT enterprises and trademarks, products and markets, attracting investment to build IT
zones and open source software. In the preceding decade (2001-2010), the IT sector achieved average
annual growth rates of 20-25%. In 2011, the industry's revenues were reported to be more than USD8.5bn,
up 15% y-o-y. Revenues from hardware and electronics accounted for 74% of the total, reaching USD6.3bn,
up nearly 12% y-o-y. Revenues are projected to reach between USD17bn and USD19bn in 2015. The
industry is targeted to contribute 8-10% to the national GDP by 2020.
The government hopes to attract USD5bn of foreign investment into the IT industry by 2015. The
government's campaign to attract more foreign IT companies to invest in Vietnam received a boost in 2011
with the announcement that Hewlett-Packard (HP) would set up a wholly owned firm in Vietnam. The
government plans to continue to revise tax structures in order to incentivise both foreign investors and local
producers. Separate funds will also be allocated to support IT human resource development and IT
development.
However, there are fears that inconsistent government policies on subsidies and tax breaks for inward
investment in the IT sector have caused Vietnam to become less attractive as a destination for such
investment compared with China or India. For example, the government has revised the tax rate on revenues
from digital services to 10% in 2012, from 0%, causing dismay among companies in the sector.
The government's plans, which state a revenues target for the ICT sector of between USD17bn and
USD19bn over our five-year forecast period, include major investments to develop production centres in
software, services, hardware and electronics. Revenues are projected at USD2bn from software sales,
USD12.5bn from hardware, USD2bn from digital content and USD1.5bn from IT services.
To achieve these targets, the government will drive the development of three production centres for
software, services and digital content. These are, respectively, Ho Chi Minh City, with projected revenues
of USD3bn by 2015; Hanoi, with USD1.8bn; and Danang, with revenues of USD300mn. Three regions will

be established in Hanoi, Hai Duong, Bac Ninh and Vinh Thien Hue provinces, with revenues targets of
USD5bn, USD6bn and USD700bn respectively by 2015.
Other components of the plan include the creation of two hardware and electronics companies with average
annual revenues of more than USD2bn and two software businesses with average revenues of more than
USD200mn. Some 50,000 IT engineers are to be trained and become proficient in foreign languages.
Cyber Security
Vietnam faces serious cyber security threats, which are a particular problem as it looks to promote the
outsourcing and software development industries. According to Security Daily, attacks on Vietnamese
websites have doubled from 2,250 in 2011 to 3,520 in the first seven months of 2014 (the latest figures
available at the time of writing).
In August 2013 it was reported that the government was investing USD42mn in the creation of the National
Centre for Network Security Technology. The centre will be managed by the Ministry of Public Security,
the Government Secrecy Committee and the Ministry of Industry and Trade. The government also updated
the Law on Information Security, which closed for public comment in July 2013, as it looks to improve the
cyber security environment including combating attacks originating in Vietnam.
In September 2014 the Department of Network Security was officially opened in Hanoi, with the remit of
securing Vietnam's internet traffic. The key focus is on comprehensively improving the standards of
network security officials and officers. However there are elements of the remit that have concerned
political risk analysts, for instance the power to erase violated content on web portals and social networks
under orders from the government, as well the use of information filtering mechanisms. The department will
also be able to identify Vietnamese users on social networks by linking the electronic databases to its own
database of citizen identification cards. Social networks and web portals in Vietnam must store at least two
years of their information activities and the same time span for the information of the users' accounts, log-
ins, log-outs and IP addresses on social networks.
Operators To Undertake MNP Trial In December
Viettel Telecom, MobiFone and VNPT-Vinaphone will undertake a trial of the implementation of mobile
number portability (MNP) in December 2015, after six months of delays. The full launch of MNP will,
however, take place on January 1 2017, in line with the initial roll-out schedule, according to the MIC. The
development is in line with the government's efforts to improve competition and encourage the development

of the mobile market. The ministry also plans to propose certain regulations to ensure the right of providers
as well as subscribers.
National Innovation Foundation
In early 2015 the Vietnamese government launched the National Innovation Foundation (NATIF), with
VND1trn (USD50mn) of registered capital. The government has set NATIF the goal of fostering innovation
and promoting commercialisation in the technology sector. The areas that will be provided funding include
IT, new materials research, biotechnology and automation. Half of NATIF's capital will be targeted for
funding scientific and technological research by enterprises, and importing technologies and experts. The
remaining funds will be used to guarantee or subsidise loans to finance research projects, but will not be
used to guarantee commercial loans as initially planned.
Digitisation Initiative Results In Calls For Import Protection
The Vietnamese government plans to digitise television broadcasting and transmission by 2020 as the
country migrates away from analogue technologies. The majority of the transition will occur by 2018,
enabling LTE to be launched in the low frequency bands. In 2014 there were 22mn TV households in
Vietnam, with 5mn pay-TV subscriptions, 3.5mn households using STBs with the DVB-T standard, and
12.5mn using analogue TV antennas. The move to digital will improve TV broadcast quality, increase the
number of available channels, and free up spectrum for development of mobile broadband services.
The first five cities to migrate to digital services will be Hanoi, Ho Chi Minh City, Haiphong, Danang and
Can Tho. The deadline for conversion to digital for these cities is December 31 2015, and these areas will
account for a considerable share of Vietnam's 22mn TV households.
One opportunity to arise from the digitisation initiative is in the sale of set-top-boxes (STBs), with only 6mn
existing pay-TV subscriptions in Vietnam in 2014, leaving 16mn households as analogue broadcast viewers.
Despite the market opportunity and the statement from seven Vietnamese enterprises that they can
manufacture DVB-T2 STBs, production has not been started due to the threat from low-cost Chinese
imports.
As a result, in August 2014 it was reported that state agencies were considering lowering import tariffs on
STB parts, while applying technical barriers against low-quality imports from China. Currently, Chinese
STB imports are not evaluated by Vietnam's quality assurance agencies, and complete STBs are subject to
0% tax, but imported components parts and accessories are subject to import tax.

Competitive Landscape
International Companies
Table: Samsung Electronics
Address Yen Phong 2 Industrial Zone, Long Chau Ward, Yen Phong District, Bac Ninh Province,
Vietnam
Company History Samsung Electronics is part of the South Korea-based industrial conglomerate the Samsung
Group and is one of the leading consumer electronics brands in the world. As well as selling
devices in Vietnam, Samsung also has a major production base in the country spread across
several facilities with total staff of 25,000. In 2009 it opened a USD700mn production facility
near Hanoi, with capacity of 100mn units per year and staff of 10,000. The facility is largely
for export, with estimated revenues of USD5bn a year (approximately 6% of Vietnam's total
export revenues). In 2012, Samsung began plans for a significant expansion of production in
Vietnam as it shifts away from China to avoid rising labour costs, with wages in Vietnam as
little as a third of those in China. Samsung will also benefit from no tax for the first four years
of operation, and half the full rate for the following 12 years. The new USD2bn facility will
produce 40% of Samsung Electronics global smartphones by 2015, about 120mn handsets,
when full capacity is reached.
Services And Products As well as being an important production base Vietnam is also a market in which Samsung
Electronics has seen great success. Samsung operates in the PC market, with its share of
the tablet market only exceeded by Apple. However, despite the favourable reviews for its
notebook products it remains a smaller player trailing the global leaders. It has been the
major beneficiary in the Google Android ecosystem of the smartphone and tablet boom in
recent years, but it has also seen success in the low and middle income segment with a
huge featurephone range. However, in 2013, Samsung's range of tablets and smartphones
faced increasing competitive pressure from low priced rivals from China that put pressure on
units and margins.
Company Developments In December 2015 Samsung reported that the Samsung Vietnam Mobile Research and
Development Centre in Hanoi contributed around 10% of software used on its
smartphones and tablets globally in 2015. The centre has more than 1,500 employees,
with just five foreign nationals, and Samsung plans to increase the total to 2,600 by
2018. Samsung has 25 R&D centres specialising in research for its phones worldwide. In
March 2016 a further USD300mn investment in Samsung's R&D operations in Hanoi was
approved.
Samsung Asia secured approval from the Vietnamese government to increase its
investment in the Saigon Hi-Tech Park (SHTP) in Ho Chi Minh City by USD600mn to
USD2bn, with the additional investment focused on production of Samsung's smart TVs
and other electronic goods, as well as research and development
In August 2015 Samsung Display, part of the Samsung Electronics Group of South Korea,
announced an investment of an additional USD3bn to augment its display module
production capabilities in Vietnam. The investment will be spread over a five-year period
ending in 2020 and the equipment manufactured by the facility will be used in a broad
range of Samsung's consumer electronics devices, ranging from flat screen TV sets, to
tablet computers and smartphones.
In June 2015 Samsung announced it increased its target for handset sales from its
Vietnam manufacturing facilities to USD36.8bn, up 40% from USD26.6bn in 2014.

Samsung Electronics - Continued
Samsung's Vietnam plants produce metal smartphones including the Galaxy S6 and S6
Edge and the low-end Galaxy A series.
The most recent IDC data show Samsung's share of unit sales in the smartphone market
declined sharply from 54% in 2012 to 26% in 2014 as it lost out to budget models and
Nokia (Microsoft).
In October 2014, Samsung Electronics announced that it is to invest USD560mn to build a
new consumer appliances production centre in Vietnam over an unspecified timeframe. It
states that the new 700,000sq m facility will mainly produce digital TV sets that can be
exported globally. This follows news earlier in 2014 that it would invest USD2bn to build a
second smartphone manufacturing factory in Vietnam while Samsung Display has already
committed USD1bn to set up a new display module assembly plant in the country.
Source: BMI

Table: Intel
Address Office Hanoi, Tung Shing Square, 2 Ngo Quyen St., Suite 1106, Hoan Kiem District,
Hanoi, Vietnam
Company History Intel opened its first office in Vietnam in 1997 and the office continues to be responsible for
developing and deploying strategies to support OEMs and developers in the local market. In
2006 Intel announced it was going to invest USD1bn in an assembly test facility in Vietnam
near Ho Chi Minh City, which began operation in 2010. The plant in Vietnam is one of seven
Intel production facilities globally, as it chose Vietnam due to technical proficiency, low-cost
of labour and proximity to large and important markets. Intel was the first major foreign
investor in Vietnam's technology sector, and the first investment in the semiconductor
industry. Intel also works with Vietnam's Ministry of Education and Training and Vietnamese
universities to improve educational programs, as well as providing scholarships to students.
Services And Products Intel provides support to local partners through its head office in Ho Chi Minh city but its
more significant presence in the country is through its production facility. The facility in
Vietnam is the largest assembly test facility in Intel's global network to produce chipsets. In
July 2010 the facility began using the latest chipsets for mobile computing products such as
laptops, tablets and smartphones. It uses the flip chip ball grid array binding technology for
mobile processors. Intel states that its 500,000 square foot facility in Vietnam is now the
model for larger and more efficient assembly facilities it will build around the world.
Company Developments In May 2015 Intel announced it was moving some production for mature products
(desktops and servers) from Kulim in Malaysia to Ho Chih Minh City and Chengdu (China)
facilities. Intel also announced a partnership with FPT for product display and experience
areas in FPT stores.
In July 2014 Intel announced the launch of its first central processing unit (CPU)
manufactured at its factory at the Saigon Hi-tech Park. The CPU is from the fourth
'Haswell' generation of CPUs. By mid-2015 Intel expects 80% of its CPUs for desktops
globally would be produced in Vietnam.
In June 2014 Intel announced it was planning to double the value of materials sourced
from local suppliers. In 2013 Intel contracted four new suppliers, increasing domestic
content to USD11mn.
In December 2013 the transfer of capital from Intel Asia Holding to another Intel company
for a cost of USD100mn was cited as an example of tax loopholes utilised by foreign
companies. The Ho Chi Minh City People's Committee asked the Ministry of Finance to
implement new mechanisms and policies to manage such share purchasing and
franchising more effectively.
A prime ministerial decision in November 2013 stated that producers of electronics
products will be responsible for treating or recycling electronic waste from January 1 2015.
Intel is ahead of many of its partners, with its e-waste already treated by locally owned
Ngoc Tan Kien Company.
Source: BMI

Table: LG Electronics
Address 14th Floor, Hanoi Central Office Blog. 44B Ly Thuong Kiet, Hanoi
Company History LG Electronics Vietnam was founded in 2007 and the market is a key sales and production
centre for the South Korean group. LG reportedly achieved revenue of USD350mn in Vietnam
in 2014, a 30 fold increase from 1995. In 2013 it was reported that LG was building a new
production facility in Vietnam, which will absorb its two existing facilities in Vietnam, which
are capable of producing 750,000 TV sets, 400,000 mobile handsets, 150,000 air
conditioners, 500,000 washing machines and 500,000 vacuum cleaners annually. LG stated
that the new facility in Haiphong City will for the majority produce products for the local
market, however there will also be some exports as LG takes advantage of the low-cost of
skilled labour in Vietnam. In 2015 it had a network of 80 service centres and almost 2,000
employees in Vietnam.
Services And Products LG is a leading vendor in the smartphone market, with over 12mn shipments globally in
Q313, making it the fourth largest vendor. It also produces featurephones and handsets, with
total Q313 shipments of around 18mn globally. It is through featurephones and traditional
handsets that LG has captured share in the price sensitive consumer electronics market in
Vietnam. LG is also competing in the tablet market with devices running Google's Android
OS, although its share is far below that achieved in the smartphone market. Meanwhile, LG is
estimated to be the second largest TV vendor globally, with a share of around 15%, behind
only Samsung. It also produces a range of home appliances (refrigerators, dishwashers,
washing machines and microwaves) and solar panels. LG Electronics also has a large
production base in Vietnam and will produce TV sets, telematics devices, smartphones,
tablets, washing machines and refrigerators at its new facility.
Company Developments In March 2015 LG opened its new production centre in Haiphong, a northern port city in
Vietnam. LG will now relocate production from the factory in Hung Yen. LG is earmarking
much of its Vietnamese production for export, hence the shift to a port location. LG
additionally announced it would relocate TV production from Thailand to Vietnam for
logistical ease and efficiency. LG currently produces around 600,000 TV sets annually in
Thailand, with 100,000 exported, and total revenue of THB164mn.
In September 2013 LG Electronics announced it would invest USD1.5bn to expand its
production facilities in Vietnam through to 2028. The production capacity will be located in
Haiphong City, 100km east of Hanoi, and be built over the course of 10 years. The
investment will also see the relocation of LG's two existing plants in Vietnam. Investment
will take place in two phases, with the first reaching USD500mn from 2013-2017, and the
second from 2018-2024 comprising USD1bn. The Vietnamese government has provided
tax incentives for the investment.
Source: BMI

Local Companies
Table: Q-Mobile
Address No.20, Le Duc Tho Street, My Dinh, Tu Liem, Hanoi

Company History Q-Mobile was founded in 2003 and began operations as a distributor for brands including
Siemens and Siemens-BenQ. It is owned by An Binh Tel. It later became a distributor for
Popod and HTC in 2007. It was in May 2008 that Q-Mobile became a domestic handset
brand, before launching the smartphone brand Q-Smart in August 2012. It has grown to be
the largest domestic handset brand, and is looking to expand into the handset markets of
Southeast Asia, Eastern Europe, South America and South Africa. It has three domestic
offices, with over 350,000 employees.
Services And Products Q-Mobile's core business is a producer and distributor of mobile devices as original design
manufactures. It owns two brands: Q-Mobile for traditional handsets; and Q-Smart, the
smartphone brand. It has strong domestic retail and distribution networks, with Viettel,
Mobile World and Vien Thong A - with its products available from 1,400 outlets. Q-Mobile
estimates it has a 14% share of the domestic handset market. Q-Mobile sells a range of
featurephones with locally specific features such as dual-SIM, as well as low-cost
smartphones running Google's Android OS.
Company Developments Following the deal to produce Windows Phones Q-Mobile stated Windows Phone
accounted for 24% of devices sold in September 2014. Q-Mobile is aiming for 300,000
Windows Phone smartphone sales in 2015.
In May 2014 Q-Mobile appointed Vinh Quang Services as the official distributor of its
handsets in the Mekong region.
In April 2014 Q-Mobile signed a memorandum of understanding with Microsoft to begin
promoting Windows Phone devices. Q-Mobile claimed Windows Phone was growing 6
times faster in Vietnam than the worldwide growth rate, with 20% share of sales in Q114.
Source: BMI

Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
150
100
50
0
1990
2000
2005
2010
2015f
2020f
2025f
2030f
2035f
2040f
2045f
2050f
Vietnam - Population, mn
f = BMI forecast. Source: World Bank, UN, BMI

Vietnam Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (Vietnam 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, total, '000 68,209 80,285 84,203 88,357 93,447 98,156 102,092
Population, % y-o-y na 1.1 0.9 1.0 1.1 0.9 0.7
Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510
Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581
Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (Vietnam 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Active population, total, '000 38,808 49,712 55,795 61,655 65,572 67,775 69,459
Active population, % of total population 56.9 61.9 66.3 69.8 70.2 69.0 68.0
Dependent population, total, '000 29,401 30,573 28,408 26,702 27,875 30,381 32,633
Dependent ratio, % of total working age 75.8 61.5 50.9 43.3 42.5 44.8 47.0

Key Population Ratios (Vietnam 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Youth population, total, '000 25,494 25,416 22,866 20,919 21,576 22,487 22,335
Youth population, % of total working age 65.7 51.1 41.0 33.9 32.9 33.2 32.2
Pensionable population, '000 3,907 5,157 5,542 5,783 6,298 7,893 10,298
Pensionable population, % of total working age 10.1 10.4 9.9 9.4 9.6 11.6 14.8
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Urban population, '000 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9
Urban population, % of total 20.3 24.4 27.3 30.4 33.6 36.8 39.9
Rural population, '000 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7
Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1
Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1
Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6
Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4
Table: Population By Age Group (Vietnam 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, total, '000 9,211 7,244 6,751 7,265 7,740 7,601 7,108

Population By Age Group (Vietnam 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424
Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895
Population, 100+ yrs, total, '000 1 6 11 16 23 30 39
Table: Population By Age Group % (Vietnam 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, % total 13.50 9.02 8.02 8.22 8.28 7.74 6.96

Population By Age Group % (Vietnam 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best practice techniques of time-series and causal/
econometric modelling. The precise form of model we use varies from industry to industry, in each case
being determined, as per standard practice, by the prevailing features of the industry data being examined.
Common to our analysis of every industry is the use of vector autoregressions, which allow us to forecast a
variable using more than the variable's own history as explanatory information. For example, when
forecasting oil prices, we can include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality
is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for
analysis and forecasting.
We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of
objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions impeding agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
R2 tests explanatory power; adjusted R2 takes degree of freedom into account;
Testing the directional movement and magnitude of coefficients;
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.

BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
Consumer Electronics forecasting is complicated due to the fragmented nature of the market, with little
transparency of vendor data and low apparent agreement between many sets of figures in terms of market
definition, base and methodology. Individual variables taken into account in creating each forecast include:
Economic context, and GDP and demographic trends;
Technological developments, and diffusion rates;
Underlying demand trends;
Telecommunications market developments
Projected GDP share of industry;
Maturity of market structure;
Regulatory developments and government policies;
Exogenous events.
Estimates for each industry segment are calculated using government statistics, where available, and our
own macroeconomic and demographic forecasts.
Sources
Sources used in electronics reports include national ministries, statistics agencies, ICT regulatory bodies,
national industry associations, officially released company results and figures and international and national
industry news.

Risk/Reward Index Methodology
BMI's Risk/Reward Index (RRI) provide a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market.The RRI system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
Industry Rewards (this is an industry-specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors)
Country Rewards (this is a country-specific category, and the score factors in favourable political and
economic conditions for the industry)
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:
Industry Risks (this is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry and the relative maturity of a market)
Country Risks (this is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score).
We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
Risk/Reward Index a weighted average of the total score. Importantly, as most of the countries and
territories evaluated are considered by BMI to be 'emerging markets', our score is revised on a quarterly
basis. This ensures that the score draws on the latest information and data across our broad range of sources,
and the expertise of our analysts.

BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is
fourfold:
First, we identify factors (in terms of current industry/country trends and forecast industry/country
growth) that represent opportunities to would-be investors;
Second, we identify country and industry-specific traits that pose or could pose operational risks to
would-be investors;
Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/
trends to avoid subjectivity;
Finally, we use BMI's proprietary Country Risk Index (CRI) in a nuanced manner to ensure that only the
aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-
leading, comparative insight into the opportunities/risks for companies across the globe.
Sector-Specific Methodology
In constructing these indices, the following indicators have been used. Almost all indicators are objectively
based.
Table: Consumer Electronics Risk/Reward Index Indicators
Rewards
Industry Rewards
Consumer electronics sales, USDmn
Sales per capita, USD
ICT development
Growth, %
Country Rewards
Urban/rural split
Young population
Richest 10%, % of total
GDP per capita, USD
Risks
Industry Risks
Barriers to entry
Government consumer electronics policies
Country Risks

Consumer Electronics Risk/Reward Index Indicators - Continued
Short-term economic risk

Real PC growth, volatility
Short-term financial risk
Trade bureaucracy
Institutions
Source: BMI
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal
weight. The following weighting has been adopted:
Table: Weighting Of Indicators
Weighting (%)
Rewards 70, of which

Industry Rewards 65, of which
Consumer electronics sales, USDmn 50
Sales per capita, USD 16
ICT development 16
Growth, % 16
Country Rewards 35, of which
Urban/rural split 25
Young population 25
Richest 10%, % of total 25
GDP per capita, USD 25
Risks 30, of which
Industry Risks 40, of which
Barriers to entry 10
Government consumer electronics policies 10
Country Risks 60, of which
Short-term economic risk 10
Real PC growth, volatility 10
Short-term financial risk 10

Weighting Of Indicators - Continued
Weighting (%)
Trade bureaucracy 10
Institutions 10
Source: BMI

BMI Vietnam Consumer Electronics Report Q2 2016

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Q2 2016

Published by:BMI Research

Part of BMIs Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: March 2016

BMI Research 2016 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 11

Consumer Electronics Risk/Reward Index ..................................................................... 17

Market Overview ............................................................................................................... 21

Industry Trends And Developments ................................................................................ 36

Regulatory Development .................................................................................................. 41

Competitive Landscape .................................................................................................... 45

Demographic Forecast ..................................................................................................... 50

Business Monitor International Ltd Page 4

Industry Forecast Methodology ................................................................................................................ 55

Business Monitor International Ltd Page 5

BMI Industry View

Smartphone Upgrades To Sustain Handset Spending Outperformance

e/f = BMI estimate/forecast. Source: BMI.

Business Monitor International Ltd Page 7

Latest Updates And Industry Developments

Business Monitor International Ltd Page 8

Business Monitor International Ltd Page 9

SWOT Analysis - Continued

Business Monitor International Ltd Page 10

The economic environment is expected to continue to be supportive of consumer electronics spending

Business Monitor International Ltd Page 11

Consumer Electronics Demand

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 12

Business Monitor International Ltd Page 13

Device Demand To Rise As Household Incomes Rise

f = BMI forecast. Source: BMI, National Sources

Business Monitor International Ltd Page 14

Consumer Electronics Demand

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 15

Table: Consumer Electronics Overview (Vietnam 2014-2020)

2014 2015e 2016f 2017f 2018f 2019f 2020f

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 16

Consumer Electronics Risk/Reward Index

Business Monitor International Ltd Page 17

Table: CE RRI Breakdown By Region, Q216

Business Monitor International Ltd Page 18

Business Monitor International Ltd Page 19

Table: Asia CE Risk/Reward Index - Q216

Business Monitor International Ltd Page 20

Table: PC Sales (Vietnam 2014-2020)

2014 2015e 2016f 2017f 2018f 2019f 2020f

PC sales, USDmn 1,405.44 1,449.56 1,486.58 1,546.17 1,640.64 1,764.02 1,895.89

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 21

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 22

Business Monitor International Ltd Page 23

APAC Household PC Penetration (%)

Source: National Sources, WEF, BMI

Business Monitor International Ltd Page 24

Business Monitor International Ltd Page 25

e/f = BMI estimate/forecast. Source: BMI

Business Monitor International Ltd Page 26

Table: AV Sales (Vietnam 2014-2020)