GLOBAL MOBILE PHONE INDUSTRY ANALYSIS

Haohan Xu MS in Finance Student at Johns Hopkins Carey Business School

AGENDA
Industry overview
Growth metrics Financial metrics

Future trends
Conclusion Q&A

INDUSTRY OVERVIEW
Mobile phone: - $339 billion in sales in 2012, 11% yoy from 2011 - Top 10 handset makers 68% of shipments in 2012, down from 71% in 2011, 85% of total handset sales - Low-end producers in China and India gained market share

MAIN COMPETITORS
Samsung (Korea): 218 M shipment, 30.14%
Apple (US): 138 M shipment, 19% Nokia OYJ (US): 35 M shipment, 4.85% Blackberry (Canada): 33M shipment, 4.37%

GROWTH-METRICS
- Wireless connections growth rate decreased

- Wireless penetration near 99%, little room for future growth

GROWTH- GLOBAL MARKET

-Asia Pacific and Latin America are increasing in market shares

- Bull case, emerging markets to drive smartphone growth

- Market dynamics, high growth rate, much lower mobile phone ASV- due to low income

GROWTH- EMERGING MARKETS

- China is forecasted to be the market leader for smartphones, 31% shipment share in 2017 - India and Western Europe, USA are the other major markets: 35% shipment share in 2017

GROWTH- EMERGING MARKETS

- Strong local vendor performance

- Hard for foreign competitors to compete

GROWTH- FEATURE V.S SMARTPHONES

- Growing Mobile phone market, and Smart phone market grows faster - Smartphone ASV trending lower - $430 (2008)- $387 (2012) - Feature phone ASV trending lower - $155.2 2008- $58.5 (2012)

FINANCIAL METRICS
Pure plays: Gross margin and Operating margin both declined

Tech conglomerates:

Gross margin increased, and Operating margin surged from 10.9% to 17.6%

FINANCIAL METRICS
Smartphone industry: (Components: Apple, LG, Nokia, Samsung, HTC, Blackberry, Sony, etc.) Average GM decreases - More intense competition Apple outperforms Samsung GM improved recently

OPERATING SYSTEMS
- Windows could gain market share (Nokia handset acquisition). - Nokia 84% of Windowsbased smartphone - Samsung- Tizen-based smartphone in 2013 - Pressuring price

FUTURE TRENDS- CONSOLIDATION

Lenovos interest in acquiring smartphone vendors
Google (Motorola Mobility), HP (Palm) no previous smartphone operations

Implications:
Pressuring gross margins SG&A expenses and R&D expenses increase

Product differentiation

CONCLUSION
Strong growth in emerging markets
Gross margin pressure due to intense competition New competitors: Google smartphones, Windows-based smartphones (Nokia) Better performance in smartphone industry than feature phones, though margins will decrease Oligopolistic smartphone industry structure Major profits capture by market leaders: Samsung, Apple

Q&A

Thank you. Any questions?