Chinese OEM cellphone manufacturers compete for orders

OEM cellphone makers in China reportedly earn just 0.02 yuan (0.3 US cent) per unit, amid fierce competition in the local market.

Local mobile phone makers are seeing low sales, further lowering production demand.

After years of fast expansion and building up mobile phone production lines in the southern part of China, some local OEM manufactures are realizing the market is hitting saturation and need to lower their pricepoints just to remain competitive.

One OEM factory owner, surnamed Li, told Guangzhou Daily in a report Friday the gross margin previously for manufacturing a feature phone priced at 200 yuan (US$32.6) was at least 2 percent. These days, though, if the order is huge, he said he was willing to lower his profit to only 1 percent to secure the order.

In spite of this, Li last month failed to obtain an order from Vietnam. This contract, for the production of 400,000 mobile phones, was awarded to his competitors in Shenzhen which offered a deal that gave them earnings of only 0.02 yuan (0.3 US cent) for each mobile phone manufactured, or US$120,000 for the whole production. 

In Shenzhen and Dongguan, two southern Chinese cities in which the country's OEM businesses are commonly located, some local mobile phone makers over the past few years have built up manufacturing lines with excessive production capacity.

Initially, they were able to receive orders from local brands, but many face difficulties today keeping up with their operations due to decreasing business and have started to compete for orders even if the profit is close to null.

This trend indicates Chinese mobile phone makers have flooded the industry impulsively over the past years, an industry insider said in the Guangzhou Daily report.

While the core competitiveness of these domestic manufacturers is not yet on equal footing with foreign brands, he noted that the need to find ways to enhance their own market performance and reduce production costs has become a core issue for these Chinese OEM production plants.

The lackluster sales of domestic mobile phone brands was highlighted as another reason why there are insufficient orders to support the local manufacturing market, said the report.

It cited research which showed the market share of foreign mobile phone brands in China had increased 1.3 percent to 29 percent in April. Market share of domestic brands declined to 71 percent, with mobile phones priced between 400 and 700 yuan (US$65.2 and US$114.1) clocking the fastest decrease. Mobile phones in this price range are key target markets that Chinese small to medium-sized OEM manufactures, according to the report.