As Nokia Oyj and Sony Corp. stumble, the companies that supply their factories have suffered. Now, those suppliers are finding relief from a new quarter: Chinese brands with growing appeal to domestic buyers.
Five of the top six mobile-phone brands in China -- the world’s largest handset market -- are domestic. Only Samsung Electronics Co. still outsells them, while Apple Inc. dropped to seventh place in the second quarter and neither Nokia nor Sony was in the top 10, according to researcher Canalys.
With their growing sales of phones, and now tablet computers and Internet-linked televisions, the likes of Lenovo Group Ltd., ZTE Corp., and Xiaomi Corp. are giving a lift to Wistron Corp., FIH Mobile Ltd. and other embattled contract manufacturers and component makers.
“China’s home brands are getting stronger and grabbing market share from traditional global brands that used to outsource assembly,” said Jimmy Chen, an analyst at Masterlink Securities in Taipei. These Chinese companies “create more and more order volume for the suppliers.”
Sony, the world’s No. 3 TV maker last year, cut orders from suppliers like Wistron and brought manufacturing in-house as its TV business posted its ninth-straight annual loss. Nokia had more than half of the phone market before Apple introduced the iPhone six years ago. After losses exceeding 5 billion euros over nine quarters, Nokia this month said it will sell its handset unit to Microsoft Corp. for $7.2 billion.
The decline of Nokia has been particularly hard on FIH Mobile, the Hong Kong-listed subsidiary of Taiwan’s Hon Hai Precision Industry Co. formerly known as Foxconn International Holdings Ltd.
Nokia, which used to account for 40 percent of FIH’s sales, now represents about 10 percent, investment bank Jefferies estimates. And Xiaomi, not a major customer a year ago, today is the third-largest, accounting for 10 percent of sales.
Hon Hai declined to comment on FIH Mobile’s business with Nokia or China customers.
Lenovo’s growth aids suppliers of Nokia components like Qualcomm Inc., LG Display Co. and Innolux Corp., data compiled by Bloomberg show. Lenovo cooperates on TV production with Sharp Corp., giving the Japanese company a boost after losses totaling 921 billion yen in the past two financial years.
Lenovo posted record revenue of $34 billion last year, up 15 percent, as it expanded into smartphones and tablet computers. The company’s smartphone shipments more than doubled from a year earlier to a record 11.4 million units during the three months ended June, the company said in August.
Unlike established brands such as Lenovo and ZTE, three-year-old Xiaomi has no manufacturing capacity, so its rapid growth translates into orders for FIH Mobile.
The shift is helping spark a rebound at FIH Mobile, which reported net losses in two of the past three years as Nokia cut orders. FIH Mobile is projected to return to profit this year with net income of $66.5 million, the average of eight analysts surveyed by Bloomberg. FIH Mobile shares are up 27 percent this year versus a 2.4 percent gain in the Hang Seng Index.
Xiaomi more than doubled its revenue in the first half of 2013 by selling smartphones costing half what an iPhone does. It surpassed Apple in handsets sold in the second quarter, according to Canalys.
“The growth exceeded our expectations,” Xiaomi President Bin Lin said in an interview. “As we achieve huge volumes on one particular model, or a few models, costs are being driven down.”
The company says it has sold more than 17 million smartphones in the past two years. Its latest model, the Mi3, is the world’s fastest smartphone, Xiaomi says.
Xiaomi’s focus on just a few popular phones -- unlike companies that make a broader range of models sold in smaller quantities -- suits FIH Mobile, said Ken Hui, an analyst with Jefferies in Hong Kong.
“The competitive advantage for FIH is doing assembly for handsets in large volumes, and they can do that more cost-effectively than anyone,” Hui said.
Xiaomi aims to do the same for TVs. The company said this month it will offer a 47-inch (119-centimeter) TV that connects to the Web running the Android operating system for $490. That device will be built by Wistron, which has been hurt by a drop in TV orders from its largest customer, Sony, according to Yuanta Securities Co.
“Wistron expanded capacity, and then when things turned south, Sony couldn’t give them orders,” said Yuanta analyst Vincent Chen.
Wistron’s expected production of 3.2 million TVs this year is less than 20 percent of its capacity, Chen said. So every extra order to keep factories humming is “good news” for Wistron, he said.
Wistron’s net income is projected to be unchanged at NT$6.7 billion this year, the average of 22 analysts surveyed by Bloomberg, after dropping more than 25 percent in each of the previous two years. Wistron declined to comment on its partnership with Xiaomi.
While Xiaomi President Lin declined to comment on TV production plans, the benefit to FIH from his company’s success in handsets points to a brighter future for Wistron.
“The scale and economics are playing out really well” for Xiaomi and its suppliers, Lin said. “We both benefit.”
— With assistance by Edmond Lococo