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Last Updated:[08-12-2009 22:20:17 EDT] Zoom in Zoom out Back to Tradenews

Growth of Cheap Fakes Continue to Hurt Cell Phone Majors

tradenews Gartner, a market research firm has stated in its recent report that knock-offs or cheap imitations of branded mobile phones would double their growth by this year to eat away more than 10 percent of the market share of legitimate mobile phone makers. Gartner has estimated that sales of illegally manufactured cell phones would reach 150mn in 2009.

According to Gartner, the most affected by the onslaught of knock-offs is Nokia but others such as, Sony Ericsson, Motorola and Samsung are also hit. The largest origin of counterfeits is from China, and absence of stringent laws created an environment for these illegal businesses to thrive in these countries.

Almost all the models of leading firms are available in the market within days of the launch either in same or similar names. Interestingly, most of them came with an extra feature of dual SIMs or Triple SIMs combined with GSM and CDMA options.

Although these knock-offs shared all the functions of the originals, the camera and music system distinctively lacked quality. Nevertheless, a quarter or below the price of the originals attracted customers from within China, the largest cell phone market, and from places including India, the Middle East, Africa, Russia and even the US.

The entry of the Taiwanese semiconductor design firm, Mediatek in 2005 became a game-changer to the industry as they manufactured circuit boards those mimicked the branded ones’ functions at a very low cost. Gartner analyst Carolina Milanesi said Between 80 and 90 percent of Mediatek’s products were used in the grey market. The timeline corroborates Milanesi’s statement as the fakes from around 37mn units in 2005, quadrupled growth by 2009.

Contrary to Gartner estimate, Richard Windsor, a tech expert at Nomura Investment Bank observed that this year Mediatek would sell about 350mn mobile phone chips, and 250mn of these would go into the illegal market. Major factors that helped businesses in China to venture into this grey area seemed to be the availability of raw materials, low cost of setting up a factory, manpower below 10, laws which allow running unlicensed and Mediatek chips.

Even Chinese mobile phone producers are losing market share to these illegal enterprises which have a built-in cost advantage because they evade taxes, regulatory fees and safety checks. The legitimate cell phone makers in China should shell out about 17 percent of their revenue as value added tax.

The only hope now for the cell phone powerhouses to counter the growth of grey market falls on the enforcement of laws from governments by discouraging practices including illegal manufacturing, sales and tabs on usage. Though recent India government’s decision to bar calls from phones without the IMEI code is for internal security, it is expected to contain the menace of illegal phones to a certain extent in this emerging cell phone market.

The IMEI or International Mobile Equipment Identity code allows identifying the device in the mobile phone network. The counterfeits either do not have an IMEI code, or it has been forged.

By Jose Roy

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