GLG News by GuangMin Dai

Implications: China Mobile suspends talks with Apple over iPhone launch. Due to the single largest subscriber base world wide and the unique market position of China Mobile, Apple may need to dig deeper and pay more patience to pitch into this strategic account.

Analysis: 1. Why it is suspended?
a. China Mobile & China Unicom is engaged on Roaming Fee Hearing hosted by China Telecom Regulator 
b. The CEO of both China Mobile and China Unicom may be rotated by China State Council after annual China Congress Session in March

2. What's the major gap?
Apple has insisted on adopting a revenue-sharing model when selling its popular iPhone to other markets.

3. How can Apple access the biggest monopolized market?
a. Due to China Mobile Service market is monopolized by China Mobile & China Unicom with total registered subscriber over 522 million, and China Mobile has around 70% market share, 363 million. Apple is not in the favoriate position on the negotation.
b. Patience is important to keep negotiation alive
c. Apple may adpot more realistic strategy with refined tatics to clinch the deal. Co-branding may be a more favorable solution for both side instead of revenue-sharing program.

Implications: Since 2002, Optical Componets for Telecom Systems have been miserable and uncertain. What's the root cause?

Analysis: 1. Internet created the huge demand on Optical Transmission Equipment due to demand.

2. But the huge Bandwidth demand had never created profitable business model for Telco Service Vendor:
a. ISP barely break even on Financials
b. FCC broked the Effective Monoploy on Bandwidth
c. DWDM and later innovative technologies multiplied drastically slashed per Terabit transmission cost. 

3. Major Telecom Network Equipment vendors, especially Cisco System, push Lean Supply Chain and Lean Manufactureing model to its manufacture service providers, i.e., major EMS: Jabil (JBL), Flex-Solectron, etc. The impact to EMS and Componets Suppliers is: Inventory is push back to upstream on the full business chain. 

Hence, unless Internet Community can figure out a effecitive & profitable business model on bandwidth, Optical Componets vendors could not see the light in the long tunnel... 

Implications: In the past, Microsoft successfully consolidated its position on Operation System, Internet Browser, and Desktop & Laptop Applications. It is OK for Microsoft to survive, but what's the next growth point?  

Analysis: Yahoo invest on Chinese B-2-B portal Alibaba and IPO on HKSE. It sounds a good investment so far.

Google unviled its mobile phone strategy. It is fresh and interesting so far.  

Challenges to Miscrosoft is:
1. Support open platform instead of proprietary MS-Window
2. Make adquate investment on new innovative technologies outside Microsoft
3. Rebrand and improve its public image in each major market.

Implications: MIT Announced $100 Laptop PC for 1 Laptop per Child program. Now Asustek lanunched $200-$400 laptop PC. 1. What's the target market 2. Will it win commercial market 3. What's the impact to current PC market

Analysis: 1. It aimed on both Education Market (Low-end) and commercial market for Lean Laptop.

2. It may grab certain market share on the commercial pc market, especially for trequent traveller. Personally, I dream a "Use then scrap" laptop pc with adquate feature and price.

3. It will be a good sting for current PC market: Stimulate demand and meanwhile slash BoM Cost & ASP (Average Selling Price) simultaneously.

Let us see what's the move from both OEM (Dell, HP, Lenovo, Acer, etc) and ODM (Compal, Quanta, Asustek, etc.).

Implications: BenQ, whose deal ended with the Siemens mobile handset unit going into insolvency amid squeals from German unions and politicians.

Analysis: No, it is different.

BenQ Siemens Mobile acquision end up sour mainly due to political reason, which is not applicable to Acer.

EU states governmet is supvised by Parliament, which Trade/Labor Union has more power to vote.

US states government is supvised by Congress & President, Trade/Labor union only have influence on President Vote every 4 years.

In US, PC industry is much open than Automative Industry.

Implications: Palm firmly abort Foleo and estimated that this decision will require us to take a limited charge of less than $10 million dollars to our earnings.

Analysis: Golden Era for PDA is passed away. Palm is fighting for survive:
1. Mobile Handheld Devices trend is Integration: Phone, PDA, E-mail, MPEG, Media, Camera, etc.

2. Palm is facing competition from both side:
a. Mobile Phone: Top 5
b. Hi-end handheld: Apple iPhone, Microsoft backed smart phone, etc.

Hence, due to scale, Palm will have to follow the trend and build up its kernel on Open Platform or Mainstream Platform, NOT Palm's proprietary.

If Palm can survive, it is a right decision.
It is NOT PDA market now...

Implications: One of the groups that claims it has developed an unlock hack for Apple Inc.'s iPhone is now saying it will only offer the software to resellers, not to individuals, a popular technology blog reported Monday.

Analysis: 1. Dilemma for AT&T
a. If AT&T keep silence on that, the signed exclusive agreenment with both Apple and Subscriber may end up to blank paper.
b. If AT&T react on hi profile, it may lost favor from Apple fans which iPhone targeted.
Hence, AT&T may have to react and do housekeeping in low profile.

2. Apple will be the winner due to more eyeflash and apple fans subscribed to other major Mobile Phone service providers.

Implications: Microsoft’s bid to extend its dominance in digital documents to the new field of open-format documents was unexpectedly rebuffed today when a global technical panel refused to designate its Office Open XML as an international standard. The underlying code of an open document format is public, allowing developers to improve upon it and create new products that use it without having to pay royalties.

Analysis: Standard Committ was and will never be a purely technology panel due to different interests behind. It is a mini version of  WTO Doha Negotiation

Possibilities:

1. Microsoft optimize lobby tactics and win sufficient votes to make its proposal as formal standard.

2. Microsoft revised proposal and resubmit to win sufficent votes.

3. Microsoft give up the effort to make it as standard, but move ahead to implement and make it a industrial fact

Let us see what will happend next...

Implications: Few years ago, we witnessed Lenovo (was "Legend") acquired IBM-PC division. Now we Witness Acer to acquire Gateway. Will PC industry follow Automative in 90's.

Analysis: It will.

1. Asian vendor is good to focus on Engineering & Manufacture.
2. PC is more vertical integrated, like Automative in 90's
3. Innovation is the key to survive and win the new marathon initiated by Asian vendors on this tide.

Implications: Many Taiwanese ODM vendor spin off Brand Business from its core ODM business: Asustek, BenQ, HTC (Smart Phone), Giant (Bicycle), etc. Why and What's the gaps between Brand Business(OEM)and Engineering focused taiwanese ODM?

Analysis: 1. Foundmental Reason: Competition & Market Space
a. EMS started to develop R&D business since 2005 and eat up market share due to Scale: Annual Revenue: Foxconn over $50B, Flextronics over $20B, etc. 
b. Traditional ODM business growth is still not Saturated, but flat. 

2. Gaps:
a. Engineering Focus vs. Brand Marketing
b. Feature Fans vs. Fashion Sense
c. Secured ODM/EMS business vs. Branding Cost & Risk
d. Patient to accumlate Brand Value and End Customer Loyalty 
e. Concrete strategy to foster Brand business

Implications: 1. India has potential to be the next China 2. Major Gap: a. Infrastructure b. Government Administrative Effecience & Effectiveness  

Analysis:  Contract Manufacture Landscape

Implications: Specific states is under spot light for many industrial news: New Business Opening, Extra Investment, etc. What's the reason behind? What's the current landscape of EMS/ODM industry per region?

Analysis: 1. Fundmental Reason:
a. Total Land Cost is the key competence of Contract Manufacture (EMS & ODM).
b. Labor Cost represent roughly 10-15% of total land cost

Implications: 1. Contract Manufacture for Consumer Electronics is evoluting to Vertical Supply Chain 2. Jabil's purpose to set up Consumer Electronics and EMS division a. Consumer Electgronics will move to Vertical Supply Chain Mode b. Incumbent EMS business will remain in Virtual Supply Chain mode

Analysis: 1. Virtual Supply Chain: Source from open market
2. Vertical Supply Chain: Acquire and Integrate supply source

Foundmentals: Cost Allocation in low cost region
1. Raw Materials: above 80%
2. Labor Cost: 10-15%

SWOT Analysis
1. Vertical Supply Chain
a. Strength: Competitive on BoM cost
b. Weakness: Flexibility, Centralized in Low Cost Region, esp. China
c. Opportunity: Hi-Volume Low-Mix Business, typically Consumer Elec.
d. Threaten: Risk on Centralized Supply Chain, Capable to overtake OEM business

2. Virtual Supply Chain
a. Strength: Diversify & Flexibility
b. Weakness: BoM cost is NOT competitive
c. Opportunity: Hi-Mix Low-Volume Business, typically Medical & Instrumental, Aero & Defense
d. Threaten: to be acquired due to scale is small. Typicall Case: Flextronics acquired Solectron with USD $3.6Billion Stock Swap+Cash deal.

Implications: •1. Apple iPhone has Unique market position & identity –a. Multimedia & Mobile Internet –b. Unique customer group 2. Following iPod way –b. Unique customer group 2. Following iPod way –a. Multimedia & Mobile Internet –b. Unique customer group 2. Following iPod way –b. Unique customer group 2. Following iPod way

Analysis: Top 5 = Top 5 Mobile Phone Vendor 

1. Strength
a. iPhone: Customer Loyalty, Cultural Identity, Fashion
b. Top 5: Scale, TAM, Full Portfolio

2. Weakness
a. iPhone: Scale, TAM, Narrow Portfolio
b. Top 5: Cultural Identity, Fashion, Customer Loyalty

3. Opportunity
a. iPhone: Occupy market share from PDA & Blackberry
b. Top 5: Diversify, Drive demand on high-end segment (LG-Prada Phone)

4. Threaten
a. iPhone: Sustain Innovation, Price War
b. Top5: End to be a "Sour Orange" (LG-Prada Phone)

Implications: Cisco has settled the legal issue to share iPhone brand. Will Cisco join the iPhone Chorus shortly?  

Analysis: No. Cisco may not join the iPhone Chorus shortly in Wireless Mobile Phone sector. 1. It is not Cisco's core competence in Mobile Phone area. 2. Cisco is still a Network Equipment and Solution provider: Central Office Equipment, Midware & Software, CPE, etc. But not mobile handheld devices.

Yes. Cisco may extend iPhone concept to Desktop Phone which can leverage Cisco's competence on Internet Telephony. And it may aim on the Business Office Market and bundled sale with Cisco Internet + Phone solution.