US carriers sold over 1.5 million white-label devices in Q3 2021, according to Counterpoint Research’s US Monthly Smartphone Channel Share Tracker. This figure includes AT&T, Cricket and T-Mobile (Revvl brand) devices.
Over the years, both carriers have maintained a range of white-label devices to fill gaps in their portfolios by offering affordable device options. Lately, the focus has shifted towards the sub-$300 5G device segment, especially in prepaid channels. In 2021 so far, US carriers have launched white-label 5G devices such as the REVVL 5G, REVVL V+ and Cricket’s Dream 5G/AT&T Radiant Max 5G, bringing down the 5G device cost to sub-$200.
In September 2021, Dish’s Boost Mobile announced the Celero5G-branded smartphone. The device, launched at a price of $279, will include unlimited talk time, text and data (speed throttled after 35GB) for 12 months. Further, the Celero5G comes packed with a 6.52-inch screen, quad camera and 4GB RAM/64GB NAND. It is rumored to be powered by the MediaTek Dimensity 7000 chipset. The device will be available at Boost Mobile-branded retail locations and in national retail.
Dish claims that the device fills a void in the market by providing an affordable 5G option to the customers. This is parallel to AT&T and T-Mobile’s strategy to bring more subscribers to the 5G network.
Opportunity for ODM/EMS firms
Industry continues to ponder whether Chinese OEMs will be able to enter US carrier channels. So far, none of the major Chinese OEMs have been able to range among US carrier channels apart from OnePlus. However, the white-label device opportunity brings OEM, ODM and EMS firms to a level playing field and opens a backdoor channel for entry to the US market.
This has enabled many ODM/EMS firms, such as FIH (Fushan), Wingtech, Tinno and Vinsmart, to work with US carriers. Many Indian OEMs are also aggressively looking to cater to the rising demand.
Apart from the carrier-branded white-label devices, some local US brands are also moving their production outside China. Recently, India-based EMS firm Dixon Technologies announced a partnership with Orbic to manufacture 5G smartphones in India. Orbic devices are sold in Verizon and TracFone channels in the US. BLU-branded devices sold in national retail channels such as Best Buy, Walmart and Target are also being manufactured in Vietnam. There are many other similar brands that are now looking at manufacturing outside China to circumvent unnecessary logistical hurdles.
While these devices don’t get much attention and have lower marketing spend, the arrangement allows US carriers to fill gaps in their smartphone portfolios. At the same time, it allows ODM/EMS firms, which remain behind the scenes, to avoid the marketing cost, which is typically shared between the carrier and a mainstream OEM brand (like Apple, Samsung, Motorola and OnePlus).
In May this year, Vietnam’s Vingroup announced that its subsidiary VinSmart would stop manufacturing smartphones and televisions. “The production of smartphones or smart TVs no longer brings breakthroughs and creates unique values for users,” said Nguyen Viet Quang, vice-president and CEO of Vingroup. Quang set up VinSmart in 2018 with an aim to raise Vietnam’s smartphone R&D and manufacturing to another level.
VinSmart’s future strategy will take three directions — R&D for VinFast, Vingroup’s carmaker unit; IoT solutions for vehicles and homes; and winding down the smartphone production for partners, such as some US carriers. While the VinSmart’s move looked wise against the backdrop of ongoing component shortages, the real logic working behind the decision is more complicated than expected.
Original Design Manufacturer (ODM) vs ‘Made in Vietnam’
Prior to VinSmart’s exit, a few popular Vietnamese mobile phone brands had already disappeared from the market, such as Q-mobile, Mobiistar, and FPT Mobile. Q-mobile quit the market quite early, around the time the Android smartphone segment started heating up. Q-mobile failed due to cash flow issues stemming from its smartphones’ average cost being two to three times compared to a normal feature phone. Mobiistar tried expanding to India, the second-largest market, to counter competition in its domestic market. Although Mobiistar entered India in a joint venture with a Chinese manufacturer, it was still a wrong move because India was already a very competitive market.
These failures of local brands can be pinned down to their business model. Most of them relied on ODMs (mainly based in China), which means outsourcing design and manufacturing to some other firm. But the Chinese brands, with their manufacturing and supply chain advantages, didn’t take much time to beat the local firms.
Secondly, most of the Chinese ODMs provide Android turnkey solutions, with only minor customizations for the local brands, such as housing, wallpapers, and ringtones. However, with the Vietnamese consumers already becoming used to the variety of features and improvements offered by international brands, the local companies found it difficult to keep pace.
Thirdly, establishing and building a mobile phone brand involves cash burn. But brands like Q-mobile, Mobiistar, and Masstel had no such solid capital. With squeezed margins, it is super-easy to block cash flow. For example, 10,000 handset units costing $50 per unit mean $500,000 worth of goods. But in case these units fail to sell, it would take more than three months to convert this stock back into cash. And for a local brand, $500,000 is a big amount.
Therefore, the ODM business model is very challenging for local brands. But in the light of the abovementioned challenges, VinSmart got a head start. It was backed by Vietnam’s biggest business group, which believed in promoting ‘Made in Vietnam’.
Was VinSmart a Success?
Looking at VinSmart’s past performance, it ranked among the top four OEMs (by volume) both in Q1 2020 and Q1 2021.
VinSmart managed to impress the market and consumers alike. The channels were happy to have such a ‘Made in Vietnam’ brand on their shelves. The key selling points (KSPs) for VinSmart were:
All this made VinSmart stand strong in the $150 and below segment (wholesale price). As much as 70% of VinSmart’s smartphone sales came from this segment.
From a strategic point of view, it is reasonable and practical to scale up the volume in the mid-low segment and then climb up the value chain by frequently launching flagship models. For sure, VinSmart was in for a bright future.
Why VinSmart Decided to Exit Market?
The news of VinSmart exiting the smartphone and television business was indeed sensational. Besides the obvious reasons, there were still some unfathomable causes behind the move.
VinSmart entered Spain, Russia, and some other markets even when that would have meant increased brand-building and other expenses. What triggered the foreign foray was the size of Vietnam’s market. The country, with around 100 million population, sees a mobile phone volume of around 2 million per month, of which VinSmart had a 10% share. The company’s ambitions were far bigger to be satisfied by this user base. And that, in turn, contributed to the latest move.
On the R&D front, the results were not strong enough to differentiate VinSmart from other brands. Its OS, called VOS, was just a customized Android OS.
Vietnam’s government is keen to transform the country into a manufacturing giant. In the long run, Vietnam’s development heavily relies on foreign investment and overseas markets. Foreign companies in Vietnam take up 70% of its foreign trade. As much as 25% of Vietnam’s total exports are taken by Samsung, which set up its first smartphone production line in the country around 10 years ago. However, Samsung’s arrival started to change the industry’s labor structure in Vietnam. Top-quality manpower became difficult to find for VinSmart even as it strived for ‘Made in Vietnam’.
To conclude, VinSmart had no choice as both resources and core competencies were in short supply to sustain the ‘Made in Vietnam’ push.
Market after VinSmart
Today, if we visit the website of Thegiodidong, Vietnam’s biggest organized chain store, there are only Masstel and Vsmart in terms of local brands. Masstel has only feature phone models on sale with the highest price of 550,000 VND (~$24). So, is this an end for local brands? Right now, the answer seems ‘no’. It is unlikely that any local brand will rise in the near future to capture the space vacated by VinSmart and take on the international biggies.
However, Vietnam’s government has a clear aim of improving the country’s industrial capabilities in the next 10 years. Therefore, in the long run, another local challenger is likely to rise in the Vietnamese market.
“Vietnam’s electronics industry is developing, and it certainly needs a leading local mobile phone brand,” said Tran Viet Hai, CEO of Bkav Electronics, the company that produces Bphone, as well as famous anti-virus software.
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