Rushing out of Africa, can Transsion replicate the miracle?

In the past two years, due to the disappearance of dividends in the mobile phone industry, most mobile phone manufacturers have begun to "tighten their belts" to live, but recently, Transsion, a mobile phone manufacturer with a very low reputation among domestic consumer groups, has brought "sky-breaking wealth" to its employees.

On January 26, 2024, Phoenix.com Technology reported that Transsion announced that due to the company's overall operating performance exceeding the budget in the previous year and having a high year-on-year growth, it was decided to increase the performance coefficient of all employees to 1.3. This also means that Transsion employees will receive an additional 30% year-end bonus on the basis of the normal accounting of the year-end bonus.

In contrast, due to sluggish performance, many mobile phone companies are difficult to maintain even the size of their existing teams, not to mention issuing year-end bonuses. For example, in March 2023, 36Kr reported that Lenovo had cut the Rescuer mobile phone business line, and in May, OPPO suddenly disbanded the Zheku team and laid off more than 3,000 employees.

In this context, Transsion's overall operating performance exceeded the budget, apparently because it has greatly shaken off the downward pressure of the mobile phone industry and explored a market segment with great room for growth. However, it should be noted that at present, the dividends of the global smartphone industry are disappearing at an accelerated pace, and how to reach a higher level after the saturation of market segmentation market demand is also a major challenge that Transsion must face.

01 Transsion grew against the trend

It is undeniable that although AR, automobiles, pads and other terminals emerge in an endless stream, due to their portability, smartphones are still the mass computing platform.

However, since 2017, with the replacement of most users in the sinking market, as well as the overallocation of smartphones, the replacement rate of consumers has declined, and the dividends of the global mobile phone market have gradually faded.

According to data disclosed by IDC, from 2022 to 2023, global smartphone shipments will be 1.21 billion and 1.17 billion units, respectively, down 11.3% and 3.2% year-on-year, respectively. Among them, global smartphone shipments in 2023 will hit the lowest record in a decade.

Source: IDC

In 2023, Samsung, Xiaomi, and OPPO, which ranked second, third, and fourth in terms of shipments, fell by 13.6%, 4.7%, and 9.9% year-on-year, respectively. Even if Apple doesn't fall into negative growth, the annual shipment growth rate is only 3.7%, which is better than nothing.

On the other hand, Transsion's mobile phone shipments in 2023 will soar to 94.9 million units, a year-on-year increase of 30.8%, not only ranking among the top five smartphone manufacturers in the world for the first time, but also the only manufacturer in the top 5 of the shipment list with a double-digit year-on-year growth rate.

Although the 2023 results have not yet been disclosed, combined with the results of the first three quarters of 2023, with the soaring smartphone shipments, Transsion's overall operating performance in 2023 may indeed exceed expectations. According to the financial report, in the first three quarters of 2023, Transsion's revenue was 43.022 billion yuan, a year-on-year increase of 19.40%, and the net profit attributable to shareholders of listed companies was 3.884 billion yuan, a year-on-year increase of 72.01%.

In contrast, the world's top five smartphone manufacturers, due to sluggish mobile phone sales, the performance of Xiaomi, Apple and other companies has shown signs of peaking. According to the financial report, in the first three quarters of 2023, Xiaomi's revenue was 197.7 billion yuan, down 7.6% year-on-year.

Coincidentally, as of the fourth quarter of fiscal 2023, Apple's revenue has also declined for four consecutive quarters, the longest since 2001.

02 A mysterious force from Africa

Although Transsion's mobile phone products are also aimed at mass consumers, the former mainly focuses on the African market, unlike the leading smartphone manufacturers that compete in developed regions such as Asia, Europe, and the Americas.

According to the financial report, in 2022, Transsion's revenue from the African market will be 20.633 billion yuan, accounting for 44.28% of the total revenue, which is an important pillar of the company.

It is worth noting that due to the underdeveloped economy, the development of the African smartphone market lags significantly behind the average speed of the global smartphone market. Against the backdrop of declining dividends in the smartphone market in most parts of the world, the African smartphone market is still growing rapidly.

Source: Canalys

According to data from Canalys, in Q3 2023, the smartphone market in Africa shipped 17.9 million units, a year-on-year increase of 12%, achieving a strong recovery for two consecutive quarters. Among them, Transsion shipped 8.6 million units, accounting for 48% of the market share.

The reason why Transsion can dominate the African market is that it began to actively deploy this emerging market around 2008 and has a first-mover advantage, but on the other hand, it has also deeply adapted its product characteristics and prices to the African market.

Source: Transsion

For example, in order to solve the problem of taking pictures of dark-skinned people in Africa, Transsion collected a large number of photos of African locals, analyzed the facial contours, exposure compensation, and imaging effects, and strengthened exposure on this basis, and finally made the selfies taken by Camon series phones 30% brighter than traditional mobile phones.

In addition, Transsion has also launched four-SIM mobile phones for the African market, music mobile phones with random headphones, etc., which seem to be "deviant" in other markets, all of which have deeply hit the pain points of African consumers, so they have sold well.

Although there have been many targeted adjustments for the African market, the prices of the products launched by Transsion in the African region are not too high due to the underdeveloped African economy. According to official information, the average selling price of Transsion mobile phones from 2020 to 2022 is 206 yuan, 234 yuan and 272 yuan respectively, which has been lower than 300 yuan.

Obviously, the combination of localized products and low prices has made Transsion mobile phones reach as many African consumers as possible. This is also a key factor for Transsion's performance to soar in the context of the decline in shipments in the global mobile phone industry.

03 Outside Africa, the volume of transmission does not move

Experience in many regions shows that as incremental demand is met, it is difficult to get out of the decline in smartphone sales. Although the growth rate of the African smartphone market in 2023 is good, overall, after years of development, the region's mobile phone dividend is also about to be lost.

IDC data shows that as of the fourth quarter of 2022, the African smartphone market fell for the sixth consecutive quarter, with shipments falling 17.8% year-on-year to 17.6 million units. Canalys believes that despite significant growth in Q3 2023, market expansion in Africa will be limited and will only achieve single-digit growth in 2024.

Source: Transsion's 2022 financial report

The financial report shows that in 2022, its revenue in Africa will plummet by 14.88% year-on-year, and its gross profit margin will also decrease by 0.18 percentage points year-on-year.

In order to avoid its performance being dragged down by the African market, Transsion is actively deploying in emerging markets such as Southeast Asia, the Middle East and Latin America. In the financial report, Transsion said that these countries "have a low level of economic development, the development of the mobile phone industry is relatively lagging behind, the per capita mobile phone ownership is small, and the market space is large".

However, it is worth noting that due to the huge pressure of global smartphone competition, some leading smartphone manufacturers have already deployed relevant emerging markets.

Source: Canalys

Taking the Latin American market as an example, data disclosed by Canalys shows that in Q3 2023, smartphone shipments in the region increased by 17% year-on-year to 31.8 million units, and the top three smartphone manufacturers are Samsung, Motorola and Xiaomi, accounting for 31%, 19% and 16% of the market share, respectively.

It is true that the experience of the African market proves that Transsion has a strong localization ability and can launch targeted products according to the needs of the market. However, it should be noted that after years of operation, the basic functions of most smartphones are not too strong and short, but need to be deeply cultivated to bring consumers a differentiated experience.

For example, in recent years, Xiaomi has continuously strengthened R&D investment, with R&D expenditure reaching 16 billion yuan in 2022. Thanks to this, Xiaomi Mi 14 Pro is equipped with Light and Shadow Hunter 900 image sensor and 1024-level variable aperture, which can bring consumers a differentiated photo experience.

Coincidentally, after being sanctioned, Huawei has also continued to strengthen its R&D, with R&D expenses of 161.5 billion yuan in 2022, accounting for 25.1% of its total annual revenue. As a result, Huawei has accumulated deep technical resources in communications, and the flagship Mate 60 series launched in 2023 has the world's first two-way satellite communication function.

On the other hand, Transsion's R&D expenses in 2022 will only be 2.078 billion yuan, accounting for only 4.46% of the total revenue, and it is difficult to come up with products with technical moats and compete head-on with other smartphone brands in a market where dividends are fading.

In this regard, Transsion also frankly stated in the financial report that "if the company cannot continue to invest in R&D resources, constantly update technology, and respond quickly to the market in the fields of new material research, technological innovation, and process innovation in the future, it will lead to a decline in the company's product sales."

All in all, due to the advance layout and the launch of highly competitive products, taking advantage of the rapid growth of the African mobile phone market, Transsion was able to fly against the trend against the background of the global mobile phone industry.

It should be noted that the African mobile phone market cannot grow endlessly, and in the future, Transsion is also facing huge downward pressure and needs to expand into other emerging markets.

However, in the context of intensified competition in the global mobile phone market, most of the emerging mobile phone markets have been carved up by giants, and the mobile phone industry has also entered the era driven by underlying innovative technology from the era of functional innovation. Next, Transsion may face huge challenges.