Mobile Phone Companies Show Strong Growth in China

Last Thursday, Motorola Inc. (NYSE/MOT) fell to two-year lows after more disappointing sales guidance and changes to its management team. The world’s second biggest cell phone maker shocked investors after predicting that its first quarter sales would be at least $1 billion short of its previous estimates.

While the news clearly reflected both uncertainties and the slowdown in global cell phone sales, a region that appears to be bucking the trend is China.

We all know how much the Chinese love their mobile phones. In China, the mobile phone market is enormous, with about 461 million mobile phone subscribers in 2006, up a whopping 578% year-over-year, representing 378 million additional users over the 68 million in 2005. These are excellent growth metrics.

In 2006, sales of mobile phones in China surged 40% year-over- year to 120 million units, versus a 25% global growth rate, according to the China Mobile Communications Association. Estimates call for growth to slow in 2007, but the numbers are still impressive at 25% year-over-year growth to 150 million units, above the projected global growth rate of 20%.

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I expect growth in China to remain strong, especially given that we just received confirmation that China will launch its much- anticipated third generation (3G) wireless network after constant delays. China Mobile Limited (NYSE/CHL) is expected to launch 3G mobile services by the end of October. The introduction of 3G will give a boost to many Chinese mobile and wireless value-added services (WVAS) companies that will introduce new products to the country’s mobile phone subscribers.

So, while Motorola is struggling to find growth, it does not appear to be an issue in China. You should look at companies such as China Mobile, Qualcomm Inc. (NASDAQ/QCOM), Research In Motion Ltd. (NASDAQ/RIMM), KongZhong Corp. (NASDAQ/KONG), Webzen (NASDAQ/WZEN), China Techfaith Wireless Communication Technology Ltd. (NASDAQ/CNTF), and Comtech Group Inc. (NASDAQ/COGO).