688036.SHG
Transsion moves up global smartphone leader board

The company posted 68.6% growth to become the world’s fourth largest smartphone seller in last year’s fourth quarter, as it expands beyond its original African stronghold

Key Takeaways:

  • Transsion shipped 28.2 million smartphones in last year’s fourth quarter, making it the world’s fourth largest seller
  • The company aims to replicate its success in Africa by expanding into markets in South Asia, Latin America and Southeast Asia, which have a combined population of over 4 billion

 

By Hugh Chen

Chinese cellphone maker Shenzhen Transsion Holdings Co. Ltd. (688036.SH) is renowned for its beginnings in Africa, where it dominates the market with its cheap but local-friendly models. Now, the company is starting to spread its wings beyond its traditional stronghold to other developing markets, posing a potential threat to Chinese rivals like Xiaomi (1810.HK) and Oppo.

New data released this month indicate the expansion is yielding some early success. The company became the world’s fourth-largest smartphone vendor during last year’s fourth quarter for the first time after shipping 28.2 million smartphones – up 68.6% year-on-year, according to IDC. That far outpaced all of its other rivals in the top five, and was also well ahead of the overall market’s 8.5% growth.

That growth is even faster than the 33.3% revenue growth the company projected last month for 2023, indicating it may be cutting prices or going even further down market in its bid to quickly gain share in its newer markets. The company anticipates it will report its revenue for all of 2023 climbed to 62.1 billion yuan ($8.8 billion), while its profit more than doubled to 5.4 billion yuan. The company attributed the strong growth to “continuously exploring emerging markets and advancing product upgrades,” according to its revenue and profit forecast issued last month.

Founded in 2006, Transsion and its Tecno, Itel, and Infinix brands have become household names and a dominate force across an African market that was overlooked for years by most of its peers. It earned its success by catering to the needs of African mobile users with several savvy strategies. Notable among these was its specially designed cameras with beautification features optimized for darker skin tones.

As the company looks to replicate its African success in other emerging markets, investors will be closely watching Transsion’s progress in other regions such as South Asia, Latin America, and Southeast Asia.

Its strong growth has translated to Transsion’s stock. Its shares have risen steadily since its listing in 2019, including a more than 60% increase over the past year – a rare feat in China’s slumping stock markets that have been some of the world’s worst performers over that time. Its latest closing price of 145 yuan on Thursday was down from the 250 yuan level reached in early 2021, but remains over four times higher than its listing price of 35.5 yuan.

While the stock trades on China’s domestic A-shares market, it is also accessible to international investors through a program linking the Shanghai and Hong Kong stock exchanges. Even after its stock’s recent pullback, the shares still trade at a healthy price-to-earnings ratio of about 29, well ahead of Xiaomi’s 20.

Out of Africa

Transsion is the “King of Africa,” having become the continent’s largest smartphone seller since at least 2017. It controlled 48% of the market by shipping 8.6 million smartphones there in last year’s third quarter, well above second-place Samsung at 26%, according to Canalys.

The company began exploring expansion beyond Africa in 2015, announcing plans to enter specific markets in South Asia, Latin America, and Southeast Asia. These three regions remain the focus of the company’s international growth efforts, consistently listed in its earnings reports as priority areas for further market penetration and expansion.

The rationale for Transsion’s choice of new markets beyond Africa is clear. Those regions share many traits with Africa in terms of their development, and offer a huge demographic opportunity with a combined population exceeding 4 billion and relatively low smartphone penetration rates. Many nations within those regions are also at an inflection point, as declining mobile fees and the shift from basic phones to smartphones drive increased usage and upgrades.

Compared to more mature markets like China, Europe and North America where smartphone sales growth has slowed in recent years or even contracted, sales in these emerging regions continue to rise. For example, smartphone sales in Latin America grew 9% year-over-year in last year’s third quarter, while they were up 21% in the Middle East, and 7% in Southeast Asia, according to recent reports.

One region where Transsion has seen particular success is India, a market it first entered in 2015 and where many of its Chinese peers are also very active. While Transsion’s brands made gradual gains at first, recent data indicates those gains have begun to accelerate.

According to Counterpoint Research, the company’s Tecno, Itel, and Infinix brands in India collectively rose in market share from 6.3% in 2022 to 8.6% in 2023. This helped Transsion reduce the gap with Chinese rivals like Xiaomi and Oppo in the world’s second largest market.

While the company doesn’t break down its revenue by geography, a report from Chinese brokerage Soochow Securities estimated that regions outside of Africa accounted for 50.9% of Transsion’s total revenue in 2022. The report also projected the proportion of non-Africa revenues will continue to grow over the coming years.

Transsion’s movement beyond Africa will also come with challenges. Chief among those is the stiffer competition it will face from its hometown Chinese rivals, including not only Xiaomi and Oppo, but Vivo and OnePlus. Additionally, as with other Chinese companies expanding abroad, Transsion will face issues often seen in developing markets, such as inconsistent regulations and diverse consumer tastes.

Like many of its Chinese rivals, for example, Transsion is facing a significant legal and administrative challenge in India amid rising geopolitical tensions between Beijing and Delhi. According to corporate filings, Transsion’s Indian subsidiary, Ismatu India Private, has been under investigation by revenue authorities regarding customs duties paid on its previous display-component imports. Xiaomi and Vivo also are facing similar allegations of tax evasion by the Indian government.

At the end of day, Transsion’s growth prospects will hinge on how well it can scale its international presence beyond Africa. As it does that, the company is also looking to expand its product portfolio, taking a page from rival Xiaomi’s playbook in venturing into new categories like its Syinix home appliances launched in India back in 2015. But such initiatives will be a hit-or-miss effort, with available information showing these ancillary categories have yet to meaningfully contribute to Transsion’s overall revenues.

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