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Dear Shareholders,In 2012, we were in the transition period and faced a lot of challenges, including the unfavorable global economic environment, the fast and dynamic technology upgrade of the handset industry, and the intensified competition in the market and so forth. These factors adversely affected our sales and gross profit margin on one hand, and on the other hand we adhered to the well-proven ‘Step-up’ product strategy through steadily investing in our research and development (“R &D”), and expanded our effort in both brand building and product marketing. As a result, we recorded a net loss of HK$220 million in 2012. However, I am very pleased to report that several breakthroughs in our smartphone business have been achieved during the previous year and I am still very confident that the company will persistently deliver value for the shareholders in the long run.
Significant Progress in Smartphone Business
During the year under review, the smartphone sector remained the focus of the handset industry as smartphones became increasingly popular in both the developing and mature markets. Our “Step-up” strategy of focusing on smartphone business paid off as the total sales of smartphones and other smart devices rose by 375% year-on-year to 6.5 million units, accounting for 15% of the Group’s total shipment, up from the 3% in 2011. The increase in smart product shipments had effectively boosted the overall average selling price (“ASP ”) per unit to u S$36.2 during the year under review, up from u S$31.3 in the previous year. As a result, the Group’s overall revenue in 2012 increased by 13% to HK$12 billion, and the revenue contributed by smartphones and other smart devices reached 43% of the Group’s total revenue, up from 12% in 2011.
Breakthroughs in Product Development
In 2012, the Group enriched its product mix by rolling out 26 new models of smartphones. These smartphones which are equipped with innovative features, together with other new smart device products, effectively enhanced brand recognition and the Group’s market presence. A number of smartphone models were selected by global 1st-tier operators, and we have become a real global smartphone supplier. With a series of smartphones with excellent quality launched to the market, all of the key clients trust us as a qualified 3G smartphone manufacturer and set up strategic partnership with us.in March 2012, our product ALCATEL ONE TOUCH 916 won the ‘Red Dot Award: product Design 2012’ in Germany, marking the second consecutive year in which the Group won this internationally recognized award. In October 2012, we launched TCL S606, our first smartphone with Windows 7.5 operating System, which effectively supplemented the current product portfolio. In addition, we facilitated the users to enjoy better experience by equipping our products with liquid-repellent nano-coating technology, such as the popular models of TCL S800 and TCL S600. In 2013, we will stick to our mission: offering our customers innovation and quality in mobile technology at the best price. We promised to make our products technology simple and accessible, and enable users to do more.
Market Development with Robust Smartphone Growth
Revenue in Europe, the Middle east and Africa (“EMEA”) grew by 17% year-on-year (“yoy”) to HK$4.5 billion, although shipment decreased by 7% yoy to 15.2 million units. With our efforts in promoting the sales of smartphone products in the open market, shipment and revenue of smartphones and other smart devices accounted for 18% and 49% in this region, increased from 2% and 9% in 2011 respectively.in Americas, both shipment and revenue slightly decreased by 1% yoy, to 19.1 million units and HK$5.1 billion respectively. Because feature phone market was gradually replaced by the entry-level smartphone, shipment and revenue of smartphones and other smart devices accounted for 7% and 25% in 2012 in this region, increased from 2% and 8% in 2011 respectively.
During the year under review, the shipment of APAC region reached 2.5 million units, down by 14% yoy. Nevertheless, the revenue increased by 27% to HK$817 million. The significant growth of smartphone in APAC region made up 28% of the APAC’s total shipment and 53% of its revenue, up from 3% and 11% respectively. China remained our fastest growing market in 2012.Sales volume grew by 13% to 5.8 million units while the revenue surged 60% to HK$1.6 billion due to the successful launch of new products and the expansion of our distribution network. The shipment and revenue of smartphones respectively accounted for 31% and 80% of the total shipment and revenue in the region, increased from 8% and 34% in 2011 respectively.
Growth Drivers in the Future
With the future economic uncertainty, unfavorable business environment and fierce competition, the year of 2013 will remain challenging for us in both China and overseas markets. We are poised to focus on optimizing product structure and R &D processes, elevating the efficiency of product R&D in order to speed up the product time-to-market, improving the product quality and users’ satisfaction.
While focusing our efforts on product development, we will also foster growth drivers. For instance, we will boost the smartphone shipment in various markets and upgrade our smartphones from entry-level to mid-end. With the increased sales volume and ASP of mid-end products, we are expecting a healthier gross margin to be seen in the foreseeable future.
In 2013, we have geared up to further strengthen cooperation with major component suppliers, improve our operation efficiency, and exercise a more cautious control on cost and expenditure with a major focus on the development of key products, in order to tap emerging opportunities in the telecommunication market for business growth with a view to generate better returns to the shareholders.
On behalf of the Board of Directors, I would like to express my gratitude to our shareholders, customers, suppliers and business partners for their unwavering support. Also, I would like to thank the Board, management and staff for their wholehearted commitment.