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Transsion Holdings is in a turbulent time.

As a model of making a fortune in silence, Transsion Holdings might not have expected that even though it has been very "low-key", it would still be plagued by so many troubles.

When it comes to Transsion Holdings, it may not be well-known in China, but in foreign countries, especially in the African market, the company's market share has reached 40%, making it the veritable "King of African Mobile Phones."

According to information, Transsion Holdings' main products are three major brand mobile phones: TECNO, itel and Infinix, including feature phones and smartphones.

Its sales areas are mainly concentrated in Africa, South Asia, Southeast Asia, the Middle East and Latin America.

According to Transsion Holdings' 2023 financial report, the company sold a total of 194 million mobile phones in 2023. According to third-party statistics, Transsion Holdings' global mobile phone market share is about 14%, ranking third in the world.

Of course, as a mobile phone manufacturer that mainly produces feature phones, it cannot always sit back and relax.

From being accused of tax evasion in Kenya (clarified, false reports), to being sued by Qualcomm, Transsion Holdings' Mercury retrograde seems to have arrived early. According to statistics, since the stock price of Transsion Holdings hit a staged high of 125.84 yuan per share in mid-April,Its stock price fell by 30% in three months, and its cumulative market value evaporated by more than 48.5 billion yuan.

So what factors led to the sharp drop in the share price of this mobile phone giant despite its good performance? What risks will Transsion Holdings face in the future that will make the market so worried?

At a previous earnings conference, Zhu Zhaojiang, chairman and general manager of Transsion Holdings, said, "At present, emerging markets such as Africa are still in the development trend of 'switching from feature phones to smartphones.' Overall, the smartphone penetration rate in emerging market countries is still relatively low compared to North America, Western Europe, mature Asia-Pacific developed economies and the Chinese market.The replacement of feature phones for smartphones remains an important factor driving the growth of the smartphone market in emerging markets such as Africa.”

Through previous financial report data, Kanjian Finance also found that Transsion Holdings' market share in Africa is decreasing. This means that as its African market has become saturated, when a market becomes saturated, in addition to product upgrades, the only thing left is to find new markets.

We also found from the financial report that its focus has begun to shift to other places. It can be foreseen that more growth in the future will come from Asia and other regions, but it is worth noting that the gross profit margin of products in Asia and other regions is lower than that in Africa, and this may be one of the reasons for market concerns.

In the future, as the African market completes the switch to smartphones, Transsion Holdings will face all-round competitive pressure.

Trouble

For a long time in the past, due to the generation gap in the African market, parts of Asia and other relatively backward regions, Transsion Holdings seized the "gap" in the market.

In just a few years, Transsion Holdings "dominated" the African market with its extremely high market share and became the veritable "King of African Mobile Phones".

But it is worth noting that compared with other fields, the generation gap in consumer electronics is the easiest to eliminate. Once upgraded to the field of smart phones, Transsion Holdings will face all-round global competition pressure, and at the same time, it may also face impacts from the industrial chain.

On July 12, media reported that Qualcomm is suing Transsion Holdings Group for infringing four non-standard essential patents in the Delhi High Court of India.

In response to this report, Transsion Holdings urgently responded to the media that it had signed a 5G standard patent licensing agreement with Qualcomm and was in the process of implementing the agreement. However, considering that some patent owners in more than 70 emerging markets such as Africa and South Asia do not own or only own a small number of patents, they demand a global unified high licensing fee, ignoring regional development differences, differences in patent holdings, and different rates in case law.

Transsion Holdings also stated that intellectual property lawsuits are frequent in the mobile phone industry. Domestic and foreign mobile phone brands have or are facing intellectual property lawsuits in the course of their operations. This practice does not fully comply with the principles of fairness, reasonableness and non-discrimination. Transsion will continue to conduct patent negotiations with third parties.

Regarding Qualcomm's lawsuit, some industry insiders analyzed that Qualcomm rarely files lawsuits. The lawsuit between Qualcomm and Transsion highlights the growing importance of India as a venue for patent enforcement.

According to IDC statistics, Transsion Holdings' market share in India's smartphone market has reached 8.2%, ranking sixth. This data also indirectly confirms the analysis of the above-mentioned person.

Of course, faced with the increasingly saturated African market, Transsion Holdings will encounter more and more problems in the future if it wants to expand into more markets.

Qualcomm has previously publicly stated that it will charge a patent fee of 3.25% of the price of 3G, 4G, and 5G multi-mode mobile phones that use Qualcomm's standard essential patents; and a patent fee of 5% of the price of the mobile phone for 5G mobile phones that use Qualcomm's mobile network standard core patents and non-core patents.

This means that even if you don't use Qualcomm's chips, you still have to pay patent royalties.

Qualcomm also pointed out in its statementTranssion’s mobile phone products use Qualcomm’s technology patents but have not obtained a license.

From the above perspective, as Transsion Holdings further deepens its presence in the smartphone market in the future, it will face pressure not only from Qualcomm, but also from other smartphone manufacturers around the world, and this is almost an inevitable situation.

Where to go?

After delivering a brilliant first-quarter financial report, Transsion Holdings gave the market another dividend "gift package".

Faced with various favorable factors, the market not only did not respond positively, but instead took the opposite trend.

According to statistics, since Transsion Holdings' share price reached 125.84 yuan per share on April 18, its share price has begun to fall all the way. In just three months, the company's share price has fallen by more than 30%, and its market value has fallen below the 100 billion mark.

It is worth noting that although Transsion Holdings delivered a satisfactory answer in the first quarter, the net cash flow generated by Transsion Holdings' operating activities in the first quarter was -108 million yuan.

In this regard, Transsion Holdings explained that this was mainly due to the increase in cash paid for the purchase of goods in this period being greater than the increase in cash received from the sale of goods in this period.

In addition, Transsion Holdings' previous share reduction also attracted market attention.

On May 23, Transsion Holdings issued an announcement stating that the company's controlling shareholder, Shenzhen Transsion Investment Co., Ltd., reduced its holdings of the company's shares by 8,065,652 shares through inquiry transfer, accounting for 1% of the company's total share capital.

Based on the transfer price of 125.55 yuan per share at the time, the company's controlling shareholder's cash out from reducing its holdings reached 1.013 billion yuan.

According to Wind data, the shareholding ratios of Chuanli Enterprise Management, Chuancheng Enterprise Management and Chuanyin Enterprise Management decreased from 2.76%, 2.13% and 2.61% in the second quarter of 2023 to 2.12%, 1.53% and 1.47% at the end of the first quarter of this year, respectively. It can be estimated that the above three holding platforms have cashed out a total of about 2.47 billion yuan in the past few months.

Kanjian Finance believes that although Transsion Holdings' current performance continues to improve, it is an indisputable fact that its market share in Africa has gradually declined. Of course, although expanding to Asia and other regions is the right strategic direction, the pressure is not small.

Judging from its patent dispute with Qualcomm, if Transsion further enters the smartphone market in the future, it may face attacks from multiple sides.

The market has already reacted to Transsion Holdings' current embarrassing situation.

In fact, the problems encountered by the company often cannot be reflected at the moment, but the stock price trend is a mirror that can provide early feedback on the market's expectations for the company's future.

From this we can see that we believe that the market has already predicted in advance various situations that may arise in the smartphone market for Transsion Holdings in the future. Despite this, it does not mean that Transsion Holdings has no chance. We believe that as long as Transsion Holdings continues to dig deep and work hard on its basic skills, it will still gain a good share in some new markets in the future.