Something funny happened on the way to market in China's burgeoning consumer electronics sector: people finally found a way to make money.
Long-evasive profits are finally sprouting up in this former bastion of socialism, both for home-grown players with names like Lenovo Group Ltd and Beijing Huaqi, as well as foreign multinationals like Motorola Inc.
Analysts attribute the growing pool of black ink to a number of factors, including soaring incomes that have made many Chinese avid consumers of gadgets like liquid crystal display (LCD) TVs and digital cameras - products that would have been little more than a pipe dream to most just a decade ago.
But equally important, they say, are the emergence of developed retail and distribution channels, including major electronics chains with names like GOME Electrical Appliances and Yolo, the store chain operated by China Paradise Electronics Retail Ltd.
Western retail giants have also muscled in, including France's Carrefour, and US players Wal-Mart Stores and Best Buy.
"You're going from a less organised sector to a more organised sector, so there's been a rapid increase of more national retailers in China," said Mohan Singh, a retail analyst at BNP Paribas.
"This has led to economies of scale. This is the key reason you've seen profitability improve in chain retailers over the last couple of years. There has been a consolidation of the sector."
As the retail sector consolidates, China's top 100 chain stores saw their number of outlets soar to 38,000 last year from just 13,000 in 2001, according to BNP.
Over that period, the same group of 100 saw their share of national retail sales jump to 10.5 percent from 3.8 percent.
As sales have grown, so have profits. China's electronics industry generated 35.5 billion yuan ($4.4 billion) in profits for its participants in the first five months of this year alone, up a healthy 32.5 percent from the same period a year ago, according to government data. One player making hay from the bonanza is Hisense Group, one of China's top appliance makers, which is profitable in most of its major product lines, said vice president Cheng Kaixun.
"Our refrigerators and TVs are all showing healthy profit margins," Cheng said, speaking on the sidelines of SINOCES, one of China's top consumer electronics shows, in the eastern port city of Qingdao. He acknowledged that not all units were reaping large profits, with the company's air conditioner unit getting squeezed by stiff competition in the sector.
China's leading PC sellers, including top domestic firm Lenovo and global leader Dell Inc, also say they are making healthy profits in the market, despite tough competition.
A move to the lower end of the market - made possible by technological advances in electronics - has also helped the world's top two cellphone makers, Nokia and Motorola, find riches in the mass market of less affluent Chinese in smaller cities.
Both companies have developed models specifically aimed at emerging markets like China and India, with low-end cellphones now costing $50 or sometimes even less.
Other electronics makers have also gotten in on the act, producing ultra low-cost televisions, music players and PCs specifically designed for the truly mass market of rural Chinese who often earn less than $100 a month.
But profits can disappear just as easily as they come, as many are finding out in industries like cellphones, where stiff competition from multinationals has forced a number of former domestic high-flyers into the red or worse.
"It's more difficult now to make a profit" in cellphones, said International Data Corp analyst Jeffrey Wang. "The total supply capacity in China is far more than the total demand."
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