BEIJING (XFN-ASIA) - Z-Obee Holdings Ltd (SGX: ZOBE) sees its superior technology and leading-edge design capabilities as key to its long-term growth in China, the world\'s largest mobile phone market. The Shenzhen-based firm also expected to weather the current slump and emerge on a market upturn as one of the country\'s leading design service providers for handset makers and distributors. \"Although April-September revenue grew about 25 pct, net profit fell to 3.9 mln usd from 7.7 mln. Margins dropped, but the cost of materials was relatively stable. For the coming two quarters, our target is to at least not make losses and we hope to maintain the results of the past six months. It\'s going to be a tough two quarters coming up,\" said Wang Shih Zen, chairman and CEO. In an interview with XFN-Asia, he said Z-Obee was not immune from the effect of more budget-conscious consumers. \"We see a consumer market drop in China and the whole world because of the credit crisis. As far as we know, several brands as well as their distributors are under extreme pricing pressure. At this point, it will be very tough for us to maintain the same growth rate we saw last year.\" But the Singapore-listed firm was doing everything necessary to boost efficiency and quality in the current downtime so as to hit the ground running when the bears return to the woods. \"We are making some changes in our corporate strategy. Due to the market situation, this is a good time for us to look for business opportunities because its quite a bit cheaper now to do a lot of corporate action,\" Wang said. Z-Obee was aware of the dangers of a fluctuating US dollar-yuan exchange rate and always tried to head off crises well in advance. \"If you look at the exchange rate issue, we have in the past collected a lot of our revenue in US dollars. But at the same time most of our expenses are settled in the US dollar so we have little currency mismatch in our sales and purchase cycle. \"Our reporting currency is the US dollar, so at this point, we feel we don\'t have much exposure to currency risk. But of course, as we expand a bit further in China, we pay more in yuan, we try to minimize any currency mismatch. While we have operations in factories, expenses, denominated in yuan, but at the same time, our business in China, we have more customers willing to pay us in yuan.\" He said Z-Obee always kept its finger on the pulsing exchange rate. \"We are looking closely at this currency fluctuation and we have very close communication with bankers in Hong Kong in case there is any big shift. And if there is any hedging to be done, we will do it as in fact some hedging positions are very safe.\" Z-Obee, as a cell phone designer and solutions provider, was naturally very interested in China\'s upcoming issuing of licences for the launch of third generation (3G) service. \"We believe the service will be offered to these three (domestic mobile service) companies early next year. It normally takes something like five to six months, at least because as far as the consumer is concerned, they are really looking for something with which they can communicate easily. Therefore, we believe the right time for the launch of 3G products should be third quarter next year. \"So at this time, we are launching a new brand -- VIM -- and we are going to build our brands from now until the beginning of September 2009, so that the consumer will be familiar with our brand name.\" VIM, Singapore\'s \"first proprietary mobile phone brand,\" the company said in a statement this week, targets \"young, fashionable consumer groups in Hong Kong, China and Singapore.\" Wang said 3G products normally command a higher \"return price.\" \"It is very important that the right brand name is able to be easily taken in consumers. We see that the launching of 3G will mean the most to those companies that have to ability to develop good products and have a good name. This is the plan we are implementing.\" He said the company\'s innovative product launches would likely \"lift up\" a lot of domestic design standards. \"... At least with respect to design. And together we are developing our products, and we also always consider using some very technical features which we believe will benefit the consumers. For example, I believe the I-phone ... the features, are making people feel very in love with these applications. So this is also what we can really offer to our customers. \"We offer them a very different design together with a lot of different features. And we should launch something like 10 models every year, and each model should have some special applications which is a way to check and build the loyalty to our brands.\" Z-Obee\'s revenue, at least on paper, was overwhelmingly dependent on the China market. \"If you look at the books, over 90 pct is sold in China, but over 95 pct of our revenue was derived from end-users, from end customers. And because of the practice of the business, many customers have offshore businesses and they would rather pay us in US dollars. So that is why it looks a bit strange because we derive most our income in US dollars, while most of our customers are in China.\" Wang said he didn\'t see this ratio changing anytime soon. \"We don\'t expect any huge changes over the next two quarters, but we are actively exploring overseas markets outside China. He said over the company\'s six-year history, it has shifted from mainly OEM to ODM. \"And now we have our own brand name. In fact, the change is not sudden. It\'s part of a bigger plan. It has been in the management\'s mind for years.\" He said that in the past, China had licensing requirements for handset manufacturers. \"If you had 200,000 yuan to 200 mln yuan working capital, core manufacturing, an R&D center, repair and maintenance center ... then you got licensing. But from end-2007, these rules were abolished and now there is are licensing requirements for Chinese companies.\" He said this made for a market rife with consolidation and technical upgrade opportunities. \"We think now is a good time for us to move from a solutions provider to more of an established brand-name manufacturer, and to also provide solutions to our distributors as well as our licensed manufacturers.\" The company\'s future success in China was underpinned by its ability to move up the value chain. \"Alot of Chinese manufacturers win most foreign orders due to cost advantages as opposed to so-called innovative practices. Most of the products you see from other manufacturers in China, they are either highly economical or tailored more for the Chinese market, which we don\'t see as having too much global potential.\" Z-Obee was looking to experts in the field to help it boost global sales. \"We are asking alot of experts in these areas by seeking advice from professionals in Hong Kong and elsewhere in order to broaden our expertise in industrial design. After all, consumer feedback and choice doesn\'t only affect a product\'s quality and \'fashionality\', but also the so-called appearance of the product.\" He said these are all \"very important factors.\" \"We believe we are much stronger than other companies in these areas.\" Wang said Z-Obee made the right choice is deciding to list in Singapore last year. \"We found that Singapore is the best place for us due to potential valuations, and the bourse appreciates manufacturers as opposed to Hong Kong which is highly related to financial and property counters. We really feel we made a good choice.\" Z-Obee offers design services spanning the entire handset design cycle, which includes industrial design, mechanical design, software design, hardware design, procurement of hardware, prototype testing, pilot production, and production support. The company provides solutions primarily in the form of industrial design and mechanical design and assembly of components onto a printed circuit board to licensed mobile handset manufacturers, who procure the hardware components, assemble the handsets, and sell them under their respective brand names. It also offers handset designs, and procurement and production support services to distributors. (1 usd = 6.8 yuan) andrew.pasek-vanburen@xinhuafinance.com
