Based on in-factory tours China continues to be the sourcing center for mini component systems, producing 80 percent of the global supply for these sought-after products. Despite facing various market challenges, suppliers remain confident. They are even ramping up production by as much as 20 percent and planning to deliver more feature-packed models.

Executive Summary:

China suppliers produce 75 to 80 percent of the world’s mini component systems, with an estimated total output of 30 million units in 2007. The supplier base in China has about 30 active manufacturers. Despite rising production costs and intense competition, the number of makers is expected to remain unchanged.Many suppliers in the industry are optimistic about export growth in 2008 and plan to expand production accordingly. For example, more than half of the makers surveyed for this report are targeting to increase capacity by up to 20 percent. However, suppliers will continue to face challenges such as rising valuation of the yuan, high costs of raw materials and key components, stricter IPR policy, as well as inflationary pressures and labor shortage in China.Consequently, a large number of suppliers will raise export quotes, some by as much as 15 percent.In order to maintain healthy profit margins, many suppliers will release more high-end products that command higher prices. Models with advanced features such as TFT-LCD screens, iPod docks, touch-panel controls and built-in multimedia interfaces will be available in the coming months.

The following are some of the key trends that we see in China’s mini component system industry: • Prices are expected to move upward or plateau in 2008. The yuan’s anticipated 10 percent increase in valuation against the US dollar combined with the high costs of key components and parts will influence suppliers’ pricing strategies.
• To avoid incurring production cost associated with IPR fees, some suppliers are leaving it to their clients to deal with the issue, while others are shifting to export markets that do not have strict requirements on IPR licenses. 
• Makers are enhancing their manufacturing capability by automating their production lines, which also helps cope with the labor shortage. To improve efficiency further, some companies are simplifying production processes and redesigning production techniques. 
• CD mini component systems will continue to dominate the product lines of most suppliers. Makers are more cautious in producing DVD mini component systems because of stricter IPR protection. The VCD segment has dwindled over the years as a result of the growing adoption of the DVD format. 
• New models in the pipeline feature touchscreen panels, integrated NXT flat speakers, Internet radios, HD radios and PLL radios with RDS function. 

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