THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW This section contains information and statistics related to the mobile handsets industry in certain overseas market in general. We commissioned Frost & Sullivan, an independent market research firm, as an industry consultant to prepare the industry report (the “Frost & Sullivan Report”). We have exercised reasonable care in selecting and reproducing such information. We have derived such information and statistics partly from publicly available government and other third-party sources and the Frost & Sullivan Report, which have not been independently verified by us, Sole Sponsor, Sole [REDACTED], Sole [REDACTED] and Sole [REDACTED], any of the [REDACTED], any of our or their respective directors, officers, representatives or affiliates, or any other party involved in the [REDACTED] and no representation is given as to its accuracy. We believe that the sources of this information is appropriate sources for such information and have no reason to believe that such information is false or misleading or that any fact has been knowingly omitted that would render such information false or misleading. SOURCE OF INFORMATION Frost & Sullivan We commissioned Frost & Sullivan to conduct analysis of global and PRC smartphone ODM markets and other economic data and to prepare the Frost & Sullivan Report. We have agreed to pay a fee of approximately RMB840,000 for the Frost & Sullivan Report, which will be paid prior to the [REDACTED]. Our Directors are of the view that the payment of the fee does not affect the fairness of conclusions drawn in the Frost & Sullivan Report. Frost & Sullivan is an independent global consulting firm founded in 1961 in New York. It offers industry research and market strategies and provides growth consulting and corporate training. Its industry coverage includes automotive and transportation, chemicals, materials and food, commercial aviation, consumer products, energy and power systems, environment and building technologies, healthcare, industrial automation and electronics, industrial and machinery, and technology, media and telecom. Frost & Sullivan Report The Frost & Sullivan Report includes information on Global and China smartphone ODM market data. Frost & Sullivan has conducted detailed primary research which involved discussing the status of the industry with certain leading industry participants. Frost & Sullivan has also conducted secondary research which involved reviewing company reports, independent research reports and data based on its own research database. Frost & Sullivan has obtained the figures for the estimated total market size from historical data analysis plotted against macroeconomic data as well as considered the above-mentioned industry key drivers. Several assumptions were adopted in compiling and preparing the report: (a) China social, economic and political environment is likely to remain stable in the forecast period; and (b) related industry key drivers are likely to drive the market in the forecast period. OVERVIEW OF GLOBAL MOBILE CELLULAR PHONE MARKET As a result of the mobile technology innovation, the number of mobile cellular subscriptions, including both voice and data, has experienced a stable growth during 2009 to 2013. The global mobile cellular subscription jumped to 6,662.0 million in 2013 from 4,639.9 million in 2009, with a CAGR of 9.5%. As a result of the improvement of mobile network coverage in developing countries and the upgrade of wireless transmission network to 3G/4G, the mobile-cellular subscription is anticipated to continue its steady growth and to achieve a CAGR of 7.2% from 2013 to 2018. –58– THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW OVERVIEW OF GLOBAL SMARTPHONE MARKET The number of global smartphone user grew at a CAGR of 45.5% during the period from 2009 to 2013. The growth will stabilize at a CAGR of 14.7% during the period from 2013 to 2018. The number of smartphone user is expected to reach 2,784.3 million in 2018. The total value of the global smartphone market grew at a CAGR of 45.0% during the period from 2009 to 2013 and reached USD298.1 billion. It is expected to grow at a CAGR of 10.3% during the period from 2013 to 2018 and reached USD486.1 billion in 2018. The total shipment of smartphones grew from 183.0 million units in 2009 to 975.0 million units in 2013, representing a CAGR of 51.9%. The total shipment of smartphone worldwide is forecast to reach 2,110.9 million units in 2018, representing a CAGR of 16.7% during the period from 2013 to 2018. Global Trend of Smartphone Operating System The smartphone operating system market has changed significantly in the past five years. Symbian, and Blackberry OS has declined significantly. The operating system is largely dominated by Android system and the iOS system. Over the forecast period from 2014 to 2018 as set out in the chart below, Android is projected to extend its lead by a significant proportion and will become the most adopted operating system in smartphone. Smartphone Shipment by Operating System (Global), 2009–2018E In million units 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Andriod 7.0 74.0 238.0 442.1 751.8 942.1 1,106.1 1,281.8 1,459.5 1,633.8 Symbian 84.4 120.9 81.3 29.3 2.9 0.0 0.0 0.0 0.0 0.0 iOS 25.1 48.2 95.7 136.6 153.1 184.1 197.6 211.2 237.6 259.6 Blackberry OS 34.0 43.0 53.8 33.4 26.3 26.8 31.6 38.1 49.0 52.8 Microsoft 15.3 12.8 6.9 24.8 39.0 61.0 89.0 111.1 133.9 160.4 Others (Bada, Linux, Palm OS, etc.) 13.2 21.9 20.1 39.1 2.0 6.3 9.1 15.9 5.7 4.5 Source: Frost & Sullivan Global Trend of Smartphone Average Selling Price (ASP) The worldwide smartphone average selling price (ASP) remained relatively stable during the period from 2009 to 2011. The ASP gradually declined from USD348.6 in 2011 to USD305.7 in 2013. Such decline was largely driven by competition from new vendors to tap into the market and gain rising popularity among mobile users. Regional smartphone vendors have been dedicated to develop low-cost smartphones to generate brand awareness among customers and capture the market share against international brands. The competition among the regional/local brands and the international brands is expected to continue and the worldwide smartphone ASP is expected to continue trending down during 2014 to 2018. –59– THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW Smartphone Average Selling Price (Global), 2009-2018E In USD 400 336.0 336.8 348.6 350 332.5 305.7 292.5 278.8 300 263.7 246.8 250 230.3 200 150 100 50 0 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Source: Frost & Sullivan Global Smartphone penetration rate The smartphone penetration rate worldwide had grown significantly since 2009. More than half of the mobile phone users in Western Europe and North America were using smartphones in 2012. Future growth in these markets will be driven by migration to LTE devices from 2G & 3G devices. It is forecast that penetration rate in the mature market will reach over 70% in 2018. The smartphone penetration rate in the emerging markets including Central & East Europe (“C & E Europe”), Central & Latin America (“C & Latin America”) and Asia Pacific although had grown significantly from approximately 8% -11% in 2009 to approximately 27% - 31% in 2013. It is forecast to increase further to approximately 46% - 53% in 2018 driven largely by improved telecommunication infrastructure and the better affordability of the smartphone as a result of improved economic conditions in these emerging markets and lower smartphone ASP. Smartphone Penetration Rate (Regional Market), 2009-2018E 90% 78.3% 79.3% 76.1% 80% 73.1% 70.8% 71.3% 69.9% 69.1% 67.3% 70% 65.5% 65.3% 62.1% 58.8% 57.4% 60% 53.3% 51.7% 50.9% 49.1% 47.2% 50% 45.2% 45.1% 43.2% 44.3% 40.6% 41.0% 36.8% 36.2% 36.9% 40% 34.0% 31.3% 32.6% 30% 26.0% 27.7% 20.6% 22.2% 46.2% 38.7% 42.5% 20% 16.0% 16.9% 35.1% 11.4% 12.6% 30.9% 8.4% 21.2% 26.5% 10% 16.0% 8.1% 11.3% 0% 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E Western Europe North America C & E Europe C & Latin America Asia Pacific Source: Frost & Sullivan –60– THIS DOCUMENT IS IN DRAFT FORM. The information contained in it is in draft form, incomplete and subject to change and must be read in conjunction with the section headed “Warning” on the cover of this document. INDUSTRY OVERVIEW OVERVIEW OF SMARTPHONE MARKET IN EMERGING MARKETS (EX-CHINA) Emerging market (Ex-China) smartphone shipment grew significantly from 2009 to 2013 with a CAGR of 60.7%.