BMI Vietnam Consumer Electronics Report Q2 2014

Q2 2014www.businessmonitor.com

VIETNAMCONSUMER ELECTRONICS REPORTINCLUDES 5-YEAR FORECASTS TO 2018

ISSN 2040-9494Published by:Business Monitor International

Vietnam Consumer ElectronicsReport Q2 2014INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: March 2014

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CONTENTS

BMI Industry View ............................................................................................................... 7

SWOT .................................................................................................................................... 9

Political ................................................................................................................................................. 11

Economic ............................................................................................................................................... 12

Business Environment .............................................................................................................................. 13

Industry Forecast .............................................................................................................. 14Table: Consumer Electronics Overview, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Macroeconomic Forecasts ............................................................................................... 17Table: Vietnam - Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Industry Risk Reward Ratings .......................................................................................... 21Asia Risk/Reward Ratings ......................................................................................................................... 21

Table: Asia-Pacific Consumer Electronics Risk/Reward Ratings, Q214 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Market Overview ............................................................................................................... 24Computers ............................................................................................................................................ 24

Table: Computers Demand, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

AV Devices ........................................................................................................................................... 31Table: AV Demand, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Mobile Handsets .................................................................................................................................... 36Table: Mobile Handsets Demand, 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Competitive Landscape .................................................................................................... 43International Companies ......................................................................................................................... 43

Table: Samsung Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Table: Intel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Table: LG Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Local Companies ................................................................................................................................... 46Table: Q-Mobile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Demographic Forecast ..................................................................................................... 47Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Methodology ...................................................................................................................... 51Industry Forecast Methodology ................................................................................................................ 51

Sector-Specific Methodology .................................................................................................................... 52

Sources ................................................................................................................................................ 52

Risk/Reward Rating Methodology ............................................................................................................. 53

Vietnam Consumer Electronics Report Q2 2014

© Business Monitor International

Sector-Specific Methodology .................................................................................................................... 54Table: Consumer Electronics Risk/Reward Ratings Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56



BMI Industry View

BMI View: Vietnam's consumer electronics market has a bright outlook as rising incomes and falling

average device prices in key device categories catalyse strong growth in spending. We estimate spending

grew by 22.4% in US dollar terms in 2013 to US$4.5bn - and we have a positive outlook for the medium

term. The country's vast, underpenetrated rural market offers the greatest growth potential, while Hanoi

and Ho Chi Minh City accounted for most sales in 2013. Growth areas include smartphones, particularly

low-cost devices from Chinese and local brands, and LED TV sets. Vietnam is also rapidly becoming a key

destination in global consumer electronics supply chains, with large investments announced by Samsung

Electronics, Nokia and LG Electronics in 2013.

Headline Expenditure Projections

■ Computer Hardware Sales: US$1.5bn in 2013 to US$1.7bn in 2014, +13.8% in US dollar terms. Thelow penetration of PCs means vendors can still tap the first-time buyer market, with low-cost tablets fromChinese OEMs proving especially popular with consumers.

■ AV Sales: US$1.0bn in 2013 to US$1.2bn in 2014, +10.6% in US dollar terms. Rising incomes and statesubsidies for digital migration are driving strong growth in the TV market, with LED and smart TVsproving especially popular.

■ Handset Sales: US$2.0bn in 2013 to US$2.1bn in 2014, +6.2% in US dollar terms. After boomingsmartphone volumes saw value growth of 32% in 2013, we expect a gradual deceleration in value growthdue to diminished first-time buyer opportunities.

Key Trends And Developments

The smartphone market was the most dynamic segment of the consumer electronics market in Vietnam in

2013 as rapidly declining prices catalysed a boom in smartphone volume sales. The key area of growth was

the low-end of the market, with VND1.5-3.5mn smartphones accounting for around 60% of smartphone

sales, but only 20% of the value of the market. The growth in smartphone sales has been fuelled by the

popularity of Android-based models, with Samsung Electronics and LG faring well, along with local

brands such as Q-Mobile. Although Nokia's Lumia 520 is a notable success from the Windows ecosystem,

Android is expected to remain the dominant ecosystem. However, all vendors will have to contend with a

slowdown in smartphone growth from 2014 due to diminished first-time buyer opportunities and margin

maintenance prohibiting another round of heavy discounting by vendors.

One trend that could allow further price competition in Vietnam's handset market is its rapid development

as a location for production. Vendors are looking to take advantage of the low cost of labour, proximity to



large markets, government tax incentives and transport links. In 2013 the trend accelerated, with LG

Electronics announcing plans to invest US$1.5bn over 10 years to build a production facility for consumer

goods, primarily for the domestic market. Samsung Electronics announced even larger plans for a US$2bn

facility to absorb its existing facility constructed in 2009, which will see about 40% of Samsung's global

smartphones produced in Vietnam by 2015. Nokia also opened a US$320mn featurephone production

facility in October 2013. BMI expects further investments from vendors looking to escape rising wages in

China and take advantage of the cost advantages offered by Vietnam.



SWOT

SWOT Analysis

Strengths ■ With relatively low penetration in key device categories, the domestic market is still in

a rapid growth phase, with trade liberalisation and growing affordability driving

projected double-digit growth.

■ Rising incomes and GDP growth are increasing affordability, with a huge and

relatively untapped market in the rural and suburban areas.

■ Rapid development of local production facilities, with major investments from leading

global vendors such as Samsung Electronics and LG Electronics.

Weaknesses ■ Low incomes and digital inequalities mean high price sensitivity and low demand in

rural areas.

■ Large 'grey' market for illegal products.

■ Low broadband penetration continues to be a drag on demand for consumer

electronics devices.

Opportunities ■ Smartphones, particularly low-cost Android devices are popular with consumers.

■ Low-cost tablet sales are also booming.

■ Further possible cuts in import tariffs would drive increases in demand for imported

electronic products.

■ Operator investments in data networks are boosting demand for connectivity devices,

particularly into underpenetrated rural and lower income areas.

■ Set-top boxes, with the Vietnamese government offering support to lower-income

families to purchase decoders as part of its digitalisation programme.

■ LED TV sets, with triple-digit growth in 2013 as Vietnamese consumers upgrade to

take advantage of the digital viewing experience. Low-cost tablets are expected to

provide a new market opportunity.



SWOT Analysis - Continued

Threats ■ Concerns about unemployment and a potential economic slowdown in 2013 may

constrain household spending.

■ Lack of political will for economic and social reform may delay market development.

■ Relentless pressure for lower prices in key product categories like TV sets, tablets

and smartphones putting pressure on margins as Chinese OEMs achieve higher

standards.



Political

SWOT Analysis

Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and

we do not expect major shifts in policy direction over the next five years. The one-

party system is generally conducive to short-term political stability.

■ Relations with the US have witnessed a marked improvement, and Washington sees

Hanoi as a potential geopolitical ally in South East Asia.

Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the

ruling Communist Party.

■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tight

control over political dissent.

Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has

acted to clamp down on graft among party officials.

■ Vietnam has allowed legislators to become more vocal in criticising government

policies. This is opening up opportunities for more checks and balances within the

one-party system.

Threats ■ Macroeconomic instabilities continue to weigh on public acceptance of the one-party

system, and street demonstrations to protest economic conditions could develop into

a full-on challenge of undemocractic rule.

■ Although strong domestic control will ensure little change to Vietnam's political scene

in the next few years, over the longer term, the one-party-state will probably be

unsustainable.

■ Relations with China have deteriorated over recent years due to Beijing's more

assertive stance over disputed islands in the South China Sea and domestic criticism

of a large Chinese investment into a bauxite mining project in the central highlands,

which could potentially cause wide-scale environmental damage.



Economic

SWOT Analysis

Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with

GDP growth averaging 7.1% annually between 2000 and 2012.

■ The economic boom has lifted many Vietnamese out of poverty, with the official

poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.

Weaknesses ■ Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy

vulnerable to global economic uncertainties. The fiscal deficit is dominated by

substantial spending on social subsidies that could be difficult to withdraw.

■ The heavily-managed and weak currency reduces incentives to improve quality of

exports, and also keeps import costs high, contributing to inflationary pressures.

Opportunities ■ WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam

greater access to both foreign markets and capital, while making Vietnamese

enterprises stronger through increased competition.

■ The government will in spite of the current macroeconomic woes, continue to move

forward with market reforms, including privatisation of state-owned enterprises, and

liberalising the banking sector.

■ Urbanisation will continue to be a long-term growth driver. The UN forecasts the

urban population rising from 29% of the population to more than 50% by the early

2040s.

Threats ■ Inflation and deficit concerns have caused some investors to re-assess their hitherto

upbeat view of Vietnam. If the government focuses too much on stimulating growth

and fails to root out inflationary pressure, it risks prolonging macroeconomic

instability, which could lead to a potential crisis.

■ Prolonged macroeconomic instability could prompt the authorities to put reforms on

hold as they struggle to stabilise the economy.



Business Environment

SWOT Analysis

Strengths ■ Vietnam has a large, skilled and low-cost workforce, which has made the country

attractive to foreign investors.

■ Vietnam's location - its proximity to China and South East Asia, and its good sea links

- makes it a good base for foreign companies to export to the rest of Asia, and

beyond.

Weaknesses ■ Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to

cope with the country's economic growth and links with the outside world.

■ Vietnam remains one of the world's most corrupt countries. According to

Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123

out of 176 countries.

Opportunities ■ Vietnam is increasingly attracting investment from key Asian economies, such as

Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech

skills and know-how.

■ Vietnam is pressing ahead with the privatisation of state-owned enterprises and the

liberalisation of the banking sector. This should offer foreign investors new entry

points.

Threats ■ Ongoing trade disputes with the US, and the general threat of American

protectionism, which will remain a concern.

■ Labour unrest remains a lingering threat. A failure by the authorities to boost skills

levels could leave Vietnam a second-rate economy for an indefinite period.



Industry Forecast

Table: Consumer Electronics Overview, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Consumer Electronics Devices Total Demand (US$mn) 3,261 3,689 4,516 4,955 5,463 5,960 6,485 6,930

Computers (US$mn) 1,143 1,294 1,487 1,692 1,893 2,113 2,363 2,631

Video, Audio & Gaming (US$mn) 738 889 1,046 1,157 1,286 1,415 1,543 1,672

Communications (US$mn) 1,380 1,506 1,983 2,106 2,284 2,432 2,579 2,627

e/f = BMI estimate/forecast. Source: BMI

BMI forecast Vietnam's consumer electronics

devices market, defined as the addressable

computing devices, mobile handsets and video,

audio and gaming products, will grow by 9.7% in

US dollar terms to US$4.955bn in 2014. This is a

marked slowdown from 2013 when booming

smartphone volumes pushed market value growth to

22.4%.

We expect growth will decelerate over the medium

term as penetration in key device categories

increases, but nonetheless we forecast robust growth

as incomes in Vietnam continue to rise. We expect

the market will increase at a CAGR of 6.9% during

2014-2018 to US$6.9bn in 2018, driven by the

growing affordability of key products.

The Vietnamese market is divided between a rural market with low penetration of devices, but sales are

limited by lack of purchasing power and a more developed urban market in Hanoi and Ho Chi Minh City

that still accounts for most sales. Although big-ticket items are still out of reach of the majority of urban

consumers, the price of products such as tablets and smartphones are declining sharply in price due to

competition from Chinese OEMs producing Android powered devices, which are even gaining some

traction in rural areas.

Consumer Electronics Demand

2011-2018




Vietnamese retail demand for consumer electronics products has grown despite pressure on consumers'

incomes from rising inflation. In 2012 inflation was brought under control and is expected to remain fairly

stable between 6-7% for the duration of our forecast period. Meanwhile, rising disposable incomes are

rapidly expanding the addressable market for devices such as smartphones, where a surge in demand has

been fuelled by lower prices, and flat-screen TV sets, which now comprise above two-thirds of TV set sales.

The China-ASEAN Free Trade Agreement also offers opportunities and challenges to vendors, especially

considering the growing presence of low-cost Chinese vendors in Vietnam. In January 2009, tariffs on

imported electronics products and components imported from other ASEAN countries were reduced to

between 0-5%. The new tariff regime led to a readjustment of multinational strategies for the Vietnamese

market, but many vendors overestimated demand, which led to oversupply.

There is, however, downside for the outlook in Vietnam as we note that the risk of a sustained collapse in

exports and further bankruptcies among SMEs could potentially lead to widespread job losses in export-

driven sectors. The most likely trigger for such retrenchment is a hard landing in China, but this not our core

scenario for 2014. Uncertainties over the outlook for employment could in turn prompt households to cut

back on spending on discretionary lifestyle products such as TV sets and smartphones.

Mobile handsets accounted for the largest part of

consumer electronics spending in 2013, at 43.9% of

total spending. Handset unit sales remained

relatively stable, but smartphone sales grew robustly,

boosted by the expanded availability of low-cost

Android smartphones. The boom in smartphone

volumes raised the average selling price of the

handset market as a whole - driving increases in

market value. The handset market is expected to

continue growing for the duration of our forecast

period to 2018. However, we expect growth to

decelerate as a consequence of rising smartphone

penetration. As a result we expect computer

hardware spending to overtake handset spending in

2018.

Demand By CE Market Segment

2011-2018




Government Electronics Industry Plan

The government has outlined a strategy to raise the technology level of Vietnam's manufacturing. The plan

focuses on six hi-tech industries, with the first being electronics-information technology. The government

has set a target of increasing investment in scientific research for these industries to 3.5-5.0% of revenues

by 2015 and 8-10% by 2020. The current level is 0.2-0.3% of revenues. Investment in technological

upgrades will be raised from the current 8-10% to 10-15% by 2015 and 20% by 2020.

The government will also prioritise technology skills and training. The aim is to enable the high-tech sector

to meet domestic demand while at the same time integrating Vietnam into the global electronics industry

chain. The government has identified a number of barriers to high-tech development. These include slow

progress in building high-tech industrial zones.

Another government policy that may boost demand for computers is a two-year plan to enhance IT use by

government agencies. The plan, outlined by Vietnam Prime Minister Nguyen Tan Dung, requires basic

public services such as information exchange, sending and receiving documents as well as making

payments online to be provided to citizens and enterprises. By 2010, about 50% of directives from central,

municipal and province governments are to be published online, according to the target.

The Ministry of Information and Communications is the policymaking and regulatory body in the fields of

press, publishing, post, telecommunications and internet, transmission, radio frequency, information

technology, electronics, broadcasting and national information infrastructure.

In the areas of electronics and IT, the ministry's specific functions include issuing policies and regulations

on IT and electronics products, granting licences and organising government projects.



Macroeconomic Forecasts

BMI View: Vietnam's latest real GDP reading, which showed that the economy expanded by 6.0% year-on-

year (y-o-y) in Q413, has reaffirmed our conviction that the Vietnamese economy will begin 2014 on a

strong note. Not only are we witnessing more evidence of a sustained pick-up in production activity and

employment in the manufacturing sector, but we also expect foreign direct investment (FDI) inflows to

accelerate as the economic recovery gathers pace over the coming quarters. We forecast real GDP growth

to come in at 5.9% in 2014, versus Bloomberg consensus of 5.5%.

In line with our view that the Vietnamese economy would accelerate forcefully into the final months of the

year (see 'Economy Picking Up Pace', October 4 2013), latest data released by the General Statistics Office

(GSO) showed that the economy expanded by 6.0% year-on-year (y-o-y) in Q413. This translates into full-

year growth of 5.4% for 2013, just slightly above our forecast of 5.3%. The latest GDP reading, combined

with the strong set of economic data we have seen in recent weeks (accelerating foreign direct investment

inflows, remittances, and merchandise trade exports), have reaffirmed our conviction that the Vietnamese

economy will begin 2014 on a strong note.



Looking At A Strong Start For 2014

Vietnam - Real GDP Growth, % (LHS) & Contribution By GFCF & Private Consumption, pp (RHS)

Source: BMI, General Statistics Office. (e = estimates, f = BMI forecasts)

Signs Of Improvement

Despite the lack of progress with regards to banking sector reforms and efforts to ease lending conditions

(credit growth is estimated to have expanded by around 9% in 2013, well under the State Bank of Vietnam's

initial target of 12%), the economy appears to be holding up well. Not only are we witnessing more

evidence of a sustained pick-up in production activity and employment in the manufacturing sector (see

'Strong PMI Reading Reinforces Outlook On Growth', November 5 2013), but we also expect foreign direct

investment (FDI) inflows into the export sector to accelerate as the economic recovery gathers pace over the

coming quarters.

Private Sector Investment To Drive Recovery

According to figures published by GSO, FDI-related exports made up an estimated 67% of the country's

total exports for the first 11 months of the year. Thus, although increased FDI inflows could potentially

result in a temporary deterioration in the country's trade and current account dynamics due to a burst of



capital goods imports in the near term, we believe that this is a long-term positive for the economy.

Furthermore, we view FDI inflows as a crucial source of economic growth over the coming quarters given

that the Vietnamese government is struggling to unlock domestic lending. We forecast real gross fixed

capital formation (GFCF) growth to come in at around 10% in 2014, contributing around 2.7 percentage

points (pp) to our real GDP growth forecast of 5.9%.

Expenditure Breakdown

Private Consumption: We expect private consumption to grow at a relatively resilient pace of 6.5% in

2014. However, we note that the risk of further bankruptcies among SMEs could potentially lead to

widespread job losses, especially in export-driven sectors. Uncertainties over the outlook for employment

could, in turn, prompt households to cut back on spending.

Gross Fixed Capital Formation: We foresee a pickup in private sector investment growth in 2014, partly

led by increased foreign direct investment inflows. We believe lending rates will gradually ease over the

coming months as the effect of rate cuts in 2013 by the SBV begins to kick in. We are also seeing evidence

that credit conditions are improving. Accordingly, we expect gross fixed capital formation growth to

accelerate substantially from 4.1% in 2013 to 10.0% in 2014.

Public Spending: We expect total public spending to remain relatively resilient in 2014, expanding at a

respectable pace of 6.5%. However, there is limited room for the government to increase spending further

owing to concerns over the need to finance a potential bailout of ailing state-owned commercial banks.

Net Exports: Net exports remain the biggest downside risk to our outlook for the Vietnamese economy,

although we expect external demand to pick up in 2014. Vietnam's trade account has fallen back into

deficits in recent months, but we see the case for a substantial pickup in external demand on the back of a

rebound in regional growth over the coming quarters. Accordingly, we still expect exports to expand at a

moderate pace of 5.6% in 2014.



Table: Vietnam - Economic Activity

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Nominal GDP,VNDbn 3 2,779,880.2 3,245,419.2 3,584,261.0 4,012,847.7 4,494,844.6 5,033,219.9 5,616,365.8 6,269,265.3

Nominal GDP,US$bn 3 134.6 155.6 170.6 195.1 221.1 249 280.8 316.6

Real GDPgrowth, %y-o-y 3 6.2 5.2 5.4 5.9 6.4 6.6 6.4 6.4

GDP per capita,US$ 3 1,497 1,713 1,860 2,108 2,368 2,643 2,957 3,309

Population, mn 4 89.9 90.8 91.7e 92.5 93.4 94.2 95 95.7

Industrialproduction, %y-o-y, ave 1,5 10.9 7.0 5.9 7.7 8.4 8.6 8.6 8.5

Unemployment,% of labourforce, eop 2,6 3.6 3.2 3.7e 3.5 3.5 3.6 3.5 3.5

Notes: e BMI estimates. f BMI forecasts. 1 at 1994 prices; 2 Urban Area Only. Sources: 3 Asian Development Bank,General Statistics Office; 4 World Bank/UN/BMI; 5 General Statistics Office; 6 General Statistics Office/BMI.



Industry Risk Reward Ratings

Asia Risk/Reward Ratings

BMI View: Markets with high consumer spending ability stand out in BMI's Consumer Electronics Risk/

Reward Ratings, as the ability to upgrade to a new generation release is key to maintaining a market's

buoyancy. The next most important markets are those with large populations that can offer huge sales

opportunities, although replacement rates are much slower. All markets have benefited from the ever

greater connectivity that new devices demand and the greater awareness of new developments in

technology that drive consumer purchases.

As we have extended our forecasts out to 2018, the impact of the five-year average growth has moved

certain markets around in our forecasts. The top two markets moved closer together, with Singapore within

touching distance of the top spot, while Thailand moved closer to the middle of the table, leapfrogging

Indonesia and India, owing to a more positive outlook for the market. Increasing levels of connectivity

across the region are supporting the growing demand for connected electronics devices.

Australia holds on to the top spot in our ratings with its large population allowing it to stay ahead of

Singapore, although the gap between the two countries is just 0.4 points. As new products are launched

across the consumer electronics market, such as high definition (HD) TVs and smartphones, there is a core

group of consumers keen to have the latest device, with Singaporeans among the highest spenders in the

region. High spending power allows consumers in both markets to upgrade their products regularly, even

before the end of a product's useful life.

Device manufacturers are keen to gain access to these countries as well as the other top markets, Hong

Kong and Taiwan, for their wealthy populations, technological literacy, strong supporting infrastructure

(such as data networks) and, in the majority of cases, the stability of political and economic

institutions. Hong Kong, for example, is similar to Singapore in size and affluence, but has a slightly larger

consumer electronics market owing to purchases made by visitors from the Chinese mainland. While the

relationship with China boosts market value, Hong Kong continues to score below Singapore due to its

exposure to China's growth, which continues to cool. Taiwan is held back by an ageing population that is

likely to have slower demand for electronics.

China's score and position is unchanged this quarter despite the risks of its slowing economy. Local

manufacturers are helping to maintain the strong growth in consumer electronics demands, encouraging

growth to continue despite the slowdown in consumer spending power. Rapidly growing PC ownership is



key to the market's continued strong position in the region. While China benefits from a large population,

economic and political pressures weigh on its potential to improve its position in our table.

Two of the world's largest electronics manufacturers, Samsung Electronics and LG Electronics, are based

in South Korea. Furthermore, the country's telecoms networks are regularly upgraded and are among the

most advanced globally. However, the country's small population holds it behind China. BMI believes

South Korea retains strong potential for moving up our ratings as consumers continue to demonstrate a large

appetite for new products and devices.

Malaysia's position in the middle of the table marks a sharp difference in scores between the top half and

those at the bottom. The country is unlikely to overtake the more developed markets ranked above it, but

positive developments such as government policy promoting the adoption of ICT across many sectors offer

upside potential to Malaysia's scores. Consumer spending ability is weakened by a large proportion of the

population living in rural areas, limiting the market's expansion potential.

Thailand has overtaken Indonesia and India. The country's score rose 3.8 points, higher than any other, and

took advantage of small declines seen in Indonesia and India's scores. Our previous expectation that the

market was looking up for Indonesia has played out well, with 3G licences boosting demand for mobile

devices. We still expect private consumption to support consumer electronics demand, offering further

upside potential.

Indonesia and India both benefit from large populations and continued economic growth. Indonesia's

growth, which we expect to continue, is built on strong fundamentals. In the short term consumers are

highly price sensitive and generally still prefer low- to mid-range consumer electronics products, meaning

vendors still have to adopt flexible pricing strategies and accept lower margins compared to the most

lucrative markets in the region. India has many similar characteristics and its large population should push it

above many of its peers but we believe it will take a longer time to fulfil its potential compared to China.

The Philippines remains in 11th place with potential to improve its position in the medium term through

strong remittance inflows. However, the short-term outlook is weak. Increasing inflation as well as the

impact from slowing Chinese and Japanese economies weighs on the outlook for remittances.

Vietnam and Pakistan retain their places at the bottom of our ratings. Vietnam's scores rose overall as

industry rewards improved on the back of our long term growth forecast seeing increasing opportunities.

Pakistan's position improved slightly, but remains markedly lower than Vietnam and its overall score is less



than half the scores at the top of the table, highlighting how far the country has to go to catch up with its

peers.

Table: Asia-Pacific Consumer Electronics Risk/Reward Ratings, Q214

Rewards Risks

CountryIndustryrewards

Countryrewards

Industryrisks

Countryrisks

Consumer electronicsrating Rank

PreviousRank

Australia 65.0 75.0 85.0 75.8 71.8 1 1

Singapore 60.0 72.5 85.0 89.8 71.4 2 2

Hong Kong 56.7 70.0 75.0 66.5 63.9 3 3

Taiwan 60.0 42.5 70.0 87.5 61.9 4 4

China 78.3 25.0 55.0 74.4 61.8 5 5

South Korea 55.0 40.0 70.0 84.4 58.4 6 6

Malaysia 58.3 30.0 70.0 76.7 56.1 7 7

Thailand 58.3 20.0 55.0 73.7 51.3 8 10

Indonesia 51.7 25.0 60.0 66.2 48.7 9 8

India 56.7 15.0 60.0 57.8 47.1 10 9

Philippines 40.0 30.0 70.0 69.4 46.4 11 11

Vietnam 53.4 15.0 50.0 63.9 45.5 12 12

Pakistan 31.7 15.0 40.0 46.5 31.3 13 13

Average 55.8 36.5 65.0 71.7 55.0 - -

Scores out of 100, with 100 the best. The Consumer Electronics (CE) Rating is the principal rating. It comprises two sub-ratings, Rewards and Risks, which have a 70% and 30% weighting respectively. In turn, the Rewards rating comprisesIndustry Rewards and Country Rewards, which have a 65% and 35% weighting and are based on growth/size of theconsumer electronics industry (Industry) and the broader economic/socio-demographic environment (Country). The Risksrating comprises Industry Risks and Country Risks, which have a 40% and 60% weighting and are based on a subjectiveevaluation of barriers to entry and the regulatory environment (Industry) and the industry's broader country risk exposure(Country), which is based on BMI's Country Risk Ratings. The ratings structure is aligned across all industries for whichBMI provides Risk/Reward Ratings. Source: BMI



Market Overview

BMI forecasts Vietnam's domestic consumer electronics devices market, defined to include computing

devices, mobile handsets, and video audio and gaming products, is forecast to increase by 9.7% in 2014 to a

value of US$5bn. Rising incomes provide the foundations for strong medium-term performance, with a

CAGR of 6.9% forecast for 2014-2018, with total market value forecast to reach US$6.9bn in 2018, the end

of our five-year forecast. The country's south east region contributes significantly to the retail sales of

consumer electronics goods. Ho Chi Minh City's retail market is growing rapidly amid increasing foreign

investment and rising personal income.

Computers

Table: Computers Demand, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Domestic Computer Hardware Sales (US$mn) 1,143 1,294 1,487 1,692 1,893 2,113 2,363 2,631

PC Sales Revenues (US$mn) 1,020 1,166 1,353 1,539 1,727 1,927 2,155 2,400

PC Shipments ('000) 1,980 2,231 2,799 3,369 3,990 4,489 5,045 5,633

- Desktop shipments ('000) 650 708 792 883 904 936 970 981

- Notebook shipments ('000) 1,208 1,267 1,369 1,498 1,723 1,901 1,959 2,072

- Tablets shipments ('000) 122 256 638 988 1,363 1,652 2,116 2,580


BMI forecasts computer hardware sales will increase by 13.8% in 2014 to a value of US$1.69bn. We

expect a deceleration from growth of 14.9% in 2013 as a result of a maturing market and slower growth in

tablet volumes, but affordable notebooks and low-cost tablets from Chinese OEMs will continue to drive

market development. There is however a sizeable grey market, but since 2012 the government has tightened

up on this, introducing new restrictions on the import of used PCs and tablets for 'R&D' purposes.

The continued run of strong economic performance into 2014 will be supportive of increased spending on

hardware. Vendors are able to tap into demand from first-time buyers as incomes rise, while greater

consumer confidence is a boon for the upgrade market.

This will extend the trend from 2013 when market data from IDC show total sales of 500,000 units in Q113,

an increase of 13.1% y-o-y. Meanwhile, local retail chain Vien Thong A stated that demand strengthened



further in mid-2013, with back to school purchases booming as purchasing power rises in Vietnam. Other

retailers such as Dienmay.com, Phong Vu, Hoan Long and Nguyen Kim also reported positive growth in

PC sales. The segment has also been boosted by retailers partnering with HSBC, VietinBank, ANZ and

Sacombank to launch interest-free payment plans.

Government spending has remained supportive of the IT hardware market through initiatives in sectors such

as education and healthcare. It is also providing credit programs to raise household PC penetration in rural

areas, which is estimated to still be below 10%, compared with 50% in higher income urban areas. The most

potential being in rural areas where penetration is lower. However, for the time being Hanoi and Ho Chi

Minh City are understood to account for about 85% of notebook sales.

While improved access to credit is a short-term factor boosting sales, a longer-term trend is the spread of

network infrastructure, including fixed and wireless broadband, which is boosting demand for devices for

productivity and content consumption. Telecoms operators such as Viettel are also emerging as significant

distribution channels for notebooks as vendors seek tie-ups.



Form Factors

There is considerable potential for vendors to tap

into the first-time buyer market in Vietnam as PC

ownership is still relatively limited. The latest data

from the regulator, the MIC show a base of 5.5mn

installed PCs at the end of 2011, equal to individual

penetration rate of 6.1%. Household PC penetration

data also reflects the low level of PC ownership in

Vietnam, at 16% in 2011, and is estimated to be

around 20% for the country as a whole by 2013.

Given these low penetration rates there is a sizeable

opportunity for vendors in terms of the first-time

buyer market. However, with GDP per capita

estimated at US$1,859 in 2013 and forecast to reach

US$3,309 by 2018, the mass market is geared

towards the value end of the spectrum.

With a large number of first-time buyers, consumer

choice in terms of form factors is uncertain. While

productivity devices such as desktops and notebooks

will remain popular for education and enterprise

purchasers, the availability of cheap tablets from

China could see large numbers of consumers move

straight to tablets - and have little or no experience

with more traditional form factors. There is,

however, an opportunity for hybrid notebook devices

to capture share by offering the mobility advantages

of tablets while also meeting the broader

functionality required for a sole household device.

In 2013 sales in the retail market continued to

increase in the desktop, notebook and tablet

segments. Tablet growth is to be expected, coming

Industry Trends - PC Market

2011-2018


Vietnam PC Installed Base

2008-2011

Source: MIC



from a low base and considering the increased availability of low-cost devices from OEMs. However, the

desktop and notebook market is also faring well, with IDC data for 2013 showing 20% y-o-y unit growth in

desktop shipments.

There could be a boost to the desktop market from Windows upgrades in 2014 and 2015 as Microsoft

support for Windows XP is withdrawn from 2014. However, the extent to which consumers replace

desktops rather than shifting to notebooks and tablets is uncertain. Windows XP still accounted for 45.7%

of Vietnamese PC browsing traffic in February 2014, according to data from Statcounter, illustrating the

size of the potential upgrade market.

However, two factors limit the potential boost to desktop sales. First is the competition from mobile

computing, as consumers and enterprises will likely shift towards greater usage of notebooks and tablets

when upgrading. A second factor is the prevalence of pirated software in Vietnam, meaning the loss of

Microsoft support is less of a push factor.

Meanwhile, the latest data from retailers up to August 2013 indicates demand for notebooks remains strong,

with consumers opting for notebooks in the VND8-10mn range, particularly university students requiring

more advanced functionality. However, they also reported that demand for low cost VND3-5mn tablets was

strong.

We believe low PC penetration is the key to continued growth momentum, but migrations to Microsoft's

Windows 8 operating system are also boosting sales. In 2012 retailers claimed many businesses and

consumers were waiting for the October release of the new OS before investing in an upgrade. The final

months of 2012 saw the release of Windows 8 RT tablets from Acer, Asus and other vendors, priced at

about US$600. However these tablets proved unsuccessful in the face of stiff competition from low priced

Chinese tablet imports, predominantly running Google's Android OS. Local press reports have stated that

the low-price tablets are selling well and being pushed by dealers who are able to secure high margins on

the devices and still undercut international vendors.



Despite being a global leader in the tablet market,

Apple - unsurprisingly given its premium price

orientation - has had limited success in Vietnam

where its devices are not affordable for the vast

majority of the population. However, the

proliferation of affordable tablets running Android

and the entry to the market of vendors producing

Windows 8 devices is already seeing tablet sales

increase rapidly. In early 2013, reports of an influx

of own-brand Chinese made tablets indicate growth

at the low value end, but we also expect price

competition between international vendors to boost

sales of mid-range tablets in Vietnam.

A victim of the surge in tablet sales will be the

notebook market - especially netbooks. Netbooks

saw a steep decline in popularity in 2011, with a

number of leading vendors, such as former netbook

segment leader Sony, withdrawing models from the market. Netbooks initially suffered under competition

from lower priced notebooks, however tablets are now squeezing them further.

With tablets making gains at the low end of the market the notebook category is becoming a primarily mid-

range device category in Vietnam as vendors are unable to compete against own brand Chinese tablets on

price. Although notebook sales are being cannibalised by tablets, with PC penetration low in Vietnam, a

large number of first time buyers are still opting for the functionality of notebooks. This has helped sustain

unit growth, in contrast to developed markets where consumers are more likely to opt of tablets as

supplementary devices to their existing desktops and notebooks.

The release of Windows 8/8.1 has also spurred the creation of hybrid devices, which had little impact in

2013 in Vietnam as early examples are priced as premium products. However, price competition will reduce

the cost to consumers and hybrids are set to be a growth area in 2014. Windows has a traditional strength in

productivity use cases and software, with the OS being central to the enterprise market and Microsoft's

Office Suite ubiquitous.

APAC PC Penetration (%)

2011

Source: MIC, World Economic Forum, Global Information

Technology Report 2013



There is therefore an opportunity for vendors to leverage this strength over rival iOS and Android devices

by designing tablets with strong productivity functionality, alongside the passive media consumption

features. Early examples have been hybrid devices such as Microsoft's own Surface (RT & Pro), Hewlett-

Packard's Envy, Lenovo Miix 2 (8 inch), Lenovo IdeaPad Yoga 2 Pro, Nokia Lumia 2520, Lenovo

ThinkPad Yoga and Dell Venue 11 Pro.

Although design innovation has some way to go and prices of hybrids will need to decline, the multi-use

device has scope to capture a share of the tablet market by offering a stronger value proposition to

consumers while not compromising on user experience. Such devices, along with ultra-slim notebooks are

already regaining share of sales from tablets in more developed Asia markets in H113, for instance in South

Korea, and we believe the same phenomenon could affect Vietnam as prices decline over the medium term.

Another device category that is evolving is the ultrabook - a category of slim-line, high-spec devices with

long battery life that use Intel processors. Initial uptake after launch in 2012 was slow due to the high price

of devices, meaning limited applicability in a low income market such as Vietnam. In 2012 brands such as

HP, Asus, Acer, Sony, Lenovo and Samsung launched ultrabooks in Vietnam. However, they failed to see

success in terms of unit sales due to high prices. The local press reported that prices of low-end ultrabooks

declined in early 2013, from about VND15mn in 2012 to VND10mn which could see unit sales grow. Local

producer CMC has moved into the ultrabook market in November 2012 with low-end models. Mid-range

ultrabooks are reported to be retailing for VND20-30mn while premium models are priced over VND30mn.

The cheaper models are using lower power Intel i3 chips rather than i5 and i7 chips. Even after these price

cuts, ultrabooks will be significantly more expensive than low-end tablets.

Vendor Developments

The Vietnamese PC market is surprisingly competitive, with most of the major laptop vendor players

having below 10% local market share. Other multinational vendors, including Dell, Toshiba and Samsung,

have enjoyed strong growth in the market. Samsung is considered a threat as it aims to leverage its

distribution network and strong brand recognition from the smartphone and TV market into a 10% share of

the Vietnamese notebook PC market.

In 2013, vendors are hoping upgrades to PC devices based on Microsoft's new Windows 8 operating

system will spur a new cycle of procurements. Q412 saw the release of a number of tablets based on

Windows 8 on the Vietnamese market. Acer released two Windows 8 tablets, the Inconia Tab W700 and



W511, while fellow Taiwanese leader Asus introduced its Asus Vivo Tab. The devices were not cheap, with

prices for the products being set at more than US$600.

Volumes have benefited from retailers cutting prices and cooperating with banks to offer credit to boost

sales in mid-2013. For instance Dienmay.com cut prices for notebooks from Dell, Sony and HP, as well as

enabling consumers to test and return or exchange products within 10 days. Nguyen Kim cut prices on HP,

Toshiba, Acer, Asus and Sony notebooks, as well as offering free accessories worth up to VND2mn. The

most important strategy for boosting sales of products from international vendors has been cooperation with

banks such as HSBC, VietinBank, ANZ and Sacombank to make interest-free credit available.

As already noted, Asus has benefited from efforts to strengthen its distribution channel. In 2011 Asus

launched a new partnership with local company FPT Distribution, which has a nationwide network of 400

dealers. FPT, a member of FPT Trading Group, will distribute Asus products, with Asus planning to

introduce the full range of its new products in Vietnam during Q211. FTP also distributes a portfolio of

other leading PC brands, including Dell, Lenovo and Acer. Asus, which first entered the Vietnamese market

only three years ago, is also focusing on service as a competitive differentiator. FTP will provide warranty

services for Asus laptops at its four new service centres in Hanoi, Ho Chi Minh City, Danang and Can Tho.

Asus opened service centres across Vietnam in 2011.

While foreign vendors dominate sales of notebook, local manufacturers have a strong position in the, albeit

declining, desktop market. Vietnam's top five computer companies, as selected by the Ho Chi Minh City

Computer Association in 2011, were FTP, CMS, Robo, Viettronics Tan Binh and the Khai Tri

Technology Trading Co. The total turnover of these top five companies was around VND1tn in 2011 (US

$48.1mn), down 25% from the previous year.

In November 2012 local press reported dealers were pushing cheap tablets from China as a result of the

margins they could generate on the devices. It has been reported that wholesale dealers are able to sell the

tablets for double the market price in China in Vietnam. Examples include the Hipad Mid A13 and Ondan

V971, as well as other own-brand Chinese manufacturers such as Teclast and Ampe - as well as counterfeits

of foreign products.

As in many other markets, telecoms carriers have also emerged as a significant channel option for PC

vendors. Dell has launched a partnership with Viettel, which will distribute Dell PCs. Viettel has a

substantial presence in rural areas, which have big PC market growth potential, as PC penetration is



currently low. Dell has also partnered with local retail leader The Gioi Di Dong to sell online and through

the company's 40 retail outlets.

AV Devices

Table: AV Demand, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Domestic AV Devices sales (US$mn) 738 889 1,046 1,157 1,286 1,415 1,543 1,672

- Video applications (US$mn) 646 774 934 1,025 1,140 1,256 1,371 1,487

LCD & Plasma TV Sets (US$mn) 363 447 533 607 691 780 881 981


BMI forecasts Vietnam's AV market expand by

10.6% to US$1.2bn in 2014. The market is expected

to grow at a CAGR of 7.6% 2014-2018 to a value of

US$1.7bn in 2018, driven by growing affordability

due to steep import tariff cuts as well as rising

incomes and more flexible consumer financing.

However, growth will decelerate through the

forecast as a result of rising penetration, particularly

in the flat-screen TV market, and cannibalisation of

digital camera demand as smartphone ownership

proliferates. Video applications account for more

than 70% of the total market and are expected to

grow to US$1.5bn by 2018.

TV Market

The overall TV set market reported strong growth in

2013, with revenues growth coming from flat-panel upgrades. The market was boosted by price erosion due

to increased competition from Chinese OEMs, particularly in the LED segment, as the market expanded

into lesser developed areas and access to financing improved,

AV Demand (US$mn)

2011-2018




Although the market has matured, TV sets adapted for local conditions will continue to be of use to

vendors. Some regions of Vietnam still suffer from poor infrastructure conditions, such as frequent power

losses, or weak signal strengths. This has led to some vendors offering TV sets with features such as

rechargeable battery TV sets, and ones with audio-signal boosters.

In 2013, sales of AV devices, such as flat-panel TV sets, continued to grow robustly. The main driver of AV

sales continued to be the transition from CRT to digital sets, while LED sets reported a particularly strong

upwards demand trajectory in 2013, with triple digit sales compared with 2012. By the end of the year, it is

estimated that LED accounted for around two-thirds of Vietnam flat-panel TV sales. Lower prices were a

major driver of higher LED set sales, with the average retail price of the devices down by around one-third

in 2012, compared with 2011. The average price of LED sets as of H113 was a little above US$500, while

the average of LCD sets also continued to decline, although from a lower base.

Prices of flat-panel sets have fallen and there is now a broad range of prices from VND3mn to VND70mn.

Despite the depreciation of the Vietnamese dong 2011-2013, which led to increases in the prices of some

other imported consumer electronics products, electronics retailers were offering have continued to offer

discounts of as much as 50% on their products. The discounts were explained in part by a drive to reduce

stocks after heavy stockpiling of electronics goods by stores ahead of the year-end sales season. In addition,

increased production and assembly in Vietnam had helped to lessen the impact of the devaluation.

Looking ahead, TV upgrades should be spurred by Vietnam's gradual progress towards digital TV

broadcasting, which is supposed be available nationally by 2020. In 2010, the government published a draft

plan for the digital migration, which proposed an incremental launch. The draft plan set out a number of key

targets, including assistance for people to buy digital TV equipment. Funding of about VND1.3trn was been

proposed.

TV set sales will be driven by the government's commitment, under the Vietnam TV digitalisation plan

through to 2020, to assist low-income families to buy set-top boxes to decode digital TV signals. It is

thought that around 10% of Vietnam's 20mn households could be eligible for the scheme. The government

has pledged to help these households to buy decoders, with the prices of these devices starting at around

VND500,000, according to government figures. The budget for the subsidy will come from the public

telecommunications fund.

Meanwhile, starting from 2014, manufacturers will be required to integrate digital terrestrial signal

receiving functions in their TV sets sold in the Vietnamese market. The requirement will apply to TV sets



with a display of over 32 inches from April 1 2014, and to sets with a display smaller than 14 inches from

April 1 2015. The regulation will not apply to TVs with a CRT display.

A proliferation of new model releases, resulting in greater consumer choice, has also been a major factor

driving sales of LED and other flat-screen TV models. As of December 2012, more than 250 different LED

models were available on the Vietnamese market, compared with around 150 in 2011. LED sets therefore

appear on course to dominate flat-screen TV set sales in the near future, at the expense of regular LCD and

Plasma sets.

Next Generation TV Sets

With falling prices and growing penetration of flat-

panel TV sets, vendors have looked to product

innovation such as 3D TV sets and internet-enabled

Smart TV sets to drive growth. The incorporation of

social media into TV broadcasting content has also

got under way in Vietnam. Tweeting about TV

shows has become particularly popular. Smart TV

sets appeal to consumers who increasingly demand

that TV sets should be entertainment devices able to

deliver smart contents and services such as games

and real time information, rather than merely

broadcasting. It is relatively inexpensive for vendors

to add internet capabilities to a digital TV set,

meaning that by the end of BMI's five-year forecast

period to 2018, a majority of new TV models are

likely to be internet-enabled.

The introduction of more HD sets is expected to fuel the preference for larger screen sizes. In 2013 vendors

are introduced Ultra-HD and OLED models, which offer a higher-quality resolution, but which are too

expensive currently for most consumers.

3D TV sets, although still a relatively small segment of the market, are expected to be a growth area as a

wider range of products are imported. There is a niche market for expensive 3D TV sets from tier-one

vendors. Retailers such as Audio Hoang Hai have said that high-end 3D TV sets from vendors such as

Sony had been selling well at their stores, even outside the traditional holiday peak shopping seasons.

LCD And Flat-Screen TV SetDemand (US$mn)

2011-2018




However, with the cheapest models retailing at about VND20mn, while high-end products are priced in the

VND100mn plus range, 3D TV sets are currently beyond the reach of the mass market.

Games Consoles

The games console market is undeveloped in Vietnam, as a result of the high cost of consoles, with gaming

devices accounting for just 3% of total AV demand.. There is a higher weighting of PC and online gamers,

and casual tablet/smartphone gamers in Vietnam compared to developed markets. Vietnam's rapidly

growing gaming market is being driven by rising internet and PC penetration, and the country's youthful

demographics. According to market research firm Pearl Research, top online games in Vietnam can attract

up to 200,000 gamers.

However, the arrival of next-generation consoles from Microsoft (Xbox One) and Sony (Playstation 4) will

give a small boost to sales, particularly in the context of strong income growth in recent years. BMI

believes there is a greater opportunity for growth through lower cost devices running Android, particularly

in a market accustomed to gaming on low-cost Android smartphones and tablets.

Following the easing of console restrictions in China in 2013/2014 we expect a flurry of new lower cost

consoles to become available. Early examples include the January 2014 announcement by Huawei of the

Tron Android powered games console with a Tegra 4 processor with 2GB and 16GB/32GB of internal

storage, and 1080p and 4K output. The device is to be launched in China in April 2014 for around US$150,

before a wider roll-out, with the low cost of this and similar consoles giving scope for deepening the

console market in Vietnam.

Vendor Developments

Foreign brands dominate the video and audio segments in Vietnam and multinational vendors continue to

regard Vietnam as a growth opportunity, with LG and Sony launching new high-end flat-screen TV sets.

Samsung has a strong position in the Vietnamese LCD TV set market and in H112, the company opened a

second brand shop in Ho Chi Minh City. The South Korean giant has a market share of around one-third,

10% ahead of the nearest competitor. One of Samsung's major Vietnam market distribution partners, Pico,

announced that it planned to increase its share of Vietnam's LCD TV market to 10% in 2011. The company

has particular strength in the capital, Hanoi, where it planned to raise share to 30%, from 27%. Pico also

partners other major consumer electronics vendors such as LG, Sony, Panasonic and Sharp.



Meanwhile, Toshiba said that it was aiming for a 20% share of the ASEAN TV sets market in 2012,

including Vietnam. Toshiba is hoping to build this with product innovation and new product releases to

enhance its local market presence. Toshiba forecast Vietnam market revenues growth across all product

lines of 20%. The company has already introduced a broad line-up of LCD TVs in Vietnam, which it

believes is a key regional opportunity.

Fellow Japanese consumer electronics giant Sony has introduced new collections of its Bravia TV sets for

the Vietnamese market, including its LX900 model that uses 3D technology. Meanwhile, domestic brands,

mainly of TV sets, are weak and account for only about 10% of the market. The inability of the domestic

electronics industry to supply components makes it difficult for companies such as Darling, Belco, Favi

and SAM to compete on level terms. Belco's 21-inch flat-screen TVs are priced at more thanVND2mn per

unit, which is 5-25% higher than comparable products from Samsung, LG and TCL. The same goes for

other local vendors, such as East Asia Company and Chau Electronics, whose TVs, DVD players and

other products are also unable to compete with those of leading foreign vendors.

The cut in import tariffs from January 2009 placed additional pressure on local companies. Some local

manufactures may have to diversify into other product areas in order to survive. Tan Binh Electronics

Company plans to move away from production of TV sets to other products such as refrigerators, or to

provide electronics manufacturing services. Nguyen Vinh, a loudspeaker producer, has said it will cease

production altogether and shift to being a distributor of foreign-made products.

In another sign of the times, Sony announced that it would end its TV JV with Tan Binh-based company

Viettronics and switch solely to importing. Sony and other Japanese and South Korean companies started to

assemble in Vietnam in the 1990s when import taxes were about 50%; however, most applied only for 10-

year licences with the expectation that tariffs would fall after Vietnam's entry into ASEAN. In the event,

these manufactures continued operations in Vietnam for a couple of years longer than expected due to some

uncertainty about the prospects for imports.



Mobile Handsets

Table: Mobile Handsets Demand, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Mobile comms subscribers (mn) 127.3 135.7 143.1 147.4 150.4 153.4 156.5 159.6

3G subscribers (mn) 8.4 16.8 21.9 25.4 27.9 29.3 30.8 32.3

Mobile penetration (%) 141.6 149.4 156.1 159.3 161.0 162.9 164.8 166.8

Domestic Handset Sales (US$mn) 1,380 1,506 1,983 2,106 2,284 2,432 2,579 2,627

o/w Smartphone Sales (US$mn) 803 1,396 1,706 1,984 2,163 2,239 2,372 2,410

Domestic Handset Sales (mn) 30.1 32.2 33.9 34.9 35.6 36.3 37.1 37.8

o/w Smartphone Sales (mn) 2.4 9.7 17.0 22.4 25.7 27.1 28.9 30.5

e/f = BMI estimate/forecast. Source: BMI, operators.

Summary

The Vietnamese mobile handset market recorded strong growth in 2013 as smartphone sales soared with the

wider availability of a wide range of low-and-mid range Android devices from local and international

vendors. The handset market will remain the most dynamic segment of the Vietnamese consumer

electronics market in 2014, with smartphone penetration expected to continue rising, but growth of market

value is expected to slow to a CAGR of 4.5% 2014-2018.

BMI expects growth in unit and value terms will slow from 2014 as a result of rising penetration in the

smartphone category and the limits on further price declines to deepen the market to low income consumer

groups. Price competition in the Android ecosystem has already subjected vendors to margin pressures in

2013, and we believe there is reduced scope for further price cuts, meaning the lowest income groups are

expected to continue relying on significantly cheaper 2G handsets and featurephones.



Mobile Subscription Trends

The Vietnamese mobile market is well developed with an estimated penetration rate of 156.1% at the end of

2013 - equal to a total of 143.1mn subscriptions. The total includes multiple SIM holders, inactive

subscriptions and dedicated data services, but even after factoring this in the market is mature with deep

penetration of handset ownership among the population.

As a result there is little scope for mobile operators to target first-time subscribers over the medium term to

2018. BMI forecasts a subscription CAGR of 1.6% 2014-2018, with the market expected to reach 159.6mn

by 2018. However, even this meagre growth will provide little opportunity to handset vendors, with the

majority of net additions expected to be for dedicated mobile broadband services.

The wireless data service market is expected to perform much better than overall subscriptions as consumer

adopt 3G and 4G LTE data services for smartphones or dedicated data devices such as tablets, notebooks

and TVs. BMI forecasts wireless data subscriptions will increase at a CAGR of 5% 2014-2018, reaching

32.3mn in 2018. There will be no launch of 4G services in Vietnam until at least 2015, as the Ministry of

Information and Communications (MIC) wants the quality of the 3G network to improve first - presenting

vendors with a possible upgrade push factor in the smartphone market.

The Vietnamese mobile service market is highly competitive with five operators competing aggressively

across the country - and increasingly using handset and smartphones as a means of securing net additions.

The leading operator continues to be state-backed Viettel with over 40% market share at the end of 2013. It

remains ahead of MobiFone and Vinaphone, both owned by the Vietnam Posts and Telecommunications

Group (VNPT), which had shares of around 30% and 20% respectively at the end of 2013. The rest of the

market is shared by Vietnamobile and Gmobile.



Handset Market

The Vietnamese mobile handset market has already

passed through the period of rapid unit growth

associated with expansion of mobile services. BMI

forecasts limited handset unit growth over the

medium term, but as mobile penetration grows and

first-time buyer opportunities are diminished the

contribution of replacement and upgrade sales will

also increase. We forecast total handset unit CAGR

of 1.6% 2014-2018, with unit sales expected to rise

from 33.9mn in 2013 to 37.8mn in 2018.

Although unit growth opportunities are diminished

in Vietnam vendors will still be able to capitalise on

a buoyant upgrade/replacement market. The number

of Vietnamese owning two or more handsets, and

buying a replacement handset at least once a year, if

not more often, has increased steadily. Meanwhile,

the availability of lower cost smartphones in 2012

and 2013 has been a major push factor for upgrades,

and resulted in higher average selling price (ASP)

for the market as a whole. As a result of this trend

BMI forecasts total handset market value will grow

faster than units, at a CAGR of 4.5% 2014-2018 to

reach US$2.6bn in 2018.

The boom in smartphone volumes will be the

headline development in the Vietnamese handset

market, but the 2G/featurephone market will remain

significant in a country where the market is

dominated by demand for low-cost phones. Sales in

this segment will be served expanding local

Mobile Subscription Outlook

2011-2018

Mobile Subscribers, '000 (LHS)3G & 4G subscribers, '000 (LHS)Mobile Subscribers/100 Inhabitants (RHS)

2011

2012

2013

e

2014

f

2015

f

2016

f

2017

f

2018

f

0

100,000

200,000

140

150

160

170

e/f - BMI estimate/forecast. Source: BMI, operators, VNTA.

Mobile Handsets Demand

2011-2018




production of low-cost handsets. Nearly half of all

handsets sold in Vietnam retail for less than one million dong, with about 70% costing less than VND2mn.

Even among imported phones, handsets retailing for less than US$50 were estimated to account for about

72% of total imported handsets in 2011.

Demand for mobile phones is growing fastest in provincial cities beyond the major hubs of Hanoi and Ho

Chi Minh City, and it is outside major rural areas where we expect 2G/featurephones will prove most stable

where low incomes make smartphone ownership prohibitively expensive. The investment in network

expansion and improvement had a positive impact on service quality and coverage in rural areas, where

three-quarters of Vietnamese live. However, Ho-Chi Minh City and Hanoi still comprise more than 40% of

total handsets sold, with Ho-Chi Minh City accounting for more than 25% of sales.

There has been an increasing focus by foreign and local vendors on customisation of handsets for the local

market. One popular feature is water-resistance, with a variety of water-resistant products released by major

brands, or imported across the border from China. High-end water-resistant products retail for as much as

16mn dong, although less expensive products are also available in the 4mn dong or less range. .

Smartphones

Smartphone sales boomed in Vietnam in 2013, with sales up 76% to an estimated 17mn over the course of

the year. Volumes were boosted by the wider availability of lower cost Android devices from both

international and local vendors. BMI forecasts smartphone unit growth will slow in 2014, but remain robust

at 31.8% as the market increases to 22.4mn units. The addressable market is expected to grow at a CAGR of

6.4% 2014-2018 to a total of 30.5mn units in 2018.

The smartphone market will grow significantly slower in value terms as a result of volume growth coming

primarily from lower income groups purchasing low-and-mid range smartphones. BMI estimates

smartphone market value increased 22.2% in 2013 to US$1.7bn, and we forecast a CAGR of 4%

2014-2018, with total sales expected to reach US$2.4bn in 2018.

The growth in smartphone sales has been fuelled by the popularity of Android-based models, which

continued to be popular in 2012, and according to vendor estimates, accounted for above 90% of

smartphone sales in 2013. Strong performances from Samsung Electronics and other vendors helped to

maintain Android's positive trajectory. Although the operating system landscape is becoming increasingly

competitive, we expect Android to retain its top position over our forecast period. Meanwhile rival



operating systems, such as Windows Phones, have not performed so well, due to a more restricted choice of

affordable handsets.

In 2013 consumers continued to opt for lower cost smartphones. Smartphones with a value of VND1.5-3mn

have grown in popularity and according to the Nguyen Kim distribution chain accounted for 60% of

smartphone units sold and 20% of the market by value in mid-2013. Lenovo, OPPO, Alcatel, Sharp and

Huawei have all released low-cost models to tap demand in Vietnam, challenging domestic brands such as

Q-Mobile and F-Mobile. Q-Mobile, a newcomer to the mobile market, marketed its first 3G phones in

2010, with most prices in the VND2mn range. The company said it has ambitions to become the leading 3G

phone retailer in Vietnam.

Reports from local retailers indicated that Nokia retained leadership in the Vietnam handset market,

although it is coming under increasing pressure from global rival Samsung, as well as from local vendors

and Chinese OEMs. Nokia was attributed a 35% share, narrowly ahead of Samsung with 33% in Q113, with

their respective mid-range devices Lumia 520 and Galaxy Y the leading devices. An increasing share of

sales are however going to local vendors such as F-Mobile that target the bottom of the market, as well as

Chinese vendors including Lenovo and Huawei that are increasing their presence in the VND3-6mn range.

Retailer data from mid-2013 indicated that local vendors releasing devices at VND1.5-3.5mn price bracket

accounted for 20% of the market by value, but 60% of unit sales.

In contrast to many other global markets, where its share has declined more sharply, Nokia retains a lead of

Vietnam mobile handset sales. However, the company's share has declined from around 50% in Q112 to

35% in Q113. Nokia has defended its share based on the popularity of its Lumia 520, dual-SIM models, and

a range of lower-cost phones such as the 101 and C2-00.

The continued success in Vietnam, and the low-cost advantages offered, has prompted Nokia to increase

investment in Vietnam. In Q413 Nokia opened its first US$320mn production facility in Vietnam to

produce feature phones.

Samsung was the leader in the Vietnam smartphone segment in H113 and ranking second in Q113 in terms

of overall handset sales. Replicating its global success, Samsung took top spot in Vietnam smartphone sales

in the first 2012, ahead of Taiwanese vendor HTC and fellow Korean vendor LG, while Nokia ranked

fourth. According to data from the Saigon Times Daily News, the highest-ranked Vietnamese brand was the

fifth-placed Q-Smart, a subsidiary of Vietnamese firm Q-Mobile.



Samsung has also targeted the low-cost dual core segment, with models that retail at price points of less

than seven million dong. However, Apple is expected to fight back in June 2013, with the Vietnamese

release of its iPhone 5S, seen as a direct rival to the Galaxy S4. Meanwhile other top-tier vendors have also

brought their flagship products to Vietnam, including Nokia's Windows-based Lumia smartphones, LG's

Optimus, and HTC's One. Along with HTC's Desire smartphone series, the One has sold well in Vietnam,

and helped to elevate HTC in the local smartphone market rankings in 2012, at the expense of LG and other

vendors.

Data from research firm GfK show Samsung retained its dominance in the Vietnam smartphone market in

2013, with a share of 43.1%, well ahead of Nokia with 19.8%. Apple was in third place. Samsung's market

share fell slightly compared with its position in November 2012, when according to GfK it managed a

48.4% share, while Nokia's share rose slightly over the same period.

The smartphone explosion has given foreign vendors an advantage in this segment. Several local vendors

such as Q-Mobile and FTP have launched Android smartphones, at price-points below VND5mn (US$238)

per unit. However, these prices are not really competitive, given the perceived superiority of foreign brands.

Leading Chinese vendors are continuing their march on the Vietnamese market. Shenzhen-based mobile

communications giant Huawei set a target of selling 400,000 smartphones in the Vietnamese market in

2013. Huawei is already the largest telecoms equipment vendor in Vietnam and handsets only contribute

about 25% of its local revenues. However, in 2013 Huawei expected to expand through opening shops and

maintenance centres in Vietnam to complement official distribution channels. Huawei will also launch its

Acend D2 smartphone which runs on Android 4.1.

The growing acceptance of Vietnamese brands has attracted large number of local vendors into the market.

Q-Mobile was estimated to have taken about a 20% share of local handset sales in 2010, and it ambitiously

announced a target of overtaking Nokia in 2011 to achieve a 50% market share. The company said it would

expand in the 3G and smartphone segments, while also rolling out low-cost phones in partnership with

Indian companies.

In addition to the Q-Mobile brand owned by ABTel, there is also the F-Mobile brand of FPT, VinaPone's

Avio, Viettel's Zik 3G, and FPT's F-Mobile. The Vu Huy Hoang company owns three Vietnamese brands:

Mobell, Cayon and K-Touch., CMC launched its Bluefone cellphone and has ambitions to become another

leading Vietnamese mobile phone brand. Leading electronics vendor Hanel launched handset products, as

did HiPT and CMC while Digiworld launched Mobistar phones.



Meanwhile, network operators have also entered the market with their own-brand handsets. These include

S-Fone's Eco handset, VinaPhone's Alo and Viettel's VT handset brand. The main driver of this trend has

been price, with about 70% of phones in the market now priced below VND2mn.



Competitive Landscape

International Companies

Table: Samsung Electronics

Address Yen Phong 2 Industrial Zone, Long Chau Ward, Yen Phong District, Bac NinhProvince, Vietnam

Company History Samsung Electronics is part of the South Korea-based industrial conglomerate theSamsung Group and is one of the leading consumer electronics brands in the world. Aswell as selling devices in Vietnam Samsung also has a major production base in thecountry spread across several facilities with total staff of 25,000. In 2009 it opened a US$700mn production facility near Hanoi, with capacity of 100mn units per year and staff of10,000. The facility is largely for export, with estimated revenues of US$5bn a year(approximately 6% of Vietnam's total export revenues). In 2012 Samsung began plans fora significant expansion of production in Vietnam as it shifts away from China to avoidrising labour costs, with wages in Vietnam as little as a third of those in China. Samsungwill also benefit from no tax for the first four years of operation, and half the full rate forthe following 12 years. The new US$2bn facility will produce 40% of SamsungElectronics global smartphones by 2015, about 120mn handsets, when full capacity isreached.

Services And Products As well as being an important production base Vietnam is also a market in whichSamsung Electronics has seen great success. Samsung operates in the PC market, withits share of the tablet market only exceeded by Apple. However, despite the favourablereviews for its notebook products it remains a smaller player trailing the global leaders. Ithas been the major beneficiary in the Google Android ecosystem of the smartphone andtablet boom in recent years, but it has also seen success in the low and middle incomesegment with a huge featurephone range. However, in 2013 Samsung's range of tabletsand smartphones have faced increasing competitive pressure from low priced rivals fromChina that is putting pressure on units and margins.

Company Developments ■ In January 2014 Samsung was among the mobile handset vendors to enact price cutsto mid-range devices in the run up to the New Year's holiday.

■ In February 2014 Samsung launched a Vietnam traffic map app for smartphones andtablets giving users real-time traffic information and points of traffic congestion.

■ In September 2013 Samsung announced its KNOX security platform was available forconsumers (although not for all smartphone models). The KNOX platform is ahardware-software solution that allows selected applications to run within a containeraway from the rest of the device data.

■ In September 2013 Samsung Electronics announced plans to build a US$1.2bn chipand components plant in the northern province of Thai Nguyen to supply its tablet andsmartphone production facilities. The plant will be operational by August 2014.

Source: BMI.



Table: Intel

Address Office Hanoi Tung Shing Square 2 Ngo Quyen St., Suite 1106 Hoan Kiem District,Hanoi Vietnam

Company History Intel opened its first office in Vietnam in 1997 and the office continues to be responsiblefor developing and deploying strategies to support OEMs and developers in the localmarket. In 2006 Intel announced it was going to invest US$1bn in an assembly testfacility in Vietnam near Ho Chi Minh City, which began operation in 2010. The plant inVietnam is one of seven Intel production facilities globally, as it chose Vietnam due totechnical proficiency, low-cost of labour and proximity to large and important markets.Intel was the first major foreign investor in Vietnam's technology sector, and the firstinvestment in the semiconductor industry. Intel also works with Vietnam's Ministry ofEducation and Training and Vietnamese universities to improve educational programs,as well as providing scholarships to students.

Services And Products Intel provides support to local partners through its head office in Ho Chi Minh city but itsmore significant presence in the country is through its production facility. The facility inVietnam is the largest assembly test facility in Intel's global network to produce chipsets.In July 2010 the facility began using the latest chipsets for mobile computing productssuch as laptops, tablets and smartphones. It uses the flip chip ball grid array bindingtechnology for mobile processors. Intel states that its 500,000 square foot facility inVietnam is now the model for larger and more efficient assembly facilities it will buildaround the world.

Company Developments ■ In December 2013 the transfer of capital from Intel Asia Holding to another Intelcompany for a cost of US$100mn was cited as an example of tax loopholes utilised byforeign companies. The Ho Chi Minh City People's Committee asked the Ministry ofFinance to implement new mechanisms and policies to manage such sharepurchasing and franchising more effectively.

■ A prime ministerial decision in November 2013 stated that producers of electronicsproducts will be responsible for treating or recycling electronic waste from January 12015. Intel is ahead of many of its partners, with its e-waste already treated by locallyowned Ngoc Tan Kien Company.

Source: BMI.



Table: LG Electronics

Address 14th Floor, Hanoi Central Office Blog. 44B Ly Thuong Kiet, Hanoi

Company History LG Electronics Vietnam was founded in 2007 and the market is a key sales andproduction centre for the South Korean group. In 2013 it was reported that LG wasbuilding a new production facility in Vietnam, which will absorb its two existingfacilities in Vietnam, which are capable of producing 750,000 TV sets, 400,000 mobilehandsets, 150,000 air conditioners, 500,000 washing machines and 500,000 vacuumcleaners annually. LG stated that the new facility in Haiphong City will for the majorityproduce products for the local market, however there will also be some exports as LGtakes advantage of the low-cost of skilled labour in Vietnam.

Services And Products LG is a leading vendor in the smartphone market, with over 12mn shipments globallyin Q313, making it the fourth largest vendor. It also produces featurephones andhandsets, with total Q313 shipments of around 18mn globally. It is throughfeaturephones and traditional handsets that LG has captured share in the pricesensitive consumer electronics market in Vietnam. LG is also competing in the tabletmarket with devices running Google's Android OS, although its share is far below thatachieved in the smartphone market. Meanwhile, LG is estimated to be the secondlargest TV vendor globally, with a share of around 15%, behind only Samsung. It alsoproduces a range of home appliances (refrigerators, dishwashers, washing machinesand microwaves) and solar panels. LG Electronics also has a large production base inVietnam and will produce TV sets, telematics devices, smartphones, tablets, washingmachines and refrigerators at its new facility.

Company Developments ■ In September 2013 LG Electronics announced it would invest US$1.5bn to expandits production facilities in Vietnam. The production capacity will be located inHaiphong City, 100km east of Hanoi, and be built over the course of 10 years. Theinvestment will also see the relocation of LG's two existing plants in Vietnam.Investment will take place in two phases, with the first reaching US$500mn from2013-2017, and the second from 2018-2024 comprising US$1bn. The Vietnamesegovernment has provided tax incentives for the investment.

Source: BMI.



Local Companies

Table: Q-Mobile

Address No.20, Le Duc Tho Street,My Dinh, Tu Liem, Hanoi

Company History

Q-Mobile was founded in 2003 and began operations as a distributor for brandsincluding Siemens and Siemens-BenQ. It is owned by An Binh Tel. It later became adistributor for Popod and HTC in 2007. It was in May 2008 that Q-Mobile became adomestic handset brand, before launching the smartphone brand Q-Smart in August2012. It has grown to be the largest domestic handset brand, and is looking to expandinto the handset markets of Southeast Asia, Eastern Europe, South America and SouthAfrica. It has three domestic offices, with over 350,000 employees.

Services And Products

Q-Mobile's core business is a producer and distributor of mobile devices as originaldesign manufactures. It owns two brands: Q-Mobile for traditional handsets; and Q-Smart, the smartphone brand. It has strong domestic retail and distribution networks,with Viettel, Mobile World and Vien Thong A - with its products available from 1,400outlets. Q-Mobile estimates it has a 14% share of the domestic handset market. Q-Mobile sells a range of featurephones with locally specific features such as dual-SIM, aswell as low-cost smartphones running Google's Android OS.

Company Developments

■ Q-Mobile announced it was aiming to take a top three position in the Vietnamesesmartphone market in 2013 through its Q-Smart brand. It launched Androidsmartphones, at price-points below VND5mn (US$238) per unit in order to achievethis goal with a low-cost strategy.

■ In December 2013 Q-Mobile launched the Q-Smart Dream, its latest smartphone thatseeks to hit the middle of the market with a price of VND6.6mn. It also taps into thedemand for phablets (larger screen sizes) with a 5-inch screen.

Source: BMI.



Demographic Forecast

Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is

the total population of a country a key variable in consumer demand, but an understanding of the

demographic profile is key to understanding issues ranging from future population trends to productivity

growth and government spending requirements.

The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the

population between 2013 and 2050 and the total population between 1990 and 2050, as well as life

expectancy. The tables show key datapoints from all of these charts, in addition to important metrics

including the dependency ratio and the urban/rural split.

Population Pyramid

2013 (LHS) And 2013 Versus 2050 (RHS)

Source: World Bank, UN, BMI



Population Indicators

Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050

Source: World Bank, UN, BMI

Table: Vietnam's Population By Age Group, 1990-2020 ('000)

1990 1995 2000 2005 2010 2013e 2015f 2020f

Total 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057

0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575

5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968

10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147

15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726

20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802

25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837

30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680

35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940

40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127

45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589

50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926

55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330

60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444

65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104

70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695



Vietnam's Population By Age Group, 1990-2020 ('000) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f

75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160

80-84 years 430 536 597 732 815 919 964 900

85-89 years 224 261 336 385 483 517 546 654

90-94 years 71 108 132 177 210 245 268 306

95-99 years 16 25 41 53 74 83 89 115

100+ years 2 4 7 12 17 21 24 30

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

Table: Vietnam's Population By Age Group, 1990-2020 (% of total)

1990 1995 2000 2005 2010 2013e 2015f 2020f

0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77

5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18

10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36

15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93

20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01

25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11

30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94

35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18

40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34

45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79

50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11

55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49

60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58

65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20

70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75

75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19

80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93

85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67

90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32

95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12



Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued

1990 1995 2000 2005 2010 2013e 2015f 2020f

100+ years 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03


Table: Vietnam's Key Population Ratios, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f

Dependent ratio, % of total working age 75.8 71.0 61.3 50.8 42.9 41.4 41.3 41.9

Dependent population, total, '000 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655

Active population, % of total 56.9 58.5 62.0 66.3 70.0 70.7 70.8 70.5

Active population, total, '000 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402

Youth population, % of total working age 65.8 60.9 50.9 40.9 33.6 32.1 31.7 30.2

Youth population, total, '000 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690

Pensionable population, % of total working age 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6

Pensionable population, total, '000 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965


Table: Vietnam's Rural And Urban Population, 1990-2020

1990 1995 2000 2005 2010 2013e 2015f 2020f

Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9

Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1

Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771

Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286




Methodology

Industry Forecast Methodology

BMI's industry forecasts are generated using the best-practice techniques of time-series and causal/

econometric modelling. The precise form of model we use varies from industry to industry, in each case

being determined, as per standard practice, by the prevailing features of the industry data being examined.

Common to our analysis of every industry is the use of vector autoregressions, which allow us to forecast a

variable using more than the variable's own history as explanatory information. For example, when

forecasting oil prices, we can include information about oil consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own

history is often the most desirable method of analysis. Such single-variable analysis is called univariate

modelling. We use the most common and versatile form of univariate models: the autoregressive moving

average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality

is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for

analysis and forecasting.

We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of

objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-

linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for

example poor weather conditions impeding agricultural output, dummy variables are used to determine the

level of impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model

according to various different criteria and tests, including but not exclusive to:

■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account;

■ Testing the directional movement and magnitude of coefficients;

■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);

■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.



BMI uses the selected best model to perform forecasting.

Human intervention plays a necessary and desirable role in all our industry forecasting. Experience,

expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous

data, turning points and seasonal features where a purely mechanical forecasting process would not.

Sector-Specific Methodology

Consumer Electronics forecasting is complicated due to the fragmented nature of the market, with little

transparency of vendor data and low apparent agreement between many sets of figures in terms of market

definition, base and methodology. Individual variables taken into account in creating each forecast include:

■ Economic context, and GDP and demographic trends;

■ Technological developments, and diffusion rates;

■ Underlying demand trends;

■ Telecommunications market developments

■ Projected GDP share of industry;

■ Maturity of market structure;

■ Regulatory developments and government policies;

■ Exogenous events.

Estimates for each industry segment are calculated using government statistics, where available, and our

own macroeconomic and demographic forecasts.

Sources

Sources used in electronics reports include national ministries, statistics agencies, ICT regulatory bodies,

national industry associations, officially released company results and figures and international and national

industry news.



Risk/Reward Rating Methodology

BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of

doing business and the industry-specific opportunities and limitations for potential investors in a given

market.The RRR system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state

characteristics that may inhibit its development. This is further broken down into two sub categories:

■ Industry Rewards (this is an industry-specific category taking into account current industry size andgrowth forecasts, the openness of market to new entrants and foreign investors, to provide an overallscore for potential returns for investors)

• Country Rewards (this is a country-specific category, and the score factors in favourable political andeconomic conditions for the industry)

Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic

profile that call into question the likelihood of anticipated returns being realised over the assessed time

period. This is further broken down into two sub categories:

■ Industry Risks (this is an industry-specific category whose score covers potential operational risks toinvestors, regulatory issues inhibiting the industry and the relative maturity of a market)

• Country Risks (this is a country-specific category in which political and economic instability,unfavourable legislation and a poor overall business environment are evaluated to provide an overallscore).

We take a weighted average, combining industry and country risks, or industry and country rewards. These

two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking

system for the risks and rewards of involvement in a specific industry in a particular country.

For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall

Risk/Reward Rating a weighted average of the total score. Importantly, as most of the countries and

territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly

basis. This ensures that the rating draws on the latest information and data across our broad range of

sources, and the expertise of our analysts.



BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is

fourfold:

■ First, we identify factors (in terms of current industry/country trends and forecast industry/countrygrowth) that represent opportunities to would-be investors;

■ Second, we identify country and industry-specific traits that pose or could pose operational risks towould-be investors;

■ Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/trends to avoid subjectivity;

Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the

aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-

leading, comparative insight into the opportunities/risks for companies across the globe.

Sector-Specific Methodology

In constructing these ratings, the following indicators have been used. Almost all indicators are objectively

based.



Table: Consumer Electronics Risk/Reward Ratings Indicators

Indicator

Rewards

Industry Rewards

Consumer electronics sales, US$mn

Sales per capita, US$

ICT development

Growth, %

Country Rewards

Urban/rural split

Young population

Richest 10%, % of total

GDP per capita, US$

Risks

Industry Risks

Barriers to entry

Government consumer electronics policies

Country Risks

Short-term economic risk

Real PC growth, volatility

Short-term financial risk

Trade bureaucracy

Institutions

Source: BMI

Weighting

Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal

weight. The following weighting has been adopted:



Table: Weighting Of Indicators

Indicator Weighting (%)

Rewards 70, of which

Industry Rewards 65, of which

Consumer electronics sales, US$mn 50

Sales per capita, US$ 16

ICT development 16

Growth, % 16

Country Rewards 35, of which

Urban/rural split 25

Young population 25

Richest 10%, % of total 25

GDP per capita, US$ 25

Risks 30, of which

Industry Risks 40, of which

Barriers to entry 10

Government consumer electronics policies 10

Country Risks 60, of which

Short-term economic risk 10

Real PC growth, volatility 10

Short-term financial risk 10

Trade bureaucracy 10

Institutions 10

Source: BMI



BMI Vietnam Consumer Electronics Report Q2 2014

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