TCL International Holdings, a once dowdy Chinese television maker which became a market favourite when it moved into mobile handsets, discovered the cellular business was a double-edged sword yesterday when its stock plunged 9.67 per cent as a triple whammy of bad news relating to its mobile operations had investors reaching for their sell slips. The stock was badly bruised by a dour outlook from global handset leader Nokia, a high-profile analyst downgrade and the fallout from the spectacular fall from grace of Hong Kong-listed mobile battery maker BYD. Trading yesterday had the hallmarks of fund managers, many of whom had been enthusiastic on the stock, making a panicky exit. 'The selling pressure was pretty heavy. There were 12 orders selling over five million shares at $2.10. All the buying orders were from small investors,' said Simon Lam, research director at Christfund Securities. 'TCL's chart looks very awful, its prices hit one low after another. I think the downward momentum is yet to finish.' Nokia gave TCL shareholders several reasons to feel uneasy as it issued a cautious outlook on the first quarter of this year and said the average retail prices of its handsets had slipped 4 per cent last quarter. Analysts said Nokia had also signalled its intention to catch up with its biggest rival Motorola, the top foreign handset maker in China. The fear is that TCL, the top domestic maker with an 11 per cent market share, will lose out amid the intensifying competition. 'Nokia has been lagging behind Motorola in China's mobile handset market. If Nokia beefs up its effort in China, it is certain TCL will take an immediate hit,' said DBS Vickers analyst Wallace Cheung. The average selling price (ASP) of TCL's handsets could fall further and squeeze margins. 'In the fourth quarter, Nokia and Siemens' ASP declined by about 15 per cent year on year. It is likely handset ASPs will further decline by at least 10 per cent,' Mr Cheung said. BYD's loss of 27.77 per cent in the past two days has also given investors food for thought. BYD, which makes mobile-phone batteries, said it was moving into carmaking as it saw limited growth opportunities in its core business. 'The fact that BYD is moving into a new business signals that the old business is not growing as well as it used to, therefore the company needs to diversify,' said UBS Warburg analyst Joe Zhang. 'We've been cautious about the [handset] market. TCL, even though we think it is the best [among domestic handset makers], will still have to face a slower market.' Mr Zhang forecasts the hectic growth rate for China's handset sales will slow to 10 per cent this year, against 30 per cent in each of the past two years. TCL's earnings have been rising quite nicely. Its earnings per share for last year are expected to come in at 21 cents, according to a consensus estimate from Thomson First Call. This is expected to rise to 25 cents this year, putting the stock on just 8.4 times earnings. It is this kind of growth, led by handsets, which has given TCL's stock a big lift. Even with yesterday's losses, it is still up 208.82 per cent from a low of 68 cents in September 2001 as the handset story prettied up the picture for TCL along with the ending of a price war in its core TV business. Now the same competitive pressures and market saturation which make TVs a boring product line could be coming to haunt mobile phones. Salomon Smith Barney analyst Chong Ghee Peh downgraded TCL to 'underperform' on Thursday, warning that domestic handset competitors were turning the screws on TCL. 'TCL faces formidable and growing competition from its [mainland] peers. Currently, 49 mobile production licences have been issued by the Ministry of Information Industry. 'Other [mainland] brands are gaining market share and are outpacing TCL in product range expansion.' Among the new entrants is Ningbo Sanxing Aux which is diversifying from air-conditioner making. It is not just production but marketing where brand-leader TCL is under threat. For example, rival producer Nanjing Panda Electronics is spending US$13 million to book prime-time advertising slots on CCTV to promote its products. Mr Chong said on a trip to Shenzhen he found high-end handsets with colour screens on sale from TCL's biggest rival Ningbo Bird. But TCL has yet to get its colour-screen offerings to market. Not everyone is panicking about TCL. One fund manager said the competition fears were overplayed as handsets were 'not a commodity like petrochemicals'. 'If you have a choice between a no-brand [personal computer] and a Dell PC at the same price of course you would take the Dell,' she said. 'Foreigners may not realise it but TCL is a well recognised brand in China.' The handset jitters may just prove to be a buying opportunity. 'I think the share price move [yesterday] is just too much,' she said.