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China’s 400 little-known phone makers take on Samsung, Apple

Eric Pfanner (via NYT/ AFR) | July 8, 2013
Huawei, a Chinese company with revenue of $US35.8 billion last year, has big ambitions for international markets.

China’s 400 little-known phone makers take on Samsung, Apple
In June, Huawei introduced a phone called the Ascend P6 in London.  Photo: Reuters

Last year, when China quietly passed the United States as the largest smartphone market, the dynamics of global phone making shifted.

Until then, the global market for smartphones had been defined by the rivalry between Apple and Samsung Electronics. They built expensive phones as must-have products for affluent consumers in wealthy countries.

Now more phones are being designed for consumers in emerging markets, who are expected to account for most of the growth in smartphone sales in the future. That presents an opportunity for the major Chinese phone makers, like Huawei, Lenovo, ZTE, Coolpad, Xiaomi and Oppo.

While Samsung is the biggest smartphone vendor in China, with a market share of 20 per cent in the first quarter of 2013, according to the research firm Canalys, several Chinese companies have surged past Apple, which holds 8 per cent.

These include internationally recognised names like Huawei, known for network switching gear, and Lenovo, known for ThinkPad laptops, which moved into the No. 3 and No. 4 positions in the first quarter. But there are nearly 400 other little-known makers in China, where two-thirds of the world's smartphones are made. One of these, Coolpad, leapfrogged from seventh place a year ago to second in the first three months of this year, with a 10 per cent share.

"There's a long tail of local competitors that are going to push Apple and Samsung harder and harder," said Neil Mawston, an analyst at Strategy Analytics. "There's a million and one people trying to eat their lunch."

Chinese phone shoppers are concerned about price because most phones are sold without subsidies from network operators. In the United States and Europe, the wide use of subsidies masks what consumers pay for phones.

The Chinese also switch phones far more often than their counterparts in the West - generally after about six months, analysts say, compared with every two years or so in developed economies. Fickle customers mean market share shifts swiftly, and the fortunes of companies rise and fall almost as fast.

Apple's and Samsung's position in the high end of the market allows them to collect most of the profit from smartphone sales in China, analysts say. Apple sells 55 per cent of the phones priced at $US450 or more, with Samsung accounting for 40 per cent, according to Sanford C. Bernstein, a brokerage firm. Apple's iPhone 5 costs about $US780, while Samsung's Galaxy S4 costs about $US850.

But growth in this segment is slowing. Analysts at Bernstein expect sales of smartphones $US450 and up in China to rise to 296 million units this year, from 235 million in 2012. But the total will flatten out at around 300 million a year, the firm said.

 

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