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The rise of China's smartphone makers

Matt Hamblen | Jan. 2, 2015
10 of the top 17 smartphone manufacturers now come from China.

Growth potential for Chinese smartphone vendors
There's little doubt that smartphones made in China will affect the global market for years. Their biggest impact today is in helping drive down prices, but whether Chinese manufacturers can sustain lower prices and still make profits in the future remains to be seen.

Chinese manufacturers typically operate in the range of 2% to 4% profitability, but the question is how long that will be enough. "At a certain point, I'd think they'd like to be more profitable," Hyers said.

In recent years, Apple, Samsung and LG have "captured the lion's share of the smartphone industry's profits, while the rest of the vendors are just scraping by," Hyers said. "That leaves the Chinese vendors best-positioned to continue to make it on 2% to 4% profits."

Also, while economists talk of China's overall economic slowdown going into 2015, that nation's economy is still expected to grow by about 7% in 2015, down from as much as 15% in recent years. And even at 7%, China's economic growth rate is still well above those of the U.S. and other countries, and the decline is seen as having little impact on the ability of Chinese smartphone makers to produce devices, analysts said.

Some of the biggest growth markets for smartphones will continue to be in India, Indonesia and Thailand, partly as a result of sales of Chinese and Samsung smartphones. Those countries are expected to see 55% smartphone growth in all of 2014 compared with 2013, IDC said. Meanwhile, smartphone growth in all of North America will be much lower, in the 25% range. Central Europe, the Middle East and Africa are expected to see the highest smartphone growth, at 78% over the prior year, partly due to the influence of the low-cost Chinese smartphone ecosystem, IDC said.

China itself will see 11% growth in 2014 for all smartphones, down from recent years. That slowdown has helped spur a desire by Chinese vendors to expand to other markets.

And now, the losers
Who are the potential losers in a scenario that includes continued steady performance by Chinese smartphone makers? HTC, based in Taiwan, might be the most vulnerable, but other companies under threat include a range of international smartphone makers such as Microsoft, with the Lumia brand it acquired when it bought Nokia, as well as BlackBerry, among others.

Even Samsung saw a big drop in third-quarter profits, much of it due to the impact of cheaper Chinese smartphones. Samsung's global smartphone market share dropped to less than 25% in the third quarter, down from nearly 30% a year earlier, Hyers noted. "Part of that [Samsung] drop is due to the midtier market shrinking and the more competitive threat in the entry-level market," he said.


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