China Taps a Growing Phone Market

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 percent in the first quarter of 2013, according to the research firm Canalys, several Chinese companies have surged past Apple, which holds 8 percent.

These include internationally recognized 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 percent 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 percent of the phones priced at $450 or more, with Samsung accounting for 40 percent, according to Sanford C. Bernstein, a brokerage firm. Apple’s iPhone 5 costs about $780, while Samsung’s Galaxy S4 costs about $850.

But growth in this segment is slowing. Analysts at Bernstein expect sales of smartphones $450 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.

By contrast, sales of phones priced at less than $200 are expected to surge to 400 million units this year, from 234 million last year, with a further jump to 685 million in 2015, the firm says. The low end is growing faster because prices of smartphones have fallen so much that hundreds of millions of Chinese consumers are now able to replace old-fashioned feature phones that lack mobile data capabilities.

“The question for Samsung and Apple is whether they are equipped to compete in the developing markets, especially China, where the growth is going to happen,” said Pete Cunningham, an analyst at Canalys.

Some of these phones are simply knockoffs of handsets from Samsung or Apple, often housed in cheap plastic shells or offering less memory, lower-resolution screens or inferior cameras. Last year, one Chinese brand, Goophone, introduced a clone of the iPhone 5 for $150, even before Apple released the iPhone 5 in China.

It bears a resemblance to Apple’s phone, but the Goophone i5 is different in an important respect — it runs on a version of Google’s Android software.

The challenge for the Chinese makers is to go global. Coolpad began selling its Quattro 4g in the United States through MetroPCS, a mobile network operator. It drew mixed reviews in the United States, but it sold for less than $100 under some promotions.

Article source: http://www.nytimes.com/2013/07/06/technology/chinas-emergence-as-largest-smartphone-market-changes-industry.html?partner=rss&emc=rss