Smartphone producers in China are closing in on market leaders Samsung and Apple. This is based on a large home market with above-average growth. Potential is even higher in India and Latin America.
Today, the spotlight is on the two largest mobile telephone manufactures – Samsung and Apple – with their latest Galaxy and iPhone models. These smartphones are likely to sell in the millions, but this cannot satisfy the two companies. According to figures from the International Data Corporation (IDC) and Strategy Analytics, both companies are losing ground. According to Strategy Analytics, the South Korean manufacturer’s market share fell to 25.2 percent in the second quarter of 2014 as opposed to the 32.6 percent it held in the same period of the year prior. Apple’s market share dropped 1.5 percent to 11.9 percent. Samsung is evidently coming under pressure from manufacturers in China. Not only are their Android devices priced lower; they are generally also head-to-head in terms of quality. Strategy Analytics ranks Huawei, Lenovo, and Xiaomi – three companies from China – among the top five in the sector; IDC lists LG as number five, ahead of Xiaomi.
This upsurge of Chinese companies is based on the strong home market of the largest national economy. Several companies have also managed to evolve from being manufacturers of non-branded devices (white label products) to being brands. However, Michael Mak – analyst for the Asia and Pacific region at Credit Suisse – anticipates that the two market leaders will not be so quickly dethroned. “In the first quarter of the year, the combined sales of Huawei and Lenovo reached 60 percent of Apple’s share and 29 percent of Samsung’s.”
Chinese manufacturers – which include other ambitious companies such as ZTE, Oppo, and Coolpad – must increasingly position themselves on the international market, since demand in their home market has declined after a period of triple-digit growth rates. Credit Suisse’s global technology team of analysts projects that the market will nevertheless increase by 26 percent next year. Huawei and the others are thus increasingly expanding in other emerging markets, where the mobile internet has yet to take off. Lenovo also appears to be pursuing expansion in the developed markets. Lenovo – which recently became the largest manufacturer of PCs – has taken over Motorola’s mobile phone division from Google and is thus obtaining new distribution channels. However, Lenovo does not wish to grow at the expense of profitability, as indicated by CEO Yang Yuanqing when taking a jab at domestic competitors while speaking to agency Reuters: “There are local players who only chase growth so they can attract investors in the capital markets, which is not a healthy model.”
He is likely referring to Xiaomi, a rapidly growing startup that is also being called the Apple of China. The three-year-old company is following in the footsteps of its US role model; CEO Lei Jun is even copying the appearance of Steve Jobs, from his clothing to his figures of speech. In contrast to the iPhone, Xiaomi models are priced low. Michael Mak states, “I think the company is on the right track by expanding first in the emerging markets, where clients are price-sensitive and quality is less important.”
GSMA – the association for the mobile services provider sector – projects that by 2020, there will be 9 billion active mobile phones, two thirds of which will be smartphones. Nowadays, only one out of every three of the world’s mobile phones has internet access. The Indian market has great potential, since the crossover from simple mobiles to smartphones began later there and the market is experiencing triple-digit growth rates. Whereas only one in ten mobiles in India was a smartphone in 2013, this amount had already reached 29 percent in March 2014. Samsung is also the leader in this market, but if all categories of mobile phones are considered, Indian manufacturer Micromax sold more devices than the South Korean company during the second quarter for the first time ever.
The Indian market is focused on budget devices; the vast majority of models cost less than 200 dollars. Google just released a 100-dollar smartphone for this market, but one of Indian manufacturer Intex’s models is priced even lower. It costs roughly 35 dollars and runs on the Firefox OS operating system, which was produced for mobile phones in emerging markets by the California-based browser developer. Huawei and ZTE also market mobile phones that use Firefox OS, but Credit Suisse analyst Michael Mak does not see China as the primary target market: “Chinese users are upgrading their smartphones. The share of mobile phones that cost less than 50 dollars could drop to below 20 percent by 2015.”
The market in Latin America is also interesting for manufacturers, since smartphones are already more present there than in India. Uwe Neumann – analyst and telecommunications expert at Credit Suisse – anticipates a growth spurt for the current year: “For South America, we project smartphone penetration to increase from last year’s 68 percent to 89 percent in 2014. This means an increase from 130 million to 172 million smartphone clients.” According to eMarketer, roughly half of the South American market is divided between two manufacturers: Blackberry, with a sharp downward trajectory, and Samsung, with an upward trend. Nokia and Apple are more or less tied for third.
The crossover to the 4G LTE data network will be a critical driving factor for the mobile telephone market. Uwe Neumann states: “Since global market penetration is relatively high for smartphones, 4G LTE will be an increasingly important driving force for the smartphone replacement market. The 4G LTE network offers access to the mobile broadband internet and provides the user with a noticeable difference in download speed as compared to 3G.”
Most high-end 4G devices are currently made by Samsung and Apple. Lower-priced chipsets for 4G wireless will enable Chinese manufacturers to offer inexpensive models for emerging markets. In order for a smartphone purchase to make sense for clients, telecommunications companies must first promote the development of 4G mobile networks and offer attractive data plans for price-sensitive markets.-Credit Suisse: Global Trends
