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Global players lose ground as Chinese smartphone market matures

The top five brands in the quarter were Huawei (华为), vivo, OPPO, Xiaomi (小米) and Apple, among which only Huawei and vivo achieved positive YoY growth.

Jan 3, 2019 by Yun Nie
Global players lose ground as Chinese smartphone market matures

The Chinese smartphone market has performed poorly in Q3 2018. In a first, both sales and shipments went down, according to online news aggregator Jiemian (界面).

According to Counterpoint Research, the Chinese smartphone vendors shipped a total of 386.8 million phones in the third quarter of 2018 - 3% down from the previous year. The overall sales of smartphones dropped drastically to 35 million, ending the quarter at 8% year-on-year (YoY) decline.

Nevertheless, experts maintained an optimistic market outlook. James Yan, Research Director of Counterpoint Research, said, “Considering that China is a mature market, the slowdown is natural. Equipped with technology innovations, the Chinese market in Q3 increased by 2% compared to the second quarter”. Global players’ hit

In Q3, home-grown companies pushed Samsung and Apple out of the top two in terms of market share. The top five brands in the quarter were Huawei (华为), vivo, OPPO, Xiaomi (小米) and Apple, among which only Huawei and vivo achieved positive YoY growth (See details in the chart below).

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According to IDC research, Samsung’s overall shipments in Q3 were down 13% YoY at 72 million. The sales of South Korean giant’s entry and mid-level segments nosedived. The flagship Galaxy Note9 couldn’t cover for Galaxy S9 and Galaxy S9 plus fiascos.

Meanwhile, iPhones sales plunged 17% YoY as iPhone XS and iPhone XS Max failed to attract Chinese customers due to premium prices. However, the biggest threat comes from local players, notably Huawei. The latter stood a cut above the rest in terms of sales and YoY growth rate at 23% market share in Q3. The shipments surged 33% YoY to 52 million as opposed to Apple’s 47 million shipments.

Xiaomi, Oppo and vivo reported a market share of 13%, 21%, and 21% respectively. The trio shipped 100 million smartphones combined as of September. The Chinese firms closed in on Apple and Samsung’s market share in emerging markets such as India and Indonesia.

Chinese smartphones accounted for 90% market share, while Samsung and Apple together captured 10%. The rise of the home-grown brands in the high-end market made a run on Samsung and Apple in China.

“New technologies, like artificial intelligence (AI)-powered processors, bezel-less displays, and dual cameras, have been applied to the lower-end products, but Samsung and Apple seem to slow in technology innovations. In 2019, Huawei, vivo, OPPO, Xiaomi will continue to dominate the Chinese domestic market,” said Chinese market observer Ding Shaojiang.

Patent wars

In 2018, the Chinese smartphone market witnessed intense patent battles among global smartphone behemoths. The Fuzhou Intermediate People's Court has banned the sale and import of various iPhone models in November after American semiconductor and telecommunications company Qualcomm indicted Apple for infringing on two of its patents in iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, iPhone 8, iPhone 8 Plus, and iPhone X. Qualcomm recently has won a preliminary injunction from a German court prohibiting the sales of many Apple products in the country.

“Apple keeps profiting from our intellectual property but rejects to compensate us. We will seek enforcement of the orders if Apple continues to breach the rules,” said Don Rosenberg, general counsel for Qualcomm. Meanwhile, Apple is planning to sue Qualcomm for playing dirty tricks. Apple announced in a statement: Qualcomm’s effort to forbid our smartphones is another despairing move by a firm whose unlawful practices are under investigation by regulators around the world.

Earlier, Huawei won a patent infringement lawsuit against Samsung. The South Korean phone maker was ordered to stop selling products that use Huawei’s patented technology.

“Large companies pin hopes on patents to strike their rivals. As 5G becomes commercialised, it is expected to fuel a new patent war in 2019,” said Ding.

Bottom of the barrel

The top five mobile phone manufacturers claimed 87% of Chinese market share in Q3, snuffing out competition from smaller players. The second-tier smartphone maker Gionee (金立), who owes a total of CNY 20.2 billion (USD 3 billion) to 648 suppliers, has filed for bankruptcy in December.

In Q2 2018, the firm’s shipments plunged. Gionee’s president Liu Lirong gambling away USD 1.4 billion at a casino in Saipan didn’t help matters either.

Last year, Gionee reported a net profit of CNY 760 million (USD 110.5 million). The Chinese company had a thriving business in both China and India.

On December 26, A Beijing court froze Smartisan’s China Merchant Bank account. Earlier this month, Luo Yonghao stepped down as the legal representative of Smartisan.

“The competition in 2018 is fierce, which challenges the growth of small brands. More second and third tier companies will quit the game in 2019,” said Li Huaibin, market analyst of IHS.

Expanding horizons

Transsion Holdings (传音) became the top smartphone maker in Africa last year. The firm’s three flagships brands - Tecno, Itel, and Infinix – had a combined market share of 38%, outperforming Samsung with 23% market share.

Transsion’s hyperlocal bet paid off big time. The firm works with research and development teams in Nigeria and Kenya.

Wiko Mobile, a joint smartphone venture owned by China’s Tinno Mobile Technology (天珑移动) and a local enterprise, has claimed to be the second largest smartphone brand in France since 2014. Wiko currently boasts a market share of 16.8% in the country, reported Jiemian. Tinno’s regional focus in design and development helped it scale heights in no time. The Chinese firm holds 95% of Wiko’s equity.

Furthermore, Chinese enterprises like Huawei and Xiaomi are riding the wave of internationalisation. Huawei has now increased presence in Europe, the Middle East, Africa, and India. Xiaomi, by comparison, has become one of the world’s fastest-growing handset brands this year, especially in Spain, Russia, and Europe.

Roadmap

China Telecom (中国电信), China Mobile (中国移动), and China Unicom (中国联通) will start rolling out 5G in the first half of 2019.

Chinese firms will also tap the phone chip market in 2019. Alibaba (阿里巴巴), Tencent (腾讯) etc are racing ahead on the back of new technologies including artificial intelligence (AI), AI-powered processors, quantum computing, bezel-less displays, and dual cameras.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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