A Blog by Jonathan Low


Aug 28, 2013

Apple is Losing Chinese Smartphone Market Share to Cheaper Models

The imagery looks familiar: an individual dressed in jeans and black shirt alone on stage in front of a ginormous photo of a new phone.

But that's not Steve, folks. Nor is it his successor or anyone else from Apple. That's a Chinese executive from a Chinese company touting a Chinese smartphone to a Chinese audience.

And besides what we might call the home-field advantage, there is the matter of price. As in cheaper. Much cheaper.

Apple's market share is sinking in China. Samsung's Android entries are the primary reason, but as the following article explains, a host of Chinese market entrants are also gaining share. The Chinese economy is cooling off. The legendary growth of the past few decades is tapering. The Chinese government has attempted to stimulate domestic consumption but Chinese consumers, just like their confreres the world over know how to count. And when to save. So the government's stimulus program has been disappointing to date. Apple may still be an iconic brand but the market for expensive smartphones may be plateauing. People can get the features and performance they need at a lower price point. Talk about your disruptive innovation. JL

Edmund Lococo reports in Business Week:

Apple Inc.’s share of China’s smartphone market was cut by almost half in the second quarter as consumers opted for lower-priced handsets from domestic suppliers such as Xiaomi Corp.
The Cupertino, California-based company’s smartphone shipments in China fell to 5 percent of the total in the second quarter from 9 percent a year earlier, Nicole Peng, the China research director for Canalys, said in phone interview today. That is Apple’s lowest market share since the fourth quarter of 2010, according to estimates from Canalys. Samsung Electronics Co. (005930) held the top spot with 18 percent share.
Chinese handset vendors are benefiting as carriers such as China Unicom (Hong Kong) Ltd. promote low-priced smartphones like Lenovo Group Ltd.’s A66 or ZTE Corp. (763)’s V790, both priced at 499 yuan ($82). Beijing-based Xiaomi’s shipments surpassed the iPhone by “a small margin” and moved to sixth place from eighth a year earlier.
“Apple is only focused on the high-end segment, and China’s smartphone market growth right now is coming from the mid- to low-end,” Peng said. “Apple doesn’t have any products in the mid- to low-end and that’s where Xiaomi has been building their brand awareness.”
Apple is missing out on the broadest segment of the market as it has yet to offer a device running the third-generation network of China Mobile Ltd. (941), the world’s largest carrier with 740 million subscribers. Each of the five biggest vendors in China has an agreement with China Mobile.

Samsung Share

Apple sells the iPhone 5 on its China website from 5,288 yuan. Xiaomi this month will offer a handset priced at 799 yuan.
“Apple is no longer the prestige handset that everybody is aspiring to,” said Shaun Rein, managing director of China Market Research Group in Shanghai. “The smartphone has become more of a commodity and Xiaomi is selling good hardware at a cheap price.”
Kitty Potter, a Beijing-based spokeswoman for Apple, didn’t immediately respond to a telephone call seeking comment.
Suwon, South Korea-based Samsung’s top share of China’s smartphone market in the second quarter was followed by Lenovo Group Ltd. (992) with 12 percent, Peng said. The rest of the top five included China Wireless Technologies Ltd.’s Coolpad; ZTE Corp. and Huawei Technologies Co., according to Peng.
Apple Chief Executive Officer Tim Cook last month met China Mobile chairman Xi Guohua for the second time this year in Beijing to discuss possible cooperation between the companies. Details of the talks weren’t disclosed.

Xiaomi Sales Target

Xiaomi will double handset sales to 15 million this year, from 7.2 million handsets last year, founder and Chief Executive Officer Lei Jun said in June. At the time, Lei said he was happy with “a small and beautiful company” and not focused on overtaking Apple in market share.
Apple will introduce a cheaper version of the iPhone to lure more cost-conscious shoppers, Gene Munster, an analyst at Piper Jaffray Cos., said last month. Cook said last month the company could win its share of price-conscious consumers by selling its older iPhone 4 model, while he didn’t rule out a cheaper iPhone.
While Apple still delivers a good user experience with its closely controlled ecosystem, that’s no longer enough to maintain share in China, said Sandy Shen, a Gartner Inc. analyst in Shanghai.
Apple’s “advantage is evaporating as competition inches in with better value for the money,” Shen said “If it does come up with a low-end model, that is a self-acknowledgement that Apple lacks innovation and has to compete with low-cost models in order to gain share.”


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