China: The Next Smartphone Battleground
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to an estimate made by IDC, China is set to overtake the United States in 2012 for the largest smartphone market in the world. In 2011 the People’s Republic was home to 18.2% of smartphone users compared to the United States 21.3%. In 2012 IDC estimates the US will drop slightly to 20.6% and China will grow to 20.7%, not exactly an earth shattering difference between our two countries but it does point to the trend of a maturing smartphone market in the US and an expanding one in China. Gartner estimates that there were 472 million smartphones sold in 2011, up 58% from 2010. Of mobile customers in the United States 50.4% of them already own a smartphone as of 2011, according to Nielsen, thus going forward it will ever more be a battle for the non-western smartphone user.
This presents a challenge and an opportunity for the current giants of the smartphone world as well as the up and comers. Google’s (NASDAQ: GOOG) Android which hit 50% of US market share in February had 68% of the Chinese smartphone market share as of 2011 helped in large part by Chinese handset makers like ZTE who offer low cost Android phones. Though Android is currently the dominant operating system in China, far more dominant than they are in the US, there are several large competitors to Android coming down the pike.
One of the major sticking points that has been holding Apple’s (NASDAQ: AAPL) iPhone back somewhat is the fact that China Mobile (NYSE: CHL), the largest Chinese mobile carrier which has over 650 million customers, does not offer the iPhone. This in turn is partly because China Mobile runs its network on 3G technology that is currently not supported by the iPhone. However the iPhone is available on China Unicom and China Telecom, with 200 million and 130 million users respectively. The availability of the iPhone 4S at subsidized contract prices in China has seen the iPhone’s market share in China jump to 19% in 2012 according to Woori Investment & Securities.
Additionally Apple and China Mobile are in talks to bring an iPhone to China. To support this, China Mobile and Qualcomm had built a chipset that supported not only China Mobile’s proprietary 3G networks but also their 4G network, which is currently only available in 6 cities in China. China Mobile reportedly already has 15 million iPhones on its network which means that the users of these iPhones shelled out the full unsubsidized price to get an iPhone and they are getting by on 2G network speeds and Wifi. This speaks to the huge amount of pent up demand there for the iPhone. Should a deal to bring an iPhone to China Mobile get struck, the iPhone will eat away at Android's domination.
Microsoft (NASDAQ: MSFT) already thinks they are winning in China with Windows Phone. According to their COO for the China region Michael Van Der Bel, who is quoted in a Dutch magazine saying that Windows Phone has captured 7% of the Chinese market after only two months whereas Apple’s iPhone only has 6%, though Woori’s report has Apple at 19%. Regardless of where Apple is in relation to Windows Phone, Microsoft is pushing Windows Phone through their partnership with Nokia and they do have phones offered on China Mobile. Additionally recognizing the importance of the Chinese and Asian markets writ large, Microsoft is sending an additional R&D team of 2,500 to focus on the Asian market. Globally, Windows Phone is behind Linux in market share and Android is counted separately than Linux, according to IDC, so Microsoft has its work cut out for it. The Asian market could prove to be the base of Windows Phone’s success going forward.
On top of growing competition from both Apple’s iPhone and Microsoft’s Windows Phone, Android faces some competition to its dominance form another source. This source is Baidu (NASDAQ: BIDU) the Chinese search engine and all around Google competitor. Baidu has announced that they are creating a forked version of Android at their Technology Innovation Conference in 2011. Yi, as it is called, will ship with all Baidu services, not Google’s, and Dell as well as others are reportedly manufacturing devices to run Baidu’s Yi.
Alibaba also has a Linux based mobile operating system that just passed one million units sold, Alyun OS, can even run Android apps in a virtual machine and integrates with Alibaba’s cloud service AliCloud. There are a number of other domestically built mobile operating systems, some forked from Android, some running android apps virtually, some completely different than Android, but all are competing with Android's dominance and potentially slowing the growth of iOS devices and Windows Phone.
With close to a billion mobile users online now in China and hundreds of millions more throughout Asia, the platforms that emerge as top mobile platforms could be a large scale success off of China alone. At the moment it is clear that Android dominates the smartphone market but with local competitors, the iPhone supposedly launching on the largest domestic mobile operator, and Windows Phone showing much better early performance than it has here in the US, the number two and number three spots after Android are still up for grabs and could be make or break for a platform like Windows Phone.
ded004 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.