Cheap Is Beautiful in China’s Smartphone Market
Peter is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
By 2016 sub-$200 smartphones will be 25% of global sales from 5% of global sales today. This low-end segment is being built right now mostly in China. By 2016 20% of China’s smartphone sales will be at the sub-$200 price point. While players like HTC and Motorola Mobility, now owned by Google (NASDAQ: GOOG), dominated this segment in the past, Chinese manufacturers like ZTE, Huawei and, most notably, Lenovo have released phones priced below ¥1600.
Lenovo, whose business growth has been nothing short of astounding in all of its segments in the face of slowing PC and laptop sales, by June had acquired 10% market share along with Huawei to put them ahead of Apple (NASDAQ: AAPL) and the iPhone. After the huge rush of iPhone 4s sales in the first quarter, sales in China dropped 37% in the 2nd quarter.
For a company like Nokia (NYSE: NOK) who previously enjoyed huge markets share for all of their phones in the time before the invasion of Apple and Samsung they have a huge problem as their current lineup of Lumia phones running Microsoft’s (NASDAQ: MSFT) Windows Phone 7.5 are not quite cheap enough to compete with the low-end Android phones and not full-featured enough to play with the big boys.
It will have to be the next generation of Lumias that will have any chance of propelling Nokia back near the top of the sales charts and grab more than the 6% they currently have split between Symbian and Windows Phone.
While Apple is walking away with most of the money in building smartphones, their co-dependent rival Samsung is doing very well in their own right. 17% market share in China and carrying the torch for Android. It has been their relationship as a supplier for Apple that has helped springboard them to their current level of competency; allowing them to attack up and down the price point spectrum.
Apple’s nurturing of Samsung in many ways has raised them up to truly become a competitor in terms of unit volume shipped but not margins, yet. Apple has done this with others like Foxconn and Flextronics. Lenovo is also built similarly to Foxconn but is now employing a ‘protect and attack’ strategy which is working very well across a number of product lines.
With Samsung also committing to Windows Phone 8 they can then bring their very strong brand across product lines and be in a position to play king-maker if Microsoft’s mobile OS becomes the next big thing. The odds are long but if anyone can help the situation it is two of the best phone designers and manufacturing brands in the world, Nokia and Samsung.
For others, like HTC, the road will be tougher. Faced with falling revenues and market share, HTC will have to hope that they can create a real buzz with their rumored high-end Windows Phone, the Zenith, which is likely to be announced near the same time as Nokia World, September 5th/6th. The Zenith is rumored to have a quad-core Qualcomm Snapdragon S4, which is far ahead of the anything else on the market and has the potential to be the killer, ‘must-have’ phone that Windows has been waiting for.
But the battle for market share, and hence secondary revenue, which is where the real money is, will be fought in the space that Apple dare not tread for fear of cheapening their brand. Here price and app availability will determine how the market shakes out.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. 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.