Chinese companies drive commoditisation of smartphone market

Rapid evolution of smartphone technologies and a market of budget-conscious consumers help mainland manufacturers take on the world

PUBLISHED : Monday, 18 August, 2014, 4:01am
UPDATED : Monday, 18 August, 2014, 4:01am

Seven years after Apple's iPhone revolutionised the mobile-phone industry, the global market is shifting gears once again, led by aggressive Chinese companies bent on conquering the world with boatloads of low-cost Android-based smartphones.

These companies are benefiting from the rapid evolution of smartphone technologies, cheaper components, expert electronics contract manufacturers on the mainland and a vast domestic market of budget-conscious consumers to build scale and compete head-on against Apple, Samsung Electronics and the other major global brands.

Computer kingpin Lenovo, red-hot start-up Xiaomi, telecommunications equipment manufacturing giants Huawei Technologies and ZTE Corp, and consumer electronics firms Coolpad Group and TCL Communication Technology lead this pack of ambitious Chinese mobile handset suppliers, according to a report by Bernstein Research.

Alberto Moel, a senior analyst at Bernstein, called them the "Gang of Six".

"They compete in the extremely difficult Chinese market, where they beat each other up to come up with the same thing, but cheaper," Moel said. That focus on the mass market, however, seemed justified because "pretty much all the [industry] growth is in lower-priced smartphones", he said.

Based on the latest smartphone industry estimates, it appears to be a good strategy to build market share. Technology research firm IDC estimated that Huawei and Lenovo were the world's third and fourth-biggest smartphone suppliers, respectively, in the second quarter with a combined 12.3 per cent market share. They were behind Samsung and Apple, but ahead of LG Electronics.

In China, Lenovo seized a 12.5 per cent share to unseat Samsung last quarter as the top-selling brand in the world's largest smartphone market. Samsung dropped to fifth place behind Xiaomi, Coolpad and Huawei.

While these Chinese players have lofty global ambitions, there is still plenty of room for them to grow in the country. The mainland's three mobile network operators had a combined 500.51 million 3G and 4G subscribers at the end of June.

Kitty Fok, the managing director at IDC China, said: "We're expecting mainland smartphone shipments to reach 224 million units in the second half as the network operators build out their 4G networks."

IDC forecast smartphone shipments in China would total 436 million units this year, up from 351 million last year.

Moel said China "is proving to be a great crucible for [these players] to hone their skills as they go abroad". He estimated their average handset selling price was about US$112, far below the prices commanded by Apple's and Samsung's smartphones.

The six firms may be paving the road to smartphone commoditisation, but two of these Chinese players seem well ahead of their peers in developing their smartphone businesses into profitable and competitive enterprises.

"I think Lenovo and Huawei are contenders because they are both large firms with a long history and strong product and patent portfolios. They also have good relationships with carriers, which helps," Moel said.

Lenovo has also been making huge investments to further expand its smartphone business despite the stiff competition.

Chairman and chief executive Yang Yuanqing said the company's US$2.91 billion takeover of Google's Motorola Mobility operation would be a major "growth driver".

In what may be a not-too-subtle jab at privately held rival Xiaomi, Yang said: "Lots of local players don't care about profitability. All they care about is number of users. They just want to attract the capital markets to give them money. This is not a healthy [business] model."

While no smartphone supplier is close to matching the marketing savvy of Apple or how much it has profited from the iPhone's popularity, the industry is steadily changing, according to Jennifer Tan Yuen-chun, the chief operating officer at mobile operator Hutchison Telecommunications Hong Kong.

"Previously, whenever Apple launched a new iPhone model, the rest of the industry was usually quiet. It has been different this year," Tan said. She said many brands had approached Hutchison Telecom to bring to market new smartphones in the second half even though the much-speculated "iPhone 6" was due to launch in the same period.