SMARTPHONES
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The Next Big Thing

Prospect for big profits stokes competition in China smartphone race

PUBLISHED : Thursday, 07 May, 2015, 6:30am
UPDATED : Thursday, 07 May, 2015, 8:42am

Competition in the Chinese smartphone market is escalating as non-traditional phone makers join the game, looking to cash in on surging demand. 

Soon to join the established local players Xiaomi, ZTE and Huawei as well as the top foreign brands of Apple and Samsung will be home appliance maker Gree and internet security firm Qihoo 360, with new ranges of Android-based phones.

And it is not just big companies. Already in the fray are the Chuizi smartphone from start-up Smartizan, founded by former English teacher Luo Yonghao, and the Dakele phone, developed by Ding Xiuhong, a former managing editor at the NetEase web portal.

 “It’s the high profit which is driving the fever to make smartphones. Android smartphone users tend to change to a new phone every year,” said Wang Bo, the chief executive of Beijing-based One Card Technology, which develops mobile payment technologies.

“China’s internet giants are guarding their territory and the mobile market is dominated by state companies. There are still opportunities in the smartphone market,” he added, referring to the top three private Internet companies Baidu, Alibaba and Tencent, know locally as ‘BAT’.

Chinese smartphone makers sold 390 million phones in 2014, 21.9 per cent more than the previous year. Smartphone inventories stood at 780 million last year, increasing by 34.3 per cent over 2013, according to iResearch, a top research group on the Chinese IT industry. 

Yang Weiqing, founder of iResearch said it’s a wise move for IT companies to move into smartphones.

“Especially for the ones which already have a large customer base, to maintain users or to grow new customers by connecting them with smartphones is a good strategy,” he said.

He added that the time has passed when the competition in the Chinese IT industry was to use apps to attract customers.

This had been the case with early players such as Tencent, whose online message service QQ had attracted more than 200 million Chinese users by 2014.

“Many players realised that the smartphone itself is a key terminal for the internet. Look at Xiaomi, it’s smartphones are a trillion dollar market,” he said.

However, the cut-throat competition has given rise to another phenomenon: smartphone makers are copying each other’s style.

Having long been accused of copying Apple and Samsung devices, Chinese firms seem to be looking closer to home, an issue highlighted last week when ZTE, in a rare public airing, accused Huawei copying its patents on camera technology.

While patent lawsuits are common and high profile among global phone brands, Chinese companies as a rule prefer not to resort to open legal challenges.

Analysts say the copying may not be a bad thing as it may force smartphone makers to cut the price of a popular technology, for example the new bezel-less smartphones that makers including Xiaomi, ZTE’s Nubia and LeTV are all pursuing.

“The bezel-less smartphone is trendy now. When more phone makers are developing it, they have to lower their prices. And the competition will force them to learn to protect their patents and upgrade their services,” said Tang Xunfang, an author and IT industry analyst.

Many foreign observers have warned the surge in companies entering the smartphone market in China could cause a bubble that would force some to lose out.

They note the surge in fund raising by Chinese smartphone firms, and the ease with which they are able to attract capital.

Xiaomi recently raised $1.1 billion, while Dakele broke a record in January by raising 16 million yuan (US$2.5 million) within half an hour in its kickstarter launched on JD.com.

Tang however said it’s too early to judge if there is bubble, because many people in China have only just started to change their old mobile phones to smartphones, pointing to huge demand ahead.