Well-fed dragon: how China stopped the growth of the global smartphone market


Polar results

According to market research company Strategy Analytics, in January—March 2016 were sold 334,6 million smartphones — 3% less than in the same period last year. Year-on-year smartphone market declined for the first time since 1996, when Strategy Analytics had started a count of sales of advanced mobile communications, says the company, which is quoted by The Financial Times.

This is largely due to the early saturation of the world’s largest smartphone market — China, and increasing concern of consumers around the world about the state of the global economy.

The drop in sales recorded in almost all the major players, but explains it differently. The leader among manufacturers of smartphones, Korean Samsung Corporation, sold in the first quarter of this year, 81.9 million units is 1.7% less than in the same period last year. But its share in the global market almost did not fall: a decline of only 0.1% to 24.6%. Samsung has released quarterly figures on Thursday: in January—March of current year the company grew revenue by 5.7% 47,12 trillion won ($42.5 billion at the exchange rate on March 31, 2015) to 49,78 trillion won (about $43.5 billion).

The day before, reported American tech giant Apple: the company for the first time in 13 years has reported a fall in quarterly sales. Apple’s revenue for the first quarter of the fiscal year (second quarter in the American system) fell 12.8% to $50.6 bn the Share of iPhone on the world market has reduced from 18.3 to 15.3%. Although operating profit from the sale of Apple mobile devices three times the profit of Samsung ($13.9 billion compared to $3.38 billion), a numerical drop in sales of far more than the Korean competitor: in January—March 2016 worldwide has sold 51.2 million iPhone devices vs 61.2 mln a year earlier. After the publication of the quarterly reports of Apple in the shares of the technological giant for the first half hour of trading on April 27 fell by 7%. From his shares in Apple got rid of billionaire investor Carl Icahn, who had not said that the shares of the tech giant is undervalued.

Of the three leaders only Chinese Huawei has demonstrated excellence, increasing over the past year its share in the smartphone market from 5.3 to 8.3% and increased its revenue by 64% — from 17.4 to 27.5 million units, data from IDC Worldwide Quarterly Mobile Phone Tracker.

Fatigue from Apple

Good compared to the Samsung Apple performance analysts attributed to successful exit on the market of the concern, the Galaxy S7 and version Galaxy S7 Edge, which was released in February. According to SamMobile China, from March 11 on these models in China was made more than 10 million pre-orders. As specified by analysts at Counterpoint Research, in China, the sales performance of Galaxy S7 in the first month after the release exceeded the results of Galaxy S6 by 10%. According to IDC, in March, the Galaxy S7 and S7 Edge was heavily sold due to the support of wireless operators.

Apple recorded a drop in sales in almost all markets (except Japan, where revenues for the quarter rose by a quarter, to $4.3 billion) and on all major products: iPhone, iPad and Mac. The largest drop was shown by the Chinese market, and in all respects.

In its reporting Apple allocates a region of greater China, which includes China, Hong Kong and Taiwan. In this market, quarterly sales fell by 26%, to $12.5 billion, and for the last two quarter, they declined by 6%, to $30.9 billion Respectively, the share of the Chinese market in Apple’s revenue decreased from 29% to 25%, nearly losing second place Europe.

Apple explains that the main reason for the fall in Asian sales was the situation in Hong Kong. The local dollar is tied there to the U.S. dollar and the strengthening U.S. dollar had a negative impact on the development of tourism and retail Commerce in Hong Kong. If the fall in revenue in greater China amounted to 26% in the PRC (excluding Hong Kong and Taiwan) is only 11%.

The day before publication of Apple reporting its first interview with Western media gave Chinese billionaire Jia yuetin, founder of the group LeEco. As a specialist in high technology (his company is engaged in the production of electric vehicles, smartphones and development of online services) businessman called Apple’s “old” firm.

“Only the super-rich people, highly paid professionals can afford an iPhone in China. This is a relatively small percentage — emphasizes Professor Penn Wharton China Center John Zhang. — This means that at some point you will not be able to sustain growth without the introduction of major innovations to keep customers interested”.

Analysts doubt the prospects of new Apple products in Asian markets, including the new iPhone model SE, which was released in late March. “If the base cost of $399 iPhone SE forced to compete with similar power, but the cheaper devices, primarily in India and China”, — said the expert, IDC Antonio Scarsella.

The increased presence of Apple in China is another obstacle — law. Last week, Beijing blocked on the territory of the PRC iBooks Store, and Movie iTines for buying and downloading books and movies. “Given the economic slowdown in China and legal issues with Apple in this market, companies will find it difficult to achieve acceptable growth”, — said Thursday the analytical center Juniper.

China slows down world

For the smartphone market slowing, China’s economy acts as the same deterrent as in the primary industries. IDC identifies several trends in the Chinese mobile phone market. First, it slows its growth. If in 2013 the growth of the previous year was 62.5%, while in 2014 this figure dropped to 20%, and in 2015 amounted to only 2.5%. Secondly, Chinese consumers are becoming more demanding. “As the Chinese market Matures, the appetite for smartphones is dramatically reduced, the explosive interest in them has passed its peak,” notes consulting Agency.

The average cost of a smartphone has increased from $207 in 2013 to $257 in 2015, with Chinese consumers increasingly eyeing the domestic producers — besides Huawei and two little-known on the world market brands OPPO and Vivo. They have already entered into the five of leaders of sales, pushing out her two other Chinese companies, Xiaomi and Lenovo. Both brands belong to the group BBK Electronics from Guangdong, its founder, Duan Yongping known as the “Chinese Buffett”.

In January—March 2015 around the world (primarily China and India) have been sold 7.3 million smartphones OPPO, this year — had 18.5 million (2.2 and 5.5% global market share respectively). Followed by Vivo with 6.4 million devices last year and 14.3 million in the first quarter of this year.

Fresh data on Chinese business Samsung is not yet known. But a year ago in the Chinese market, the company also had a hard time in the first quarter of 2015, sales of Korean group in China has declined at an annualized rate of 53%. According to IDC, in January—March 2014, the company sold 20.5 million smartphones in China, one year later, only 9.6 million

Then Samsung skipped ahead of not only Apple but also local brands like Xiaomi and Huawei, falling from first to fourth place. Accordingly, the market share of Samsung in China fell from 19.9 to 9.7%, while Apple rose from 8.7 to 14.7%. The company hopes that the new flagship phone will overcome this trend.