China vendors set to dethrone Korea brands in global smartphone market

The second quarter of 2018 marked for the first time that China-based Huawei has outraced Apple to second place in the global smartphone market, according to IDC data. With that performance, Huawei's consumer business group CEO Richard Yu has boasted that his company aims to overtake Samsung to become as the world's top smartphone vendor by the fourth quarter of 2019.

Meanwhile, the anticipated rollouts of foldable smartphones by handset vendors in the second half of 2018 is set to make the segment a new battlefield of the industry where China-based handset makers are to show off their strengths, which no can afford to ignore. After all, China-based vendors have become fast movers instead of followers in the past year as far as AI-centric smartphones and iris identification technology are concerned.

Since the development of the smartphone industry has already entered its plateau period, any maker or party which is able to secure a preemptive presence in the foldable smartphone segment is likely to win in the looming battle.

Foldable smartphones

A crucial element of the foldable smartphones lies in the configuration of flexible display. Samsung and Huawei are said to prefer an in-folding design, while Xiaomi is likely to choose a design that will place the foldable display outwardly when folded.

Xiaomi is likely to give priority to promoting the foldable smartphones in the domestic market, while Huawei is trying to trump Samsung for the release of foldable models in the global space. Thus, the year 2019 will be a turning point for the competition between smartphone vendors in China and Korea.

China's players are also narrowing their combined market share against Korea-based brands in markets spanning Asia, Oceania, Africa and East Europe with the exception in North America.

At the same time, Samsung has been losing ground in the world's largest single market, China, where handset sales could reach as many as 410 million units a year, accounting for 31% of global sales. However, Samsung currently accounts for only 1% of the handset market in China, according to a Bloomberg report

In the India market, although Samsung managed to recapture the top-vendor ranking in the second quarter of 2018, it was losing out its share in the high-end segment to China-based OnePlus.

OnePlus captured a 40.5% share of the above INR30,000 (US$437) segment of the smartphone market in India in the second quarter of 2018, a significant improvement from the 8.8% recorded a year earlier. The above INR30,000 segment accounts for only 3% of India's total handset market in terms of unit shipments but 12% in terms of profits generated by the industry.

Meanwhile, Huawei is exerting all-out efforts to promote sales in Europe. Huawei and other China's brands currently account for a 23.4% share in the Eastern European market, as Korea's vendors are seeing their share drop to 34.3% from the previous 37.3%.

Huawei also aims to ship over 200 million smartphones in 2018, with its shipments to account for 30% of total smartphone shipments in China in the year and present a 51-fold increase in seven years.

Xiaomi is approaching the brick and mortar stores in Western Europe, using a new Poco Phone brand, as it is trying to get rid of the image of being a second-tier Chinese vendor selling low-priced devices.

With support from China's government, China's brands have also managed to lower the gap of market share against Korea's in Latin America to 6pp currently from the previous 12pp; and in Africa and the Middle East to 18.3pp from 3pp.

Penetrating into Korea market

And to the dismay of Korea's makers, Huawei and Xiaomi both are taking aggressive marketing strategies to begin selling their smartphones directly in Korea since July 2018.

The handset market in Korea totals over 20 million units a year, with Samsung taking a majority of 55%, followed by Apple with 28.3% and LG Electronics with 15.7%.

But market sentiment in Korea may be changing under the price pressure from Huawei and Xiaomi.

In fact, Samsung saw the operating profits of its handset business unit decline 34.2% on year to KRW2.67 trillion (US$2.358 billion) on revenues of KWR24 trillion in the second quarter of 2018.

Analysts at Korea-based securities investment firms estimated that shipments of the Galaxy S9 devices totaled eight million units in the second quarter, accounting for only 10.26% of the 78 million handsets shipped by Samsung in the quarter.

The smartphone market in Korea is expected to scale down by 5.9% to 20.24 million units in 2019 and to 20.11 million units in 2023, according to an estimate of Euro Monitor. The shrinking market in the domestic front is certainly unfavorable to Samsung.

In sum, China's smartphone brands are approaching the global market in an echelon form with their devices characterized with innovative designs, competitive pricing, enhanced local presence, in addition to strong government support. Major brands in China include Huawei, Xiaomi, Oppo, Vivo, OnePlus, Lenovo, Coolpad, Hisense, and ZTE. And seven out of the world's top-10 handset brands are from China currently.

Premium smartphone models rolled out by China-based brands normally feature the same high-end hardware specifications as those found in the flagship models from Apple or Samsung but are available at two-thirds of their prices.

Aside from hardware specs and related technologies, China's brands are offering a complete lineup of products in high quality and are readily available through established channels at affordable prices. Smartphone vendors from Japan and Taiwan have already been defeated, and how much longer can the Korean brands hold on to their lead?

huawei

Huawei beat Apple to second place in the global smartphone market in 2Q18
Photo: Digitimes file photo

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