In China, cheap and cheerful phones outsmart Apple

SHANGHAI Thu Aug 16, 2012 3:33pm IST

Two men use mobile phones as they wait outside a department store in Hong Kong August 16, 2011. REUTERS/Bobby Yip/Files

Two men use mobile phones as they wait outside a department store in Hong Kong August 16, 2011.

Credit: Reuters/Bobby Yip/Files

Related Topics

Stocks

   
Polluted waters of China

Polluted waters of China

Growing cities, overuse of fertilizers, and factory wastewater have degraded China's water supplies to the extent that half the nation's rivers and lakes are severely polluted.  Slideshow 

SHANGHAI (Reuters) - In China's booming smartphone market, which is set this year to overtake the United States as the world's largest, a host of little-known local firms are primed with cheap phones to squeeze market share from U.S. giant Apple Inc's (AAPL.O) iPhone.

In the latest local challenge to the iPhone, Xiaomi Technology on Thursday launched the successor to its popular MiOne (MI) smartphone. The MI2 has specifications that exceed those of the iPhone 4S and sells for less than half the price.

Smartphones from Xiaomi - founded only two years ago but already worth more than Blackberry maker Research in Motion RIM.TO, according to private market valuations - have proved so popular they sell out in minutes after going on sale online. The company, founded by CEO Lei Jun, said last month its first-half revenue was close to $1 billion as it sold more than 3 million phones.

Mirroring Apple's annual worldwide developers conference (WWDC), where devotees would pay to listen to Steve Jobs showcasing new products, the informally-clad Lei charged Xiaomi fans 199 yuan to attend the Beijing launch, with the proceeds going to charity. Over 1,000 people flocked to the event.

While iPhone sales will increase in China, Apple's market share may stagnate or even dip as the market's changing demographics mean the iPhone flourishes in just a handful of wealthy Chinese cities, analysts said.

Industry researcher IDC estimates that in China last year, smartphones costing less than $200 made up 40 percent of shipments, while devices costing $700 and more accounted for 11 percent of the market.

"The sweet spot of affordability in China is 800-1,500 yuan," said Michael Clendenin, managing director of Shanghai-based consultancy RedTech Advisors. "The 'Lao Bai Xing', or man in the street, is going to go for these mid-tier phones."

Li Xing, 35, lauding the Xiaomi phone's signal capabilities at the launch event, said: "I preferred not to use Apple because I didn't want my phone to be a luxury product, it's just a phone."

For video on Xiaomi launch: click r.reuters.com/wax99s

For a graphic on China mobile market: click r.reuters.com/kuq99s

The MI2, which goes on sale in October at 1,999 yuan, has a quad-core processor, 8 mega-pixel camera and a voice-assistant similar to Apple's Siri.

"Other phones are just phones, but a Xiaomi phone is very human-friendly," said Chen Zhen, 31.

Apple releases a single iPhone model a year at a price - around $800 - equivalent to about two months pay for an urban Chinese, who make up half of China's 1.3 billion population. Analysts say the real growth in China is in cheaper smartphones where a wide variety of models at different prices appeal to first-time buyers.

"Apple isn't going to rule China, simply because of the limited models they have and the price points they target," said TZ Wong, an analyst with IDC. "Based on these two factors, we do not think Apple will be the No. 1 smartphone player in China."

Apple ranked second in January-March smartphone shipments in China, with 17.3 percent market share, trailing Samsung Electronics' (005930.KS) 19.2 percent, according to research firm, Gartner.

IOS TO SLIP TO 3RD

Apple's market share by volume has been on a downtrend, and the share of the market commanded by its iOS mobile operating system is expected to slip to third place by 2016 from second earlier this year, according to Gartner analyst Sandy Shen - below Google Inc's (GOOG.O) Android and Microsoft Corp's (MSFT.O) Windows.

Apple's iPhone sales in China, its second-largest market, stumbled in April-June on inventory adjustments with the launch of the iPhone 4S. That extra inventory meant resellers didn't need to buy as many iPhones during the quarter, and the expected launch later this year of the iPhone 5, with enhanced Chinese language capabilities, also likely held back orders.

"Apple's market share is pretty stable. It will be flat over the next five years. Although volume-wise it's increasing, that's because the total market is growing," Shen said.

Research firms IDC and Gartner predict China's smartphone shipments could hit 140 million this year, topping those in the United States.

HIGH-SPEC, LOW-COST

Growth is driven largely by smartphones made by ZTE Corp 000063.SZ (0163.HK), Lenovo Group (0992.HK) and smaller private firms such as Xiaomi, Gionee and Meizu Technology.

Meizu phones, which sell in China and Hong Kong for 1,500 yuan, are feted by Western technology blogs for offering high-end smartphones at bargain basement prices.

Offering even cheaper models, Alibaba Group, Shanda Interactive and Baidu Inc (BIDU.O) have all this year launched smartphones for under 1,000 yuan. Baidu's phone, made with partners, retails at 899 yuan, while Alibaba's waterproof smartphone, made with Haier Electronics Group (1169.HK), costs 999 yuan.

"For those with an iPhone or Samsung ... it's just a replacement cycle. But for many people who haven't got their first smartphone, those are the people who will get cheap smartphones," Shen said.

(Additional reporting by Jane Lee in BEIJING; Editing by Kazunori Takada and Ian Geoghegan)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Tech Buzz

TECH SHOWCASE

E-Commerce in India

E-Commerce in India

Amazon says to invest $2 billion more in India.  Full Article 

'Gifts' Junked

'Gifts' Junked

Facebook to shut down Gifts service in latest e-commerce shift.  Full Article 

'Selfie' Phone

'Selfie' Phone

Microsoft gives employees sneak peek at new 'selfie' phone.  Full Article 

E-book Pricing

E-book Pricing

Amazon says lower ebook prices benefit authors, publishers.  Full Article 

MacBook Prices

MacBook Prices

Apple updates MacBook Pro laptops, cuts price of older model.  Full Article 

Spring Shoes

Spring Shoes

A new boot design to put a spring in your step.  Video 

BlackBerry Deal

BlackBerry Deal

BlackBerry buffs up security credentials with Secusmart deal.  Full Article 

Useful App

Useful App

Always misplacing keys, wallet? Lost and found apps may help.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage