As the markets for mobile phones are becoming saturated in North America and Europe, leading global mobile phone makers such as Apple (NASDAQ:AAPL), Samsung (OTC:SSNLF), Nokia (NYSE:NOK), and HTC (2498.TW) are relying more on emerging markets for revenue growth, with China being the most important market due to its sheer size and still untapped huge potential. Unfortunately for Apple and Nokia, the last couple of market research reports published in March paint a grim picture for them in the world's second largest economy.
iiMedia Research, a technology research publisher in China, released its most recent mobile phone research report on March 6, 2013 (written in Chinese). Some of the key findings are:
- The population of mobile phone users in China grew 72.7% year over year to 380 million in 2012.
- Smartphone sales grew by a whopping 131% year over year to 169 million units in 2012. The sequential (quarter over quarter) growth rate of smartphone sales increased almost every quarter in 2012, reaching a historical high of 15.2% at the end of the year.
- In terms of operating system, Android increased its market share to 68.6%. Apple's iOS had 12.8%, and Windows had 3.8%.
- In terms of units sold, Samsung was the market leader with 22.5%, following by Lenovo (10.7%), Huawei (9.9%), Coolpad (9.5%), ZTE (8.9%), and Apple (7.7%). Nokia slipped out of top 10 to the 11th position with 3.1% market share.
- In terms of gross sales, Samsung was again the market leader with a 24.5% market share, followed by Nokia (16.2%), Apple (12.8%), Lenovo (8.3%), Huawei (7.8%), and Coolpad (7.2%). Comparing units sold and sales amount market shares, we can easily conclude that the average sales prices for Nokia and Apple phones were far higher than those for domestic brands.
Another research report published by Strategy Analytics on March 10, 2013 (written in Chinese) painted similar pictures for Apple and Nokia. According to this report, Samsung's market share increased 5.3% to 17.7% (No. 1), while Apple's dropped from 12.3% to 11% (No. 3). The biggest loser was Nokia, whose market share literally fell over a cliff, dropping from 29.9% to 3.7%. Domestic brand Lenovo took the No. 2 place with 13.2%.
Note: iiMedia Research and Strategy Analytics only published the reports in Chinese. We have translated key numbers and points into English.
Based on these research reports, it seems that Chinese consumers are fonder of the Android OS than their American counterparts, and that fondness is growing stronger. This trend really spells trouble for Apple and Nokia.
So what are the reasons for Apple and Nokia's losses of market shares and Samsung's and other brands' gains in 2012 (most of the other brands' phones use Android OS)? We think the following might be two primary reasons:
- Price is a major factor, as Chinese consumers are very cost-sensitive. This means that many people will choose a cheaper phone over a more expensive one with similar functionality. According to iiMedia's research report, 34.9% of the phones sold in 2012 were priced at 1,000 yuan ($160) or lower, and 42.2% were priced between 1,000 to 2,000 yuan ($320). The majority of iPhones and Nokia phones were priced higher than 2,000 yuan. As Nokia confessed in its 2012 20-F report: "The availability of complete mobile solutions chipsets and software from low-cost reference design chipset manufacturers has enabled the very rapid and low-cost production of feature phones, increasingly at lower price points, by numerous manufacturers particularly in China and India, which are gaining significant market share in emerging markets, as well as bringing some locally relevant innovations to the market." The growing population of lower-priced phone consumers and growing number of competitors' phones with rich features and high specifications make Apple's rumored lower-priced iPhone 5S and Nokia's Asha line of smartphones very important for the two companies to defend or gain market share in the coming years.
- Learning from mobile network operators in the U.S., mobile network operators in China are bundling more phones with their service plans, and some operators in China probably favor domestic brands in their offerings to customers. Nokia said in its 2012 20-F report: "The increase in markets with operator-driven distribution and business models where operator subsidies are prevalent may adversely affect our ability to compete effectively in those markets. We are increasingly seeing such developments taking place in markets where we have been traditionally strong, for instance in China. Additionally, our scale benefits may be adversely affected as new regional or operator requirements are introduced." This may explain Chinese domestic brands' rapid gain in market share in China over the past two years. Due to an interesting recent development, Nokia might be gaining ground at Apple's expense in regards to muscling more sales through Chinese operators. In December 2012, China's biggest mobile network operator China Mobile (NYSE:CHL) signed a deal with Nokia to include Nokia's flagship Lumia phones in its service plans.
Can Apple and Nokia resolve these two issues and other challenges? Can they reverse their slumping market share trends in China? Only time will tell.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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