Cheap Smartphones are Driving Huge Chinese Sales

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In what has to be bad news for Apple (NASDAQ:AAPL) the latest sales figures for China’s smartphone industry have hit the web via Taiwan’s premier rumor-monger, Digitimes. Compiling data from iiMedia they have reported that more than 77% of all smartphones sold in China in 2012 cost less than ¥2000, or ~$320. Samsung leads the way with 22.5% of sales while Apple grabbed just 7.7%. IT is the rise, however, of the Chinese manufacturers that need to be taken seriously.
Lenovo, who only entered the market in 2012, garnered more than 1 sale out of every 10 (10.7%). While Huawei, Coolpad and ZTE accounted for a stout 28.3% of the market. Most of these phones are running Google’s (NASDAQ:GOOG) Android. And that’s rapidly becoming a problem for the Chinese government, who are obviously no fans of Google, as they have recently complained of Android having too much market share.
But, if it is a problem, they have only their domestic manufacturers to blame.
The current market share breakdown still has Apple’s iOS with 12.8% and Nokia’s (NYSE:NOK) holding 12.4% and Windows Phone bringing up the rear at 3.8%, though the growth of Windows Phone is beginning to move the needle not only in China but across Europe and even the U.S., to a lesser extent.
It has been my analysis that the smartphone industry will evolve, especially in emerging markets, into one of commodity devices driving advertising and app sales revenue. In that way they and tablets will be no different than laptops and desktop PCs. In this rare example of a completely unfettered production environment where the consumer is truly king, the path is clear – margin erosion, commodification and great innovation and value for the end-user.
As low penetration markets like China mature, however, the experience of the phone itself and what it can do for the user will drive repeat sales. The stunning collapse of HTC is a perfect example of a company who squandered its first-mover advantage by continuing to produce products that in the end gave poor value over the life of the device.
For this reason I really like Nokia’s strategy, and along with them Microsoft’s (NASDAQ:MSFT), as Nokia is focusing on differentiating its Lumia line not only on features and price but style and custom applications which will continue to drive it to be the premier Windows Phone OEM. Nokia may have been behind the curve in smartphone OS technology – which is why Symbian and Meego had to be abandoned – but it has never lacked in its ability to produce a physical device of outstanding quality, which is ultimately what drives customer loyalty.
If these numbers are to be believed Nokia sold 5.2 million phones in 2012. How many of those were Lumias remains to be seen but with the release of the 520/620/720 handsets happening now Nokia’s product line is finally robust enough to give us a good indication of what Windows Phone’s potential is in China.

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