19 March 2019
Foreign brands have gained a dominant share of the 4G handset market in China. Photo: Bloomberg
Foreign brands have gained a dominant share of the 4G handset market in China. Photo: Bloomberg

Chinese phone makers losing first round of 4G battle

Smartphone shipments in China recorded the first year-on-year drop in eight quarters in the first three months this year, raising fresh questions about the market’s stalling growth and domestic handset makers’ business prospects.

Observers say the slowdown points to an industry bottleneck as smartphones have become a commodity, with the low-hanging fruit already taken. Lack of innovation and new features in the handsets is likely to force more weak players to exit the market in the coming months.

What is especially worrisome for domestic brands is the huge ground that foreign labels have gained in the new market for fourth-generation (4G) mobile phones. Indeed, one can argue that the local firms have already lost the first round of the 4G battle.

According to a report from the Ministry of Industry and Information Technology, total smartphone shipments in the country fell 24.7 percent from a year earlier in the first quarter this year to 100 million units. That came after the launch of as many as 607 new models of handsets in the market.

Government figures showed that 380 handset makers were classified as active players in the market. However, the top 10 players had more than 70 percent of the market in the first quarter, compared with only 54 percent in the same period last year. That indicates that the market is getting more concentrated in the hands of big players, while small and medium-sized manufacturers are coming under increasing pressure.

Consumers who favor domestic handset brands are usually drawn by the lower prices and better value-for-money proposition, compared to foreign brand products. Such selling point has been powering the growth of Chinese phone makers in recent years.

However, the recent sales figures signal that domestic brands are beginning to lose ground. Shipment of Chinese brand smartphones fell 35 percent in the first quarter to 66.8 million, while foreign phone makers, led by Apple Inc and Samsung Electronics, shipped about 34 million units in the same period, up 9 percent.

The main reason why local players did not do well in the first quarter was their lack of preparation for the 4G market. The Chinese government issued 4G licenses December last year. China Mobile has inked a partnership deal with Apple for iPhone sales, which boosted the market share of foreign phone makers.

According to Sino Market Research, Apple accounted for more than half the Chinese 4G handset market with a share of 58.7 percent in the first two months of 2014. South Korean rival Samsung took 26.4 percent during the period, making it the second biggest player in the market.

Chinese brand Coolpad (02369.HK) was in the third place, with a market share of 9.4 percent, while K-Touch, Sony and Huawei trailed with a tepid combined 4.5 percent share.

Chip supplier Qualcomm is the main beneficiary of China’s 4G market. At present, only two foreign companies — Qualcomm and Marvell — are making 5-mode LTE chips that adapt to various kinds of LTE networks.

Chinese players previously had high hopes that 4G commercialization will provide an opportunity for domestic smartphone brands to leapfrog foreign peers. The first-quarter performance, however, has shown that most Chinese brands are far behind their overseas competitors and that they need to revisit their sales strategies as well as their product portfolios.

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EJ Insight writer

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