By Carlos Tejada And Eva Dou 

BEIJING--The world's largest smartphone market doesn't have much room left to grow.

Smartphone shipments in China fell 4.3% in the first quarter compared with a year ago for the first time in six years, according to a new survey set to be released on Monday by International Data Corp. Rival surveys show continued growth during the quarter, but at much slower levels than previously.

Experts say the slowdown is largely driven by the disappearance of China's first-time buyers. Smartphones now have a more than 90% penetration rate in China, said Tom Kang, research director with market-research firm Counterpoint, meaning just about everybody in China who wants a smartphone already has one. "China is now a replacement market," Mr. Kang said.

That means smartphone makers will have to win over upgraders like Liao Huimin if they want to gain market share. The Beijing information technology worker uses an iPhone 6 and upgrades his phone roughly every two years, though he says he might stick with his current phone longer.

"I won't buy a new one in the near future unless it gets slow or broken, " Mr. Liao said. "I think I will still buy an iPhone in the future, but if Samsung produced a really fancy phone I would think about buying it."

The slowdown has major implications for foreign smartphone makers like Apple Inc. and Samsung Electronics Co., as well as China's new breed of homegrown phone makers like Xiaomi Corp. It comes as foreign and local players like Lenovo Group Ltd., Coolpad Group Ltd. and Huawei Technologies Corp. ratchet up their efforts there, with many focused on selling increasingly expensive phones with bigger screens.

"The smartphone market in China is basically now just the very high end like Apple or the very low end," said Charles Lin, chief financial officer of Pegatron Corp., which manufactures smartphones for Apple and some Chinese brands. "It's getting tough for those in the middle."

China surpassed the U.S. in 2011 to become the world's largest smartphone market. Apple, of Cupertino, Calif., now sells more iPhones in China than in the U.S. Apple in the first quarter became China's largest smartphone maker by market share, according to IDC, surpassing Xiaomi on the strength of its popular iPhone 6 and iPhone 6 Plus.

Xiaomi, a five-year-old startup now valued at $46 billion by virtue of its strength in its home market, is trying to keep up. Last week it unveiled its Note Pro, a phone about the size of the iPhone 6 Plus but costing about $480, or about half the price of the iPhone 6 Plus in China. "We will keep pursuing our mission to make high-quality, high-performance phones at affordable prices for our fans," a spokeswoman said.

Xiaomi has set its sights on overseas expansion this year, as it faces tougher rivalry from Lenovo Group Ltd., Huawei and other rivals. Analysts say it may be difficult for Xiaomi's domestic growth to continue this year given the slowing market and heavier competition.

Samsung has fallen to fourth place in China in the first quarter, from the top spot a year ago, according to IDC. But it says it sees continued promise in China on the back of premium phones like its new Galaxy S6. "While there are signs that the explosive growth of smartphones in China will slow this year, the vast majority of China's 885 million mobile users are using low-end and mid-range smartphones," Samsung said in a statement. "This leaves plenty of room for upgrades to high-end phones as China's market matures."

Budget phone makers have had an increasingly difficult time in China, said Mr. Kang. They often depend on sales made through China's big three state-controlled telecom providers. China Mobile Ltd. is ahead of its two rivals, China Unicom (HK) Ltd. and China Telecom Corp., in providing faster services known as 4G. As a result, it doesn't need to spend as much on promotions and inducements, he said, while the others are keeping their powder dry until their own 4G ramp-up.

Hong Kong-traded Coolpad Group Ltd. was China's No. 5 smartphone maker last year on the strength of budget phones, but fell out of the top five in the first quarter, according to IDC. The company has also been ramping up spending on more premium products. Last year its administrative spending rose by one-quarter to 1.23 billion Hong Kong dollars (US$159 million), largely because of higher research and development expenses.

Coolpad is increasingly pushing abroad, said Jason Chen, a company spokesman, with a focus on selling under its own brand name in the U.S. "The Chinese customer is slowing down," he said.

Write to Carlos Tejada at carlos.tejada@wsj.com and Eva Dou at eva.dou@wsj.com

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