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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