Runaway Growth: China’s Dominant Role in the Smartphone Market

In 2012, China became the world’s largest smartphone market, having accounted for 26.5% of global smartphone shipments that year. That put it well ahead of the US, whose market share dipped from 21.3% to 17.8% year over year (2011-2012), according to research firm IDC. Looking forward, both countries seem set to continue along those divergent paths.

 

Chinese Consumers Rapidly Shifting to Smartphones

China now has over 1 billion mobile phone subscribers, and many of them are shifting from traditional mobile phones to smartphones. Domestic demand gets a boost in large part due to enhanced accessibility, more coverage, and lower prices, all of which stem from increased competition in the marketplace from the main players—Samsung, Lenovo, Yulong Coolpad, and Apple, Inc. What’s more, subsidies by operators like China Mobile and China Unicom are also making first-time purchases less expensive, which attracts even more buyers.

Cultural forces also provide a tailwind for domestic demand, as owning a smartphone equates to having social status, something that consumers are becoming increasingly aware of as the broader Chinese economy expands.

The effect of these forces on demand is remarkably quantified when you take a look at shipments year over year. In 2012, China shipped some 213 million smartphones, which was more than double the amount shipped in 2011. This year, according to research firm IDC, that figure is set to hit 360 million with further growth to 450 million by 2014, indicating truly astounding growth rates.

The rapid growth should only continue from here. Below, we’ll highlight two potential — and rather paramount — future shifts in the smartphone landscape, the confluence of which we believe serve as compelling reasons to believe China’s smartphone dominance should continue.

 

China Set to Issue 4G Licenses Soon

According to an October 23 statement issued by China’s Ministry of Industry and Information Technology, China is “preparing for the release of 4G licenses,” though they did not issue a firm date. China Mobile, the world’s largest phone company by users, has tested the technology since December 2010 and appears set to roll out the 4G service once licensed by the state. The 4G network is set to have internet speeds up to 10 times faster than 3G, which will no doubt entice consumers into the marketplace. The new hardware should draw more customers too.

Just as 4G licenses appear ready to be issued in China, Apple Inc. appears to be closing in on a deal with China Mobile to have iPhones operating on their network. In August, the state granted Apple license to operate on the network through February 28, 2014. Should China Mobile and Apple reach a deal—which we think they will by the end of this year—it would create a new marketplace of over 700 million potential customers (China Mobile’s network) for Apple.

The combination of a faster 4G network and smoother Internet experience of the iPhone could boost Apple’s market share in China and help China Mobile regain high-end users, according to research from Morgan Stanley.

This shift in the marketplace will perhaps embolden competitors like Samsung and Lenovo to ramp up marketing and sales efforts so as to remain the companies with the biggest market shares. As it stands today, Samsung is the leader in China, with 18.3% market share, followed by Lenovo with 12.6% and Yulong Coolpad with 11%. Apple is sixth in line, with around 5% of market share, according to IDC.

The deal between Apple and China Mobile may give Apple a market share boost moving forward, but regardless of leadership changes within smartphone makers, the end result is rather apparent—the smartphone market in China is set to continue booming.

Ed Flores

Ed is a professional writer living in San Francisco, CA. He is the founder of In Writing, LLC, a company that specializes in creating custom content for Asset Managers and other financial firms.

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