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Consumers in China — the world’s largest smartphone market — hit the pause button during the first quarter, and that has implications for how companies like Apple and Samsung go about their business there.
Those two companies headed in opposite directions during the first quarter, with Apple’s market share in China soaring after the arrival of its iPhone 6 and iPhone 6 Plus, and Samsung’s share sagging just as dramatically.
And all contenders had to face the sobering reality that overall smartphone sales in the country shrank during the three-month period — the first time in six years that the China smartphone market has declined year over year.
Total shipments across China in the first quarter reached 98.8 million units, down 4.3 percent from 103.2 million units in the same period last year, research firm IDC said Monday.
Apple was the market leader during the first quarter of 2015. It shipped 14.5 million iPhones, representing a 62.1 percent gain over the same period a year earlier. China-based companies Xiaomi and Huawei came in second and third place, respectively, with 13.5 million and 11.2 million unit shipments.
Samsung had the most troubling quarter. It shipped 9.6 million smartphones to China during the period, for a decline of 53 percent compared with the 20.5 million units it shipped in the first quarter of 2014, when it led China’s smartphone market. This time around, it was relegated to fourth place, just ahead of China’s own Lenovo.
China is one of the most important markets for technology companies. The country has a booming middle class with a strong desire for shiny new tech, and smartphones have proven especially appealing. Some estimates have placed China’s smartphone market at nearly 520 million users — a population that dwarfs the entire population of the US. Given its size, foreign companies like Apple, Samsung and Microsoft are all vying for a piece of the massive pie, and they have to contend as well with homegrown up-and-comers.
Apple’s success came against the surprising backdrop of China’s decline in smartphone shipments. IDC argued that the year-over-year decline came about in large part as China’s smartphone consumers changed from first-time owners to second-time buyers.
“Smartphones are becoming increasingly saturated in China,” Kitty Fok, managing director at IDC China, said in a statement. “China is oftentimes thought of as an emerging market but the reality is that the vast majority of phones sold in China today are smartphones, similar to other mature markets like the US, UK, Australia, and Japan. Just like these markets, convincing existing users as well as feature phone users to upgrade to new smartphones will now be the key to further growth in the China market.”
The research firm predicts that growth in China’s smartphone market throughout 2015 will be relatively flat.
The changing market dynamics mean companies will need to shift strategies, according to IDC. For instance, some — including Huawei, Lenovo and Xiaomi — will try to make inroads into higher price categories. Other routes will likely include trying to expand sales through their own-brand retail shops and direct-to-customer online sales.
But although competition will be stronger at the upper end of the market, IDC said, most growth will come in the market for sub-$150 smartphones as those consumers who currently own less-sophisticated feature phones switch to those low-priced devices.
Apple has arguably done one of the best jobs of capitalizing on China’s growing consumer base. The company reported last month that China is now its largest market, superseding the US for the first time. During Apple’s fiscal second quarter, which ended March 28, the company’s China revenue soared 70 percent from a year earlier to a record $16.8 billion.
“It was an incredible quarter,” Apple CEO Tim Cook said late last month during an earnings call with analysts. “I’ve never seen as many people coming into the middle class as they are in China, and that’s the bulk of our sales, and we’re really proud and continue to invest in the country.”
