Global smartphone shipments have grown 9 percent in the first quarter of 2017, claims a recent Gartner report. While single-digit growth in smartphone sales is not unexpected, what is really stunning is the increasing domination of Chinese brands across the globe.
The troika of Huawei, Oppo and Vivo have nearly taken over the budget-to-mid segment phone market and their meteoric rise is fuelled by a fast-expanding phone-buying universe in emerging markets — mostly India and Indonesia, followed by Vietnam and Myanmar.
India is the fastest-growing smartphone market in the world. It clocked a 14.2 percent growth in smartphone shipments in Q1 2017, according to an IDC report. And for the first-time ever, no Indian phone brand made it to the top five.
Chinese phone makers, led by Xiaomi, accounted for 51.4 percent of the total smartphones shipped in India. That is a staggering 142.6 percent year-on-year growth and a handsome 16.9 percent quarterly growth for Chinese brands.
Xiaomi alone grew close to 40 percent in just a year riding on the viral popularity of its Redmi series, with Redmi Note 3 becoming the most-shipped handset ever. Xiaomi is now the second biggest smartphone seller in India recording a 14.2 percent share in Q1.
Why and how Chinese brands are growing
When their home market saturated, they looked outside. Expansion was easy because deep investments drove these companies. “Their lean portfolio also helped them scale faster,” says an analyst.
Now there is competitive pricing, faster adoption of 4G technology and aggressive marketing that is driving their sustained growth across geographies. Add to that, their emphasis on good cameras, sometimes with high-end specs stuffed into budget phones even, is so well-timed as the internet world becomes more and more visual.
IDC estimates that about 62.2 percent of smartphones shipped by Chinese brands in Q1 2017 had 13-megapixel or higher resolution cameras. The Redmi 4A, for instance, has an entry-level price of Rs. 5,999 but comes with a 13 megapixel rear camera.
Xiaomi, however, hasn’t been able to replicate its India success story elsewhere. And it has ceded global market share to Huawei (which is struggling in India though), Vivo and Oppo (both owned by the same company, BBK Electronics). Their combined market share in Q1 2017 stood at 24 percent, up 7 percent year-on-year.
Samsung, meanwhile, recorded a 3.1 percent decline in sales, primarily because it pulled out the controversial Note 7 phone. “Although Samsung announced that pre-orders for the Galaxy S8 and S8 Plus are up 30 percent year over year, the absence of an alternative to Note 7 and the fierce competition in the basic smartphone segment are leading Samsung to continuously lose market share,” says Anshul Gupta, research director at Gartner.
However, Samsung continues to lead the global smartphone market with a 23.3 percent share, followed by Apple at 14.8 percent. Apple sales have been flat too. “Similar to Samsung, Apple is increasingly facing fierce competition from Chinese brands Oppo and Vivo, among others, and its performance in China is under attack,” says Gupta.
Huawei ranks third with an 8.3 percent share. However, analysts reckon that it might lose that spot to either Vivo or Oppo. “Huawei’s multi-brand strategy is not working. Buyers are confused between Honor (a sub-brand) and Huawei. The company has supply chain problems too,” says Tarun Pathak, Associate Director at Counterpoint Research.
Oppo is fast catching up with Huawei. With a 94.6 percent increase in worldwide smartphone sales in Q1 2017, Oppo achieved the best performance of the quarter and retained its numero uno position in home market, China. Its sprawling network of brick-and-mortar retailers and a strong, camera-focused marketing drive are shooting up sales.
Vivo too recorded high quarterly growth of 84.6 percent in Q1 2017, riding on the Indian market where its sales grew by an incredible 220 percent. A celebrity-led marketing strategy went a long way in establishing Vivo in the market.
“Vivo saw growing demand of its smartphones from the emerging markets thanks to its increased brand appeal and high-quality smartphones,” says Gartner’s Gupta. Both Vivo and Oppo are going strong in the Rs 15,000-20,ooo segment, while Xiaomi continues to rule the roost in the sub-10k market.
But something might be alternating between them.
Xiaomi, which has sold phones through flash sales and an online-only model so far, recently opened its first Mi Home store in India, and went on to clock record sales on the first day. Vivo and Oppo, on the other hand, have grown due to a strong offline distribution network, but are now reaching out to online retailers and striking exclusive deals with them.
“It’s mix and match now. Everyone is trying the other’s strategy that made them successful. But in the end, one unified line of selling will emerge,” says Counterpoint’s Pathak.
Where does that leave premium players like Samsung and Apple then?
Globally, there is only “replacement demand” for Apple and Samsung phones, i.e. users buy a new device only when they want to upgrade. An iPhone 6 user will move to an iPhone 7 or iPhone 7 Plus. But an entry-level user will hunt for inexpensive options.
“Only premium users are buying Samsung and Apple because these brands are leading innovation,” says Pathak. So, what is the new innovation that users are likely to latch on to?
“AR and VR will be the next trend in premium smartphones,” he says. “It cannot be hardware innovation only. The overall smartphone experience has to improve and that will increase customer stickiness.”
Apple, meanwhile, must also look to bridge the “affordability versus aspiration” gap in India. Now that it can manufacture locally and possibly get an 11 percent duty cut on phones, it could well pass on the price benefits to customers. “And if they don’t, they will have to wait for the natural cycle of consumers to upgrade,” says Pathak.
That could take long, thus allowing Chinese brands to capture a bit more of the market.