Cellphone Sales Tumble, As Mobile Ads Zoom
New sales data for August is showing that China’s cellphone market is rapidly cooling due to saturation, putting even more pressure on domestic brands that have engaged in a battle for share that has resulted in plummeting prices. At the same time, a separate report is showing that mobile advertising is zooming, in a development that’s almost certain to mean big headaches for companies like Baidu (Nasdaq: BIDU) and Sina (Nasdaq: SINA) that depend heavily on advertisers that traditionally targeted desktop PC users. The pair of trends both cast a spotlight on how quickly things can change in the tech and media landscapes, putting huge pressure on established companies to innovate and spend heavily to translate their leadership into emerging areas.
This latest trend is being driven mostly by the explosion of smartphones, which has been driven by rapidly maturing technology that now allows anyone with as little as $100 million to enter the sector. That’s created a sudden surge in new entrants to the space, resulting in a nonstop series of price wars. It has also propelled China to the spot as the world’s largest smartphone market, with many models now costing less than $100.
The rapid saturation of China’s mobile market is clear in the latest number, which show that cellphone shipments in the country plummeted 20 percent in August to 26.2 million units. (Chinese article) One of the biggest losers during the month was suddenly ailing leader Samsung (Seoul: 005930), which saw its share of the market tumble to 16 percent from a previous 20 percent. That was still enough to make it the market leader, though those days may be numbered.
After Samsung, the market’s 4 next largest players were all Chinese, led by Coolpad at 11.3 percent. It was followed by Lenovo (HKEx: 992) at 9.5 percent, Huawei at 8.2 percent and Vivo at 7.1 percent, according to the data from German research firm GDK. Apple (Nasdaq: AAPL) made the top 10, finishing at 8, though it’s important to note that this is data for all cellphones and not just the smartphones that account for all of Apple’s mobile business.
The report notes that domestic Chinese names now control 70 percent of the market, representing huge gains with the rise of names like Lenovo and Huawei and the rapid fall of Nokia. While the overall share data is revealing, the far more interesting numbers are the tumble in total sales for the month. That’s putting pressure on prices for everyone, and I doubt too many brands are selling at a profit these days. Look for similar sales and price drops for the rest of the year and into early 2015, meaning we could well see 1 or 2 medium or smaller players leave the market by this time next year.
Meantime, a separate new report from global advertising firm ZenithOptimedia is showing the huge potential of the mobile advertising market, saying mobile ad sales in China will grow by a whopping 834 percent between 2013 and 2016. (English article) Of course the figure is coming off a small base since the market is so young; but that kind of expansion is still quite rapid and means advertisers will be shifting their spending from other areas.
The biggest loser in China will continue to be the ailing print sector, where ad revenue is expected to tumble 38 percent over the same period. But even traditional desktop Internet advertising will grow by just 119 percent over that 3-year span, which isn’t the same kind of breakneck growth we traditionally saw from sector leaders like Baidu. Of course Baidu, Sina and the others are trying to rapidly build up their mobile business to offset the desktop slowdown. But it’s far from clear that they’ll be as dominant in the emerging mobile space, meaning we could see some significant deceleration in their revenue growth over the next 2 years.
Bottom line: Saturation is driving a rapid slowdown in China’s cellphone market that could force 1-2 brands out the space by next year, while a quick rise of mobile advertising will pressure companies like Baidu and Sina.
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