Smartphones Surge As Apple Support Fades 中国国产智能手机崛起 运营商或减少iPhone补贴
There are a couple of interesting reports out today from the smartphone space, highlighting the rapid rise of these feature-packed phones with the growing availability of affordable, high-quality models supplied by newcomers like ZTE (HKEx: 763; Shenzhen: 000063), Huawei and Xiaomi. Those increasingly popular models, many selling for 2,000 yuan or less, could quickly pose a major challenge to high-end specialists like Samsung (Seoul: 005930) and Apple (Nasdaq: AAPL), amid early signs that Chinese mobile carriers are looking to cut back their generous subsidies for these more expensive models.
Let’s look at the big picture news first, which has global data tracking firm IDC forecasting that China will officially overtake the US this year to become the world’s largest smartphone market. (press release) According to IDC, China will account for 26.5 percent of all smartphone shipments in 2012, easily outpacing the 17.8 percent share that the US will take.
China’s rapid rise has been fueled by annual growth in local smartphone sales that is forecast to average 26 percent between 2011 and 2016, according to IDC. That’s more than double the 11.6 percent average annual growth rate the US is expected to see over the same period. IDC attributes China’s rapid rise to the flood of cheap smartphones entering the Chinese market from names like Huawei and ZTE, most of those powered by Google’s (Nasdaq: GOOG) free Android operating system and many costing less than $200 — a fraction of the $500 or more that Apple iPhones typically cost.
The growing acceptance of these lower-cost but relatively high quality phones by Chinese consumers could soon translate to headaches for Apple, as more people decide to buy some of these cheaper models instead of pricey iPhones. Sensing this change of sentiment and also wanting to improve their profits, China’s 2 carriers that offer iPhones may cut back their subsidies for the new iPhone 5 when it comes out as soon as next month.
Chinese media are citing analysts saying that China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU) could scale back their promotions for the new Apple phones, feeling confident enough that consumers who really want a new iPhone will be willing to pay most of the cost themselves while consumers less interested in the Apple brand will be satisfied with some of the many cheaper models in the market. (Chinese article)
Aggressive promotion for their 3G networks has hit the bottom line for both China Telecom and Unicom over the past year, with profits for the pair dropping 10 percent and 2 percent in the second quarter, respectively. Both companies are coming under increasing pressure from investors to return to profit growth, and these latest signs seem to indicate they could sharply cut back their promotional activities, including for the new iPhone, to improve their profit outlook. From the broader perspective, the big picture shows that China will become a key market for Apple and all other smartphone makers in the coming years, but that strong competition will mean that profits for everyone could rapidly shrink.
Bottom line: China’s growing dominance in smartphones is being fueled by the rapid rise of low-cost models, which will ultimately result in increasingly stiff competition in the market.
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