China smartphone

Little-known local firms are making it tough for the iPhone maker, Apple Inc. (NASDAQ:AAPL), to spread its market share in one of the fastest growing smartphone markets, China. Recently a local firm Xiaomi Technology, launched successor to its popular MiOne (MI) smartphone, challenging iPhone on both features and price fronts.

Xiaomi was founded two years back, and is already worth more than Blackberry maker, Research In Motion Limited (NASDAQ:RIMM), according to private market valuations. Smartphones from the company are so popular, they sell out in minutes after going on sale online. The company sold 3 million phones in the first half of the year, with revenues close to $1 billion. CEO Lei Jun, like Apple, charged Xiaomi fans 199 Yuan ($31.30) to attend the Beijing launch, with the proceeds going to charity. Over 1,000 people attended the event.

According to research from IDC, 40 percent of the shipments in China last year, were of smartphones costing less than $200, and 11 percent were of devices costing $700. Therefore, analysts expect that iPhone sales could increase, but Apple’s market share may stagnate or even dip, as they are popular in only a handful of wealthy Chinese cities. Research firms IDC and Gartner predict China’s smartphone shipments could hit 140 million this year, exceeding the United States

“The sweet spot of affordability in China is 800-1,500 Yuan ($130-$240),” said Michael Clendenin, managing director of Shanghai-based consultancy RedTech Advisors. “The ‘Lao Bai Xing’, or man in the street, is going to go for these mid-tier phones.”

Apple iPhones are priced around $800, almost equal to two months’ salary of an urban Chinese, which constitutes most China’s 1.3 billion person population. MI2,the local version, which goes on sale in October costs around 1,999 Yuan ($310), and also has a quad-core processor, 8 mega-pixel camera, and a voice-assistant similar to Apple’s Siri.

“Apple isn’t going to rule China, simply because of the limited models they have and the price points they target,” said TZ Wong, an analyst with IDC. “Based on these two factors, we do not think Apple will be the No. 1 smartphone player in China.”

Apple’s market share by volume, has been reducing, and market share of its iOS mobile operating system is expected to slip further, to third place from an earlier second position, with Google Inc (NASDAQ:GOOG)’s Android and Microsoft Corporation(NASDAQ:MSFT)’s Windows claiming the top two slots, according to Gartner analyst Sandy Shen. For the January-March period Apple Inc. (NASDAQ:AAPL) commanded a 17.3 percent market share for smartphone shipments in China, against the 19.2 percent of  Samsung Electronics Co., Ltd. (LON:BC94)

China is the second largest market for Apple’s iPhone, but the sales suffered in April-June due to inventory adjustments with the launch of the iPhone 4S. Chinese retailers held back orders, due to excess inventory and also due to the expected launch of iPhone 5 later this year.

Other local players in the smartphone market include ZTE Corporation (SHE:000063), Lenovo Group Limited (HKG:0992) (PINK:LNVGY), and smaller private firms such as, Gionee and Meizu Technology. Apart from these, more economical models are offered by Alibaba Group (999 Yuan),  Shanda Interactive Entertainment Ltd (NASDAQ:SNDA), and, Inc. (NASDAQ:BIDU) (899 Yuan or $140).