China will surpass the US to become the world’s largest mobile market this year, continuing to grow at a rapid pace while US mobile sales are starting to stabilize, says a recent report from Strategy Analytics. Mobile sales are expected to grow 15% in China this year to reach 430 million units (more than the population of the US), while revenues will jump more than 50% to hit a record $87 billion. Being a mature market, the US will see practically zero growth in unit sales and about 4% growth in revenues, reaching $60 billion in mobile phone revenues.
The report also found that global handset revenues will grow 13%, and that BRIC countries as a group will account for 36% of those revenues, led by China.
China adding more unit and switching to 3G/4G
With China’s enormous population and significantly higher GDP growth rate, it was only a matter of time before it surpassed the US in mobile phone sales. Revenues are growing faster than unit sales because Chinese consumers are also switching to 3G and 4G smartphones (and turning away from ultra-low tier mobile phones) meaning that revenue per sale is also improving.
“Major brands, such as Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), Huawei and Lenovo Group Limited (HKG:0992), are aggressively expanding their distribution channels and product ranges across the region to meet extremely strong demand from Chinese consumers for more advanced mobile phones,” Strategy Analytics writes in a blog post.
US still the most profitable mobile market because of operator subsidies
Since smartphones account for a larger share of all mobile phones in the US than they do in China, the US is still the more profitable market, which China will have a hard time beating in the near future. Operator subsidies make high-end phones more attractive to consumers, even if they end up paying for them through harsher contract terms, pushing the average selling price well above China and most of the rest of the world.
But even if the US can hang onto better margins domestically, stories like this are going to become more common in the next few years as the Chinese economy’s growth pushes it ahead of the US in one category after another. Sheer market size isn’t the only thing that matters, but for companies looking to grow revenues, this story is yet another reminder that they ignore China at their own peril.