Consumers in China -- the world's largest smartphone market -- hit the pause button during the first quarter, and that has implications for how companies like Apple and Samsung go about their business there.
Those two companies headed in opposite directions during the first quarter, with Apple's market share in China soaring after the arrival of its iPhone 6 and iPhone 6 Plus, and Samsung's share sagging just as dramatically.
And all contenders had to face the sobering reality that overall smartphone sales in the country shrank during the three-month period -- the first time in six years that the China smartphone market has declined year over year.
Total shipments across China in the first quarter reached 98.8 million units, down 4.3 percent from 103.2 million units in the same period last year, research firm IDC said Monday.
Apple was the market leader during the first quarter of 2015. It shipped 14.5 million iPhones, representing a 62.1 percent gain over the same period a year earlier. China-based companies Xiaomi and Huawei came in second and third place, respectively, with 13.5 million and 11.2 million unit shipments.
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Samsung had the most troubling quarter. It shipped 9.6 million smartphones to China during the period, for a decline of 53 percent compared with the 20.5 million units it shipped in the first quarter of 2014, when it led China's smartphone market. This time around, it was relegated to fourth place, just ahead of China's own Lenovo.
China is one of the most important markets for technology companies. The country has a booming middle class with a strong desire for shiny new tech, and smartphones have proven especially appealing. Some estimates have placed China's smartphone market at nearly 520 million users -- a population that dwarfs the entire population of the US. Given its size, foreign companies like Apple, Samsung and Microsoft are all vying for a piece of the massive pie, and they have to contend as well with homegrown up-and-comers.
Apple's success came against the surprising backdrop of China's decline in smartphone shipments. IDC argued that the year-over-year decline came about in large part as China's smartphone consumers changed from first-time owners to second-time buyers.
Kitty Fok, managing director at IDC China, said in a statement.
"Smartphones are becoming increasingly saturated in China. China is often times thought of as an emerging market but the reality is that the vast majority of phones sold in China today are smartphones, similar to other mature markets like the US, UK, Australia, and Japan. Just like these markets, convincing existing users as well as feature phone users to upgrade to new smartphones will now be the key to further growth in the China market."
The research firm predicts that growth in China's smartphone market throughout 2015 will be relatively flat.
The changing market dynamics mean companies will need to shift strategies, according to IDC. For instance, some -- including Huawei, Lenovo and Xiaomi -- will try to make inroads into higher price categories. Other routes will likely include trying to expand sales through their own-brand retail shops and direct-to-customer online sales.
But although competition will be stronger at the upper end of the market, IDC said, most growth will come in the market for sub-$150 smartphones as those consumers who currently own less-sophisticated feature phones switch to those low-priced devices.
Apple has arguably done one of the best jobs of capitalizing on China's growing consumer base. The company reported last month that China is now its largest market, superseding the US for the first time. During Apple's fiscal second quarter, which ended March 28, the company's China revenue soared 70 percent from a year earlier to a record $16.8 billion.
Apple CEO Tim Cook said late last month during an earnings call with analysts.
"It was an incredible quarter. I've never seen as many people coming into the middle class as they are in China, and that's the bulk of our sales, and we're really proud and continue to invest in the country."
COMMENTARY: Countering the idea that China's smartphone market is only interested in cheap phones, Umeng, China's largest analytics firm, issued a report for 2013 outlining that 27 percent of China's smartphones cost over $500, and that 80 percent of those are iPhones.
Highlighted by analyst Benedict Evans, Umeng's report details that China's market for smartphones and tablets exploded in 2013, nearly doubling from 380 million devices at the beginning of the year to more than 700 million by year end.
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Apple currently markets three iPhone models on its Chinese website: iPhone 5s priced between $860 and $1120; iPhone 5c priced between $730 and $860; iPhone 4S priced at $535. The company originally continued to sell iPhone 4 in China priced at $435, but no longer lists that model for sale on its public website.
The fact that Apple has dominated China's most valuable segment of the smartphone market is particularly noteworthy because throughout 2013, it didn't have any agreement in place to sell iPhones on China Mobile, the nation's (and the world's) largest mobile carrier by far.
Apple inked a deal with China Mobile in January, making iPhone 5s and iPhone 5c two of the very few models capable of working on the carrier's newly deployed 4G network using a China-specific version of LTE technology.
Apple's chief executive Tim Cook told shareholders last month that both the iPhone 5s and iPhone 5c had outsold the models they replaced.
Apple building an iOS ecosystem stronghold in China
Evans separately noted that Apple now has "probably more" iPhone users in China than it has in the U.S., with around 100 million iPhone users in each country.
Last September, Cook noted Umeng research stating that the total number of Chinese iOS developers has increased 9.3 times between 2011 to 2013. Globally, Apple has over 6 million registered developers, with 1.5 million added in just the last year Cook said.
Evans rhetorically asked,
"Has any foreign tech company done as well in China as Apple?"
Courtesy of an article dated May 11, 2015 appearing in C|NET and an article dated March 17, 2015 appearing in iPhone Forums
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