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China suffered its first ever annual smartphone decline, with shipments down 4% from 2016 to 459 million units in 2017, Canalys research indicates. This drop was partly due to China having one of its worst year-on-year performances in Q4 2017, with shipments plummeting by over 14% to just under 113 million units.
Huawei grew shipments by 9% against the overall market decline, shipping more than 24 million smartphones and staying on top. Shipments fell for both Oppo and Vivo, by 16% and 7% respectively, but they held onto their respective second- and third-place positions. Oppo shipped 19 million smartphones, while Vivo shipped 17 million. Apple overtook Xiaomi to take fourth place, pushing Xiaomi back to fifth with 13 million units.
Huawei had its best ever quarter in its home market, shipping more than 24 million smartphones in Q4, to reach a total of 90 million in 2017. “Huawei’s push into tier-three and tier-four cities has yielded positive results,” said Canalys Research Analyst Mo Jia.
“Nova and Honor have successfully gained share from smaller vendors, such as Gionee and Meizu. Honor’s performance has complemented Huawei’s success, by contributing more than half of Huawei’s total shipments,” Jia added. “But competition between Huawei and Honor is getting fierce, and Huawei must deal with possible internal cannibalization.”
Despite the dip in Q4, Oppo and Vivo both saw double-digit annual growth in 2017, according to Canalys. “The market has slowed faster than expected. Being aware of inventory issues, both vendors have set up flagship stores in tier-one cities to boost their branding and drive value growth,” said Jia. “Failure to drive footfall, however, will threaten Oppo and Vivo’s ongoing channel transformation and render the exercise futile.”
Canalys Research Analyst Hattie He said the declining Chinese market will have a “detrimental impact” on those Chinese vendors that have been heavily replying on their home market. “It will affect their cash flow and profitability, limiting overseas expansion and bringing into question future survival,” He said.
With Lenovo and ZTE refocusing on the Chinese market in 2018, competition will intensify among vendors outside the top five. “There is little room left for the smaller vendors,” said He. “The leading players will make aggressive plans to maintain or grow their market share. We can expect a major market shake-up in China in 2018.”
Huawei, Xiaomi, Oppo and Vivo represent an uprising in the smartphone industry. Together, these Chinese OEMs (original equipment manufacturers) accounted for a record 48 percent of global device shipments in Q2 2017, according to Counterpoint Research. Emerging markets represent a gold mine for Chinese OEMs, as they continue to aggressively scale beyond their mainland.
The smartphone industry has been dominated for almost a decade by Apple and Samsung who hold the top two sales spots. But that could soon change as customers in emerging markets look to cheaper options supplied by Chinese OEMs. Huawei was the first Chinese smartphone manufacturer to go global and they spent significant investments to establish a presence across multiple markets. This provided momentum for other Chinese OEMs in the same league to consider the same.
“We are currently experiencing the rise of three emerging OEM players from China: Xiaomi, Oppo and Vivo. These three manufacturers are now considered global smartphone suppliers and they are competing head-to-head with the traditional players,” said Jay Srage, President East Europe and MEA at Qualcomm, in a recent interview with Telecom Review.
An emerging smartphone brand like Xiaomi, with a brand that is going viral in emerging markets like India, Russia and Indonesia, is now emerging as one of the top global players in the smartphone industry because of its “unique vision of how to address the sector” Srage said. The OEM has a strategy to set a price/quality ratio that sets it apart, by emphasizing the importance of user experience, in addition to quality, at an affordable price.
The success of Chinese smartphone brands is their ability to be successful not only in cementing their positions in their home country, but also managing to expand beyond mainland China at the same time, explains Counterpoint Research Associate Director, Tarun Pathak. Emerging markets such as India, South Asia, Southeast Asia, and Africa will be the key focus geographies to drive additional scale and market share for Chinese OEMs, Pathak explains.
Research Analyst, Shobhit Srivastava, noted, “The competitive landscape is now changing drastically across many regions. In developed markets the top three brands are strengthening their hold. In emerging markets meanwhile, rankings continue to be volatile, with new players also entering the top ten rankings within a few quarters of launch. This has led to various strategies by OEMs during the quarter to counter competition.”
Clamping down on competition, claims Srivastava, has resulted in ODM (original design manufacturer) tie-ups, operator tie-ups in prepaid markets, reducing excessive portfolios and even offering devices for free. Counterpoint Research expects “further innovation (and desperation) in go-to-market strategies by different OEMs struggle for traction in fast-growing market environments,” Srivastava said.
Breaking Apple and Samsung’s reign
Samsung still reigned supreme over the smartphone industry by a volume market share of 22 percent in Q2 2017, Counterpoint Research says, closely followed by Apple. But Samsung’s shipments remained almost flat quarter-on-quarter, the research indicates. Huawei, on the other hand, has steadily been catching up to its rivals.
Huawei retook the number two spot from Apple in Central and Eastern Europe in Q2 2017, according to Canalys research. The Chinese vendor shipped 1.8 million smartphones to take a 12 percent market share, beating Apple by fewer than 50,000 units. Its strength was in low-to-mid-range products, with the P10 Lite becoming its best-seller in the region.
“Huawei slipped behind Apple briefly in Q1 2017,” said Canalys Analyst Ben Stanton. “Apple did an excellent job of up-selling its installed base to the iPhone 7 Plus, whereas Huawei suffered the fallout from its extremely aggressive end to 2016. It built a great deal of channel inventory last year as its sales teams chased a 140-million-unit annual global shipment target. But Huawei is back, growing 11 percent in Q2 2017. Its inventory has now largely cleared and it is firing on all cylinders.”
Apple’s global smartphone market share declined due to seasonality this year, with iPhone sales growing just 1 percent year-on-year. But demand for older generation iPhones remains strong in markets like Russia, India, Vietnam, Indonesia and other fast growing markets. Many users are likely to delay their purchase of a new iPhone in anticipation of the much awaited iPhone 10th anniversary edition which is expected to be a super-cycle for Apple.
However, Apple’s decline in China has paved the way for Oppo, Xiaomi, Vivo and Huawei to take the lead. In China, Huawei continued to capture the top spot in 2Q17 ahead of its rivals, shipping higher volumes into the channels, according to Counterpoint. Huawei’s Nova and Enjoy series, along with flagship P10, were in strong demand during the quarter, and its share in the premium segment also expanded due to the strong performance of its Mate and P series.
Meanwhile, Oppo and Vivo were the fourth and fifth largest brands during the quarter, capturing market share of 8.4 percent and 6.6 percent respectively. Both brands posted record quarters in India, their strongest market outside China. Xiaomi emerged as the fastest growing brand year-on-year (+60 percent) surpassing Vivo (+45 percent) and Oppo (+33 percent) which were the fastest growing brands in the previous quarter.
Emerging markets like Africa and the Middle East also represent a great opportunity for Huawei. Gene Jiao, president of Huawei consumer business group Middle East and Africa (MEA) emphasized the importance of the region for Huawei at the end of 2016 following the launch of the Mate 9. He said MEA is an important market for Huawei to tap into, because of its growing population.
“The MEA region has 67 countries, with a population of 1.62 billion. Within ten years the population will grow by 400 million. In the next five years it will grow by 200 million,” said Jiao. For this reason, Jiao added, it makes perfect sense to expand into MEA, particularly with affordable products.
The GCC is the most developed part of MEA, and traditionally OEMs have targeted the region with high-end and premium range devices, consolidating to only a few major players. However, the GCC is now seeing the rise of the mid-range device segment, according to Qualcomm’s Mr. Srage. The main growth driver for this segment, he said, has been the advent of high quality devices at affordable prices.
Huawei has the advantage over its Chinese rivals that it’s already a major player in the sale of networking gear and telecommunications equipment. Last year, the company's top consumer executive, Richard Yu, set a target of becoming the No. 1 smartphone vendor within five years. Huawei is “committed to helping operators increase efficiency and drive profitable growth by promoting the sustainable development of emerging markets,” Yu said at Mobile World Congress this year.
Other emerging Chinese OEMs such as Lenovo and Alcatel continue to face tough competition in high growth markets like India and Latin America which led to the flat or declining market share respectively, during the quarter, according to Counterpoint. However, Mr. Srage commented positively about the companies for their strategic efforts in acquiring and reviving once trusted brands. Lenovo, for instance, revived the Motorola brand, and TCL revived Alcatel.
“These companies have taken existing brands that were once at the top and revived them with new products that aim to recapture their customer base,” said Srage. “The real challenge, however, is for these companies to capture the attention of customers who aren’t familiar with these once prominent brands, and reestablish loyalty with those who are.”