After eight consecutive years of growth, the world’s largest smartphone market is beginning to decline. According to new figures from research firm Canalys, the Chinese smartphone market has seen its first annual decline in shipments during 2017. The figures show China’s shipments dipped four percent to reach 459 million units in 2017. In particular, the numbers in Q4 were down 14 percent to one year previous with 113 million units shipped. Canalys attributes natural progression to be the cause of a dip in the Chinese market. Just like in the U.S. and many other countries, smartphones are now widespread in China.
However, the market has “slowed significantly faster than many experts predicted,” Shanghai-based Canalys analyst Mo Jia states. China seems to be in a complete turn around from the industry’s explosive rise in China earlier this decade, when sales were more than doubling some years. Since then the market has still managed 11 percent growth in 2016, according to Canalys. But early last year single-digit declines in just the second and third quarters indicated 2017 would be a challenge. And with time the decline grew worse, leaving China’s shipments to plunge more than 14 percent in the fourth quarter – making it China’s worst ever on record.
And why is this decline happening? Jia attributes the decrease with many Chinese consumers believing that trading in basic cell phones for entry-level smartphones as being adequate enough. Chinese manufacturers pack a lot of technology into entry-level phones, resulting in a longer average life cycle of 26.8 months. Canalys predicted the Chinese smartphone market will remain static until 5G devices start rolling out in late 2019. “The phone makers are making much better phones. For example, if you look at the Huawei Mate 10 and the Mate 10 Pro, their specs are comparable to iPhone 8 and iPhone 8 Plus. But the Mate 10 is at least 30% cheaper than the iPhone 8,” he said.This became ominous news for international perceived “luxury” brand smartphone makers like Apple and Samsung, as Jia points out that the latest smartphones from Chinese brands are almost equivalent in specs and hardware to Apple’s handsets. And Chinese brands like Xiaomi, are predicted to face tougher competition in their local markets.
Meanwhile, Huawei, China’s leading handset maker, was able to lodge double-digit gains in 2017. The Chinese company finished the final quarter of 2017 with 24 million shipments and a grand total of 90 million for the year, which is nine percent above the market and marks the best quarter in its home market for the company. Canalys analyst Mo Jia states, “Huawei’s push into tier-three and tier-four cities has yielded positive results… 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. But competition between Huawei and Honor is getting fierce, and Huawei must deal with the possibly of internal cannibalization.”
Sister companies Oppo and Vivo have also exploded on the global stage with strong sales in the double-digits in emerging markets throughout Asia despite the dip in the market. However, domestically, their numbers fell nearly 16 percent and seven percent, respectively, with only 19 million and 17 million shipments. “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 predicts that Huawei, Oppo, and Vivo will have to look outside the Chinese market for future growth, saying that global expansion will be critical to their future success. However, critics believe they will face an uphill battle in the U.S., where lawmakers view Chinese smartphone makers with skepticism.
“The declining Chinese market will have a detrimental impact on those Chinese vendors that have been heavily relying on their home market,” said Canalys Research Analyst Hattie He. “It will affect their cash flow and profitability, limiting overseas expansion and bringing into question future survival. The threat to vendors such as Gionee and Meizu is now closer than ever.” 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 for China in 2018.”