Samsung Takes Early Lead In Chinese Smartphone Market As Apple Flounders

SSNLF: Samsung Electronics logo
SSNLF
Samsung Electronics

With China overtaking the U.S. as the largest smartphone market in the world, handset makers around the world are looking to make the most of this under-penetrated but burgeoning mobile market. According to a recent report by Strategy Analytics, first quarter smartphone sales in China reached 67.4 million, accounting for almost a third of the global smartphone market. [1]

Samsung Electronics (PINK:SSNLF) carried its momentum from last year when it had become the largest manufacturer of smartphones, selling 12.5 million smartphones during Q1 and accounting for almost 18.5% of the Chinese market. The company’s strategy of flooding the market with smartphones at various price points has worked well, especially in the emerging markets where low-end smartphones are increasingly becoming popular. On the other hand, Apple (NASDAQ:AAPL), which has yet to diversify its portfolio with a cheaper new-generation iPhone, dropped out of the top five manufacturers with sales of only 6 million iPhones during the quarter and a smartphone market share of less than 9%.

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See our full analysis for Samsung Electronics

China is key to future growth but margins are a concern as competition looms

Samsung has continued its dominance by eating away at rivals’ market share in not only the emerging markets but also developed ones. The release of Galaxy SIII last year saw Samsung take a decisive lead in the smartphone market, selling almost 50% more smartphones than Apple did during the year. For the full year 2012, Samsung accounted for more than 30% of smartphone sales worldwide, increasing its lead over Apple whose market share remained stagnant at about 20%. Samsung has become the biggest smartphone manufacturer in the world with smartphones accounting for almost 54% of its sales in 2012, up from about 28% in 2011. With smartphones having a good penetration level in the developed markets, Samsung is likely to see its next wave of smartphone growth come from emerging markets such as China.

Despite becoming the biggest smartphone market in the world, China is nowhere close to saturation. 3G penetration in China is still at a low 25% but is growing strongly, as carriers increasingly subsidize smartphones in order to promote their data services. While this gives Samsung ample opportunity to grow, it also leaves the market wide open for rivals to upstage the leading player. Nokia, which has seen its smartphone sales slide due to a slow transition away from Symbian, is looking to stage a comeback with its new Lumia portfolio of smartphones, and China will play a very important role in those plans. With the smartphone market in developed regions such as the U.S. facing saturation, Apple might also come up with a cheaper iPhone in order to better tap the emerging markets. Such a move, along with a deal with China Mobile, could help Apple increase its addressable market in China by a wide margin and pose serious competition to Samsung.

Emerging markets will also expose Samsung to intense competition from local manufacturers and drive down pricing levels in the long run. As a result, the smartphone market as a whole will increasingly face pressure on margins as the smartphone markets in developed regions gradually become more and more saturated. Samsung will therefore be looking to delay the inevitable by penetrating the high-end developed markets more and taking market share away from rivals such as Apple that have a greater presence in these markets. It will be interesting to see if the recent launch of Galaxy S4 will help it wrest market share from Apple, and if Apple will look to counter the threat by taking on Samsung in the emerging markets with a cheaper iPhone.

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Notes:
  1. Samsung sold a record 12.5 million smartphones in China during Q1 2013, TheNextWeb, May 27th, 2013 []