Forecasting 2017: Ten Tendencies In The Chinese Smartphone Market

摘要: If I were to describe the Chinese smartphone market in 2016, I would say it was constantly changing.

(Chinese Version)

If I were to describe the Chinese smartphone market in 2016, I would say it was constantly changing.

The leading forces in the smartphone market had shifted for three times in the past 16 months to date, adding spice to last year’s smartphone scene. And after all the wild chaos, the market in the year of 2017 will gradually clear out.

Guancha estimates that there will be ten major changes, or tendencies, in the Chinese smartphone market this year:

Pricing will surge! Chinese smartphone brands will be heading towards the mid and high-end market

Affected by the currency exchange rate and the surging BOM cost brought by the supply shortage, Chinese smartphone makers had undergone quite a bumpy road throughout 2016. For example, the price of RAM has been rising since the second half of 2016. The growth rate has already exceeded 20%. Qualcomm’s processors and Samsung’s OLED displays were in shortage and had been very expensive.

Several months after Xiaomi started to encounter supply chain and inventory issues, Lei Jun began to personally manage Xiaomi’s smartphone R&D and supply chain. During the seven months before the launch of OPPO R9 series, which is very popular in the market now, OPPO had been having supply shortage for three months. OPPO’s vice president Wu Qiang revealed to the media that: “The short supply of Samsung’s displays has caused at least 20% loss to the sales.”

Smartphone manufacturing demands processors, displays, touch modules, front and back cameras, RAM, flash storage and fingerprint recognition module, which account for 70% of the BOM cost. These core components are high-end products and are mainly imported from overseas. COOLPAD’s CEO Liu Jiangfeng revealed that: “Every time the exchange rate of the US dollars increases by 10 cents, the cost increases by ¥20 for us. This makes us in disadvantage in importing.”

On December 22nd 2016, the exchange rate of RMB to US dollars was 6.9435, with the rate almost went up to over 7. Industry insiders estimate that in 2017 the rate will surely go above 7. “The exchange rate might be around 7.2 this year.”

For Chinese smartphone makers, supply chain management has proven to be an urgent matter to solve. Under the circumstances that the currency rate is unstable and there is a component shortage, to sustain the profit rate, which is not high, Chinese smartphone makers is definitely going to increase the pricing. On Meizu’s recent annual press conference, Li Nan also stated that due to the pressure of rising cost, Meizu will bring up the price of their products in 2017.

Market research firm GfK’s statistics show in the first half of 2016, the retail sales of the Chinese smartphone market reached 230 million, a year-on-year growth of 15.5%. The statistics also show that mid and high-end phone models(¥2500-4000) had become the main growth driver of the smartphone market. There was a 111% growth in the prince range of ¥2500-3000, and 70% growth in the ¥3000-4000 range. GfK estimates that in 2017 the mid and high-end market in China will further expand, continuing to upgrade China’s smartphone market.

5+10 smartphone brands dominate the market, as mid and small-sized brands seek growth together

Under the pressure from the supply chain, brand premium and offline channels, the Chinese smartphone market took one step further towards brand centralization in 2016.

Statistics from IDC show that in the second quarter of 2016 the top three smartphone brands in China, Huawei, OPPO, and vivo, accounted for 47% of the country’s market share. In the first quarter of 2015 and 2016, the top three brands accounted for 43% and 45% of the marker share.

As a matter of fact, the Chinese smartphone market is now dominated by top domestic players like Huawei, OPPO and vivo and international brands like Apple and Samsung. Huawei’s Yu Chengdong and vivo’s Feng Lei stated that in the future many smartphone brands will fail in the main smartphone market.

Phone brands from top 6 to 15 will account for 1%-5% of the market share, as the second tier. In the near future, the smartphone chart will undergo changes constantly. Phone makers other than the top 15 will only account for less than 1% of the market share. The Chinese smartphone market at its peak time boasts around 500 million smartphones with an annual shipment volume of five million. The situation will only worsen in the next two years.

For brands like ZTE and TCL etc. who have certain advantages in overseas markets, it’s quite wise to shift focus from the domestic market to penetrating overseas markets for a period. And for mid and small-sized companies, banding together to seek opportunities is the only way out.

Apple and Samsung’s comeback

In 2016 Apple and Samsung both had a bad time. For Samsung, the Note 7 incident had caused over a direct loss of $5.89 billion, making Samsung’s mobile operation profit slump by 96%. Huawei then overtook Samsung’s place as the android phone maker with the highest profit. Apple on the other hand, encountered the very first sales decline ever since 2007 when iPhone was first launched. The company’s revenue also had the first downturn since 2001, with the net profit dropped by 19% year-on-year.

However, Apple and Samsung are still the two largest phone makers in the international market. After the setbacks in 2016, they are both now gaining momentum to bring about transformation. The year 2017 marks the 10th anniversary of Apple’s iPhone. According to overseas media report, iPhone 8 will come with major upgrades and will for the first time adopt OLED curve display. Besides that, the processor and camera will also have major upgrades. American market research firm Gartner estimates that in 2017 Apple’s hardware shipment volume will increase at a fast spped and will exceed that of the devices powered by Microsoft’s system.

To be fair, Samsung Note 7 was a really good android flagship despite the fact they burn literately. While the company’s strategy and reputation was under siege, Samsung is planning to launch its next flagship Galaxy S8 earlier than planned. This model bears Samsung’s mission to rebuild trust with the consumers and win back the high-end market. Whether it’s specs or the design, Samsung’s Galaxy S8 might easily top the android phone chart. In addition to that, it’s reported that Samsung will rolled out its first OLED phone in Q3 this year, named the Galaxy X.

Apple and Samsung are focusing back on innovation and that will bring up the competition and pressure for Chinese smartphone makers in the high-end market and the supply chain situation.

Offline channels become a must-take resource: the growth will slow down as the proportion expands

Last year was an essential year for offline channels to rise up again. Consumers in need of a new phone in the third-tier or lower tier markets became the main driving force for smartphone demand. In the past few years, OPPO, vivo and Gionee who have been accumulating online channel resources became the biggest winners.

Since 2011 in which the network operator led Chinese smartphone market started to heat up, the emergence of online channel led period (for example, we have had Xiaomi) also appeared from time to time. In 2014 we had the 4G phone wave. And in 2016 we had another new phone purchase wave. It’s apparent that every three years the Chinese smartphone market will undergo a cycle.

Vivo’s president Shen Wei stated at the company’s year-end dinner: “The competition in both domestic market and international market is fierce. Although vivo now enjoys a fast growth, we still see many issues coming up. To sustain the company’s healthy growth, we need to reflect on our problems and make adjustments. We must stay vigilant at all time and stay humble. Only in this way can we reach excellency.” This shows vivo’s rational thinking on its own soaring market performance.

In 2017, we will welcome a new purchase rush. In the future, the layout of the market will be a balance of online, offline and network operator channels. The ones that can make use of this periodical change will be the next leading brands in China.

Internet smartphone wave fades: will 360 phone focus on the software and will Xiaomi regain its growth?

The offline market will heat up, making the online market look cold. The Internet smartphone wave, started in 2011, will fade away.

GfK’s statistics show that in 2016 the offline smartphone market grew year-on-year by 8.3% while the online market only grew by 3.6%. That said, the Internet phone market was shrinking while the whole market was rising. Therefore, offline market provided more growth.

The most apparent cases are 360, LeEco and Xiaomi. These three brands all encountered sales slump during 2015-2016. For instance, 360 was still trying to sell out its flagship Qiku this month that was launched in August 2015.

According to industry insiders, 360 might shift its focus fully away from the hardware in 2017. One important signal is that 360 has bought in lephone. Rumor has it that Zhou Hongyi has already given the company’s phone brand Dazen to lephone and established a new team to sell 360 OS pre-install right and license to small and mid-sized Chinese brands. 360’s transition from hardware to software might show that there aren’t many choices for Zhou Hongyi to choose from.

Xiaomi didn’t make its shipment volume public in 2016. But looking from IDC’s data, Xiaomi had the first shipment volume slump in 2016. No matter how many smart hardware Xiaomi makes, the shipment volume remains the core foundation for Xiaomi’s operation and valuation. So whether Xiaomi can gain growth in its shipment volume in 2017 is an interesting story to follow up.

OLED+Curve screen will be a standard for the mid and high-end smartphone market

Samsung, vivo, Xiaomi, and Huawei etc. all launched their curve display phone models. After Apple’s joining in 2017, more Chinese brands will start to follow suit and make curve screen a standard feature.

However, curve display technologies are mainly held by tech giants such as Samsung and LG etc. With other giants’ joining, such as Apple etc., there will be a mass OLED display shortage. Statistics show that in October 2016, Chinese phone makers’ OLED orders accounted for 28% of Samsung’s sales. OPPO R9’s production capacity is limited by the supply of Samsung’s displays. Rumor also has it that Samsung limits its OLED supply to Huawei, which results in the delay of Mate9’s launch. For Chinese smartphone makers, OLED display supply will be a crucial resource in 2017.

Meanwhile, Samsung’s plan to launch OLED powered Galaxy X in 2018 will also generate a revolution in smartphone hardware innovation.

Photo shooting will be a major function on which brands will compete against

For Chinese users, taking good pictures has become a crucial demand that determines their purchase decision.

According to TouTiao’s statistics collected from the big data survey concerning 550 million users, over 53% of users put the picture taking capability on top of the user experience chart.

In 2016, almost all phone brands had launched dual-lens camera phone models. Huawei even teamed up with Leica to make its product stand out while Lenovo’s Moto Z adopted Hasselblad’s module. It’s expected that the competition in 2017 of the flagship market will be more of a photography competition. For photo-shooting phone brands that have a smaller shipment volume like Meitu etc., the competition will be even fiercer.

Post all-network era is about to come, as customized SIM card slot diversifies the market

The Chinese smart phone market will enter the post all-network era in 2017.

China Mobile has announced all the customized phone models, and phone models that are included in its strategic base with two SIM card slots will only support China Mobile’s network for the main SIM card. That said, they don’t allow users to use the other SIM card’s mobile data network.

This move will affect 71% of the Chinese smartphone market, generating great impact on phone chip makers, solution providers and terminal companies. It will even bring changes to China Telecom and China Unicom’s terminal strategies. In reality, China Telecom already initiated countering strategy, requesting phone makers to be fair and open about phone networks (for instance, all-network function). It’s natural for China Unicom to issue something similar to enhance the cooperation with China Telecom.

Smartphone will be an innovation tendency: requiring core technological innovation competence

Will smartphones become truly intelligent after ten years of development? It seems they are only having smarter functions.

In December 2016, Huawei launched its first AI concept phone——Honor Magic, which is powered by AI interactive engine Magic Live that Huawei had been developing since 2012.

On the 2016 CES, Huawei’s terminal business CEO Yu Chengdong once again mentioned the AI concept smartphone, regarding smartphone as AI’s effective platform. “At present, people connect with the digital world through smartphones. In the future, smartphone’s functionality will exceed beyond phone call and online connection. Smartphones will be your closest assistant, or even the other you, directly sending information flow to the reality and people,” Yu said.

From being smart to becoming truly intelligent, this might be an alternative way for smartphone brands to explore. After all, currently smart appliances are similar to smart cars. They are mostly touch module based interface instead of functional intelligent interaction. However, this not only test a company’s hardware design capability and production capacity, but also the innovation accumulation on big data, cloud computing and AI.

It’s apparent that smartphone technologies are still innovating and there is still a long way to go.

Chinese smartphone brands are entering overseas markets fast, but risks are also coming

The demographic dividend had been one of China’s greatest advantages, however, it’s gradually coming to an end. The unstable exchange rate also contributes to the chaos. In this case, going overseas becomes a must-do move for many Chinese companies.

In the past 2016, Huawei and ZTE had had great performance in the European market and American market respectively, making major breakthrough. Chinese brands such as Lenovo, Xiaomi, GIONEE, and OPPO etc. now account for 40% of India’s market share. And seven Chinese brands now are on the world’s top ten smartphone company chart.

However, the global market wasn’t stable either in 2016, and which only become more diversified in the year of 2017. Mature markets such as Europe, and the U.S etc. and emerging markets like India will encounter more changes. Chinese smartphone makers are facing risks regarding patent, custom and taxation when going overseas. Besides that, the world is also becoming more conservative as this process proceeds.

Chinese smartphone makers, without a doubt, will enter their peak era in the upcoming years, but risks are surely alongside the ride.

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[The article is published and edited with authorization from the author @Su Yi, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.

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