Emerging Markets Driving Smartphones in Growth Opportunity for Chinese Makers

Top global smartphone company Samsung saw its market share drop from 32.3 percent to 25.2 percent from Q2 2013 to 2014, while a “wide range of Chinese OEMs more than outpaced the market” in Q2, according to a report from IDC. Samsung’s shipments declined 3.9 percent in Q2 to 74.3 million units, still far ahead of No. 2 Apple, which saw shipments increase 12.4 percent over Q2 2013 to 35.1 million units, according to IDC. But Apple’s market share also shrank from 13 percent to 11.9 percent year over year for the period, it said.

Despite a “challenging quarter for Samsung, and to a lesser extent Apple,” the strong market demand boosted results for most smartphone vendors, IDC said. Emerging markets supported by local vendors continue to be the main catalyst for smartphone growth, IDC said. Ongoing demand and “an abundance of low-cost smartphones” fueled a “very strong” Q1 followed by a 2.6 percent bump in shipments in Q2, IDC said.

IDC forecasts that overall market growth will continue and that shipments will top 300 million units for the first time in a single quarter in Q3. “The smartphone market has plenty of opportunity and momentum,” said Ryan Reith, program director-IDC’s Worldwide Quarterly Mobile Phone Tracker, adding that more than a dozen vendors are capable of reaching the top five vendor list in the next quarter. While Samsung and Apple have a commanding lead in market share currently, Huawei, Lenovo and LG come in at 6.9 percent, 5.4 percent and 4.9 percent, with the “other” category comprising 46 percent of global smartphone sales. Some of those companies are currently operating in a single country, but “they all recognize the opportunity that lies outside their home turf,” Reith said.

Of the Chinese companies showing most impressive growth, Huawei, in third place in global smartphone shipments, nearly doubled its shipments from a year ago in Q2, followed by “another strong performance from Lenovo,” IDC said. Huawei shipments jumped from 10.4 million to 20.3 million year-over-year in Q2, ahead of Lenovo, which jumped 39 percent to 15.8 million units for the period, it said. LG, in fifth place, saw share slip slightly from 5 percent to 4.9 percent, while units grew 20 percent, from 12.1 million to 14.5 million year-over-year. Growth was largely driven by LG’s L series, with the L70 performing well in many markets, including the U.S., IDC said. IDC projects further growth from LG in Q3 since the G3 launched in Korea late in Q2, it said.

At Samsung, Galaxy S4 and even S3 volumes “remained strong” as affordable alternatives to newer, higher-priced models, IDC said. Samsung lost 7 percent market share compared with a year ago, “despite having one of the largest smartphone portfolios of all OEMs,” IDC said, adding that to keep its number-one position it will have to focus on “building momentum in markets dominated by local brands."

Apple’s Q2 success owed to strong sales in BRIC (Brazil, Russia, India, China) countries, even as U.S. consumers were “holding their collective breath for the long-awaited bigger screens” expected in the upcoming launch of the iPhone 6, IDC said. It called Apple’s strong sales in BRIC countries “a good sign that it is building its footprint in emerging markets,” adding that Q3 for Apple could be a “drought or a flood, depending on the timing of the next launch."

Huawei’s strong results owed to 4G LTE pickup, primarily in China, where the three national carriers subsidized 4G handsets, including Huawei’s P7, as incentive for customers to upgrade from 3G, IDC said. Outside of China, large volumes of Huawei’s lower-cost Y series smartphones fueled growth “across most regions,” said IDC, which expects momentum to continue as the company continues to focus on broadening its global reach.

Lenovo had a record quarter in China despite “tremendous pressure” from local brands, IDC said. Lenovo continued to gain traction in international markets, IDC said, noting that shipments outside of China -- particularly to BRIC countries -- tripled from Q2 2013 to Q2 2014. Lenovo is still awaiting approval of its Motorola acquisition.

With the expected “death of the feature phone” occurring faster than anticipated, Chinese vendors are ready to “usher emerging market consumers in to smartphones,” said Melissa Chau, senior research manager. Being able to offer smartphones “at a much better value than the top global players -- but with a stronger build quality and larger scale than local competitors -- gives these vendors a precarious competitive advantage,” said Chau.