Cheap and cheerful, Chinese phones outsmart Apple

SHANGHAI: In China's booming smartphone  market, which is set this year to overtake the United States as  the world's largest, a host of little-known local firms are  primed with cheap phones to squeeze market share from US giant Apple Inc's iPhone.      

In the latest local challenge to the iPhone, Xiaomi  Technology on Thursday launches the successor to its popular  MiOne smartphone, which is expected to have top-end  specifications exceeding those of the iPhone 4S - at around half  the price.

While iPhone sales will increase in China, Apple's market  share may stagnate or even dip as the market's changing  demographics mean the iPhone flourishes in just a handful of  wealthy Chinese cities, analysts said.

"The sweet spot of affordability in China is 800-1,500 yuan  ($130-$240)," said Michael Clendenin, managing director of  Shanghai-based consultancy RedTech Advisors. "The 'Lao Bai  Xing', or man in the street, is going to go for these mid-tier  phones."

Industry researcher IDC estimates that in China last year,  smartphones costing less than $200 made up 40 percent of  shipments, while devices costing $700 and more accounted for 11  percent of the market.

Apple releases a single iPhone model a year at a price -  around $800 - equivalent to about two months pay for an urban Chinese, who make up half of China's 1.3 billion population.  Analysts say the real growth in China is in cheaper smartphones  where a wide variety of models at different prices appeal to  first-time buyers.

"Apple isn't going to rule China, simply because of the limited models they have and the price points they target," said  TZ Wong, an analyst with IDC. "Based on these two factors, we do  not think Apple will be the No. 1 smartphone player in China."

Apple ranked second in January-March smartphone shipments in  China, with 17.3 percent market share, trailing Samsung  Electronics' 19.2 percent, according to research  firm, Gartner.

Smartphones from Xiaomi - founded only two years ago but  already worth more than Blackberry maker Research in Motion  , according to private market valuations - have proved  so popular they sell out in minutes after going on sale online.  The company, founded by CEO Lei Jun, said last month its  first-half revenue was close to $1 billion as it sold more than 3 million phones.

Mirroring Apple's annual worldwide developers conference  (WWDC), where devotees would pay to listen to Steve Jobs  showcasing new products, the informally-clad Lei will charge  MiOne fans 199 yuan ($31.30) to attend the Beijing launch, with  the proceeds going to charity.

IOS to slip to 3rd

Apple's market share by volume has been on a downtrend, and  the share of the market commanded by its iOS mobile operating  system is expected to slip to third place by 2016 from second  earlier this year, according to Gartner analyst Sandy Shen -  below Google Inc's Android and Microsoft Corp's Windows.

Apple's iPhone sales in China, its second-largest market,  stumbled in April-June on inventory adjustments with the launch  of the iPhone 4S. That extra inventory meant resellers didn't  need to buy as many iPhones during the quarter, and the expected  launch later this year of the iPhone 5, with enhanced Chinese  language capabilities, also likely held back orders.

"Apple's market share is pretty stable. It will be flat over  the next five years. Although volume-wise it's increasing,  that's because the total market is growing," Shen said.

Research firms IDC and Gartner predict China's smartphone  shipments could hit 140 million this year, topping those in the  United States.

High-spec, low cost

Growth is driven largely by smartphones made by ZTE Corp, Lenovo Group and smaller  private firms such as Xiaomi, Gionee and Meizu Technology.

Meizu phones, which sell in China and Hong Kong for 1,500  yuan, are feted by Western technology blogs for offering  high-end smartphones at bargain basement prices.

Offering even cheaper models, Alibaba Group,  Shanda Interactive and Baidu Inc have all this year  launched smartphones for under 1,000 yuan. Baidu's phone, made  with partners, retails at 899 yuan ($140), while Alibaba's  waterproof smartphone, made with Haier Electronics Group  , costs 999 yuan.

"For those with an iPhone or Samsung ... it's just a  replacement cycle. But for many people who haven't got their  first smartphone, those are the people who will get cheap  smartphones," Shen said.  ($1 = 6.3586 Chinese yuan)