Apple knocked down to fifth in China

September will be a big month for the smartphone wars, with a hat trick of major launches expected in the first two weeks.
Samsung has promised “something big” for September 1, probably the latest Note to steal some thunder from the expected “iPhone 5” debut on the 12th. Squeezed between those two dates is Nokia World, where the Finnish firm is likely to unveil its first Windows Phone 8 Lumia models, as it struggles for visibility between the big two.
At least Nokia has something different to show off – it is increasingly hard for other Android players such as HTC, Sony, Motorola and LG to be seen at all under the shadow cast by Samsung on the Google OS landscape.
However, it is too early to call the sector a duopoly. Google's acquisition of Motorola and its own stepped-up Nexus strategy may shift the battle lines; Sony's latest results indicate that its buy-out of Ericsson is bearing fruit; and with China now the world's largest smartphone market, the rules are changing rapidly, in favor of less traditional vendors.
Chinese vendors gain in largest market
China is the best indication that this is still an immature and fluid industry. The country is now the dominant force in global smartphones, doubling its purchases over the past year to account for 27% of all shipments in the second quarter. According to calculations by research firm Canalys, 42 million smartphones shipped in China, up 199% year-on-year and 32% on 1Q. By comparison, the former number one market, the US, made up 16% of a global total of 158 million devices.
There is little comfort in this shift for western handset makers like Motorola, Nokia or even Apple. While Samsung retained the lead it took from Nokia last year, with 17% of the Chinese market in 1Q12 (but down from 28% in Q1), most of the growth benefited domestic suppliers. Chinese vendors shipped 25.6 million units, a huge year-on-year growth of 518%, and took 60% of the space between them. By contrast, non-Chinese manufacturers grew at a more stately 67% to ship 16.7 million smartphones.
So after Samsung, the next places in the top five are all taken by local majors – ZTE in second, followed by Lenovo and Huawei. ZTE, the most established of the three in smartphones, saw 171% year-on-year growth, while Huawei reported 252% and Lenovo – better known for its PCs – a phenomenal 2,665%.
That left Apple down in fifth place. Its 102% increase on year-ago sales would have been good anywhere else, but more concerning was a 37% drop compared to 1Q12. Apple had a particularly good first quarter in China, after it added a second carrier deal, but as in other areas, suffered from consumers' wait for an expected iPhone upgrade in the fall during the second quarter.
The most successful non-Chinese player in growth terms was HTC, which saw its smartphone sales increase by 389% compared to 2Q11, selling 1.8 million units. Its highlight was the launch of the Desire V series, specifically tailored to China.
Nicole Peng, China research director at Canalys, said the domestic brands had thrived on their responsiveness to market demand changes, their understanding of local consumer tastes, and the recent effort they have put into cultivating strong ties with operators. Tier two Chinese suppliers, such as Oppo, K-Touch and Gionee, have also increased their shipments as they move up from their established feature phone bases. Android ran on 81% of the smartphones shipped in the quarter.
There may be new opportunities up for grabs in China, but Apple may also face renewed competition from more traditional quarters too. In particular, Sony is showing some signs of rebirth.
Mobile was a highlight in otherwise downbeat results at the firm, which reported a net loss of 24.6 billion Yen (€271 million) in its first fiscal quarter.
The Japanese giant said sales rose by just 1.4% year-on-year, to 1.51 trillion Yen, and that modest uptick came from the mobile business, which it bought out from joint venture partner Ericsson earlier in the year. However, without the assimilation of Ericsson's 50% stake in the venture sales would have been down 7%. Also group operating income fell by over 77% on the year-ago period to 6.3 billion Yen, and the firm slashed its profit forecast for the full year.