Samsung, the world's largest smartphone maker, has lost its leading position in the Chinese market to a local upstart, Xiaomi, in a reversal that has stunned industry analysts.
"This is a phenomenal achievement for Xiaomi," said Shanghai-based Canalys Research Analyst Jingwen Wang. "Undoubtedly this was helped by an anticipated, temporarily under-strength Samsung performance during the quarter. But that is only half the story--Xiaomi has also executed on its strategy to grow volume shipments. It has delivered compelling products at aggressive price points, focused chiefly on its locally relevant MIUI software features and services, backed by effectively targeted marketing."
Wang pointed to Xiaomi's cheaper RedMi phones as well as its flagship Mi products as leading the way for the company in China--a critical market for global smartphone makers because it is now the world's biggest smartphone market.
Analysts have generally attributed Xiaomi's rise in China to the company's ability to sell phones at prices far lower than the competition: Xiaomi sells phones around $100-$200 whereas companies like Samsung sell their high-end phones for as much as $600. Xiaomi makes money by selling Android applications and Internet services. The company gained international stature last year with the hiring of Hugo Barra, a former Android VP at Google. Privately held Xiaomi this year plans to expand into 10 new markets including Indonesia, Mexico, Russia, Thailand and Turkey; the company hopes to sell up to 100 million smartphones next year.
According to Canalys, China accounted for 37 percent of the world's smartphone shipments in the second quarter, and Xiaomi in the second quarter commanded 14 percent of the Chinese market, a figure that represents 240 percent year-on-year growth for the company. Samsung, for its part, tumbled to the No. 2 position in China with a 15 percent year-over-year decline in sales in the region.
Interestingly, Apple (NASDAQ: AAPL) continues to enjoy solid sales in China, Canalys noted, with 58 percent year-on-year growth largely aided by the company's deal in December to sell phones through China Mobile, the country's largest operator.
Samsung's loss of the top spot in China is part of the company's wider stumbles in the market. The Wall Street Journal noted that Samsung also lost the top spot in India--Asia's third-largest economy--to local startup Micromax Informatics. Samsung saw sales and operating profit at its mobile unit fall in the second quarter.
But Samsung said it expects its mobile business to improve in the second half of the year due to increasing demand. "To meet this rise in demand, Samsung will focus on releasing new premium mobile devices, and a new flagship model in the large screen category, along with new mid-to-low-end models with more advanced features and competitive pricing," the company said last month.
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