The smartphone industry is brutally competitive right now, to the extent that market share positions between the top five players can change on a daily basis. Three of China’s major smartphone vendors, Lenovo, Xiaomi Corp. and Huawei are all battling for a place in the top three market share holders – a contest that reflects the growing power of Chinese smartphone manufacturers.
On October 29, research company International Data Corp. (IDC) announced that Beijing-based Xiaomi Corp. had surged into the top three smartphone vendors, thanks to triple digit year-over-year growth. The company’s 5.3% market share for the third quarter of 2014 beat rivals Lenovo on 5.2% and LG with 5.1%, according to IDC data. However, the next day Xiaomi was ousted from its podium position after Lenovo completed the $2.9 billion purchase of Motorola Mobility from Google.
The quick switching of positions and slim margins between competitors reflect just how tough the smartphone manufacturing market has become. The leaders, however, remain unchanged. Samsung currently holds a 23.8% share of the market, according to the data, while Apple’s iPhones account for 12%.
Xiaomi’s rise to the top positions has been staggering. At this point last year, the company held just 2.1% of the market, a number which has more than doubled within 12 months. Xiaomi has aggressively targeted the Chinese market, and initially produced budget smartphones. In August, however, the company launched its Mi4 device, which was aimed at the higher end of the market, and was received well in China.
Questions remain over Xiaomi’s ability to expand beyond China. The Chinese market is huge, but to progress further up the smartphone leader table a company must have a global reach. Xiaomi’s major Chinese competitor Lenovo has achieved this more effectively.
Lenovo’s growth has been slower in comparison to Xiaomi, achieving a 0.5% increase in market share over the past 12 months, without taking into account the Motorola acquisition. The company’s shipments outside of China have grown rapidly however, and hit 20% in Q3 of this year, compared to 9% one year ago. The Motorola acquisition also gives the company a ready-made, and reasonably faithful, customer base outside of China. The Moto-G and Moto-X smartphones in particular have been successful. Lenovo claims that following the Motorola acquisition, it now holds an 8.7% market share, shipping 25.6 million devices.
The third major smartphone player in China is Huawei, which grabs a 5.1% share of the global market, according to IDC. The company is locked in an intensely close battle with LG, Lenovo and Xiaomi for the spots behind Apple and Samsung in the smartphone race. In the second quarter of this year Huawei held the third place spot, before falling behind its competitors in the last quarter. One of Huawei’s major advantages its relationship with the mobile carriers across the world, due to its main business selling network equipment. The company’s smartphone offerings attack different price points in the market, and the majority of its phones use the Android operating system.
As the three major Chinese smartphone players have surged, others in Asia have struggled. South Korea’s Samsung has lost market share at an alarming rate, falling from 32.5% share 12 months ago to 23.8% for the third quarter this year. The company also announced its third quarter operating profit fell 60.1% annually, and profit for the mobile division dropped 73.9%. Samsung has responded by revamping its smartphone offerings, and introduced new models to address the middle and lower end segments of the market. “The mid-to-low end market is growing rapidly, and we plan to respond actively in order to capitalize on that growth,” Samsung Senior Vice President Kim Hyun-joon said during an earnings conference call.
Tokyo-based Sony’s mobile division is in an even worse state. The company’s mobile communications unit recorded a $1.6 billion operating loss for the third quarter, and last month Sony wrote down the value of its mobile business by the same amount. Both Samsung and Sony have suffered from the rise of the three Chinese vendors, and will hope new strategies can regain ground against their regional competitors.
China’s big three can be easily characterized by their recent gains. Rapidly rising Xiaomi is the up and coming youngster, having been founded in 2010. Reports suggest Xiaomi is about to raise a huge round of funding which will value the company at $40 billion – a figure that would make it the world’s most valuable privately held technology company.
Big-spending Lenovo has a market cap of just under $120 billion and its recent purchase of Motorola will undoubtedly give its smartphone business a huge boost. Lenovo’s growth has slowed, but the company hopes the loss-making Motorola Mobility unit will halt that reduction in growth.
Finally there is Huawei, a company with a secretive and seemingly undecipherable ownership structure. Earlier this year Richard Yu, the head of Huawei’s consumer business group, told the Wall Street Journal that the company had no plans to make any acquisitions, and would instead rely on its technological knowledge as a communications specialist, and increased R&D budget, to boost its growth in the smartphone market.
All three companies will have a huge say on the future of the smartphone sector, and have ambitions for the top spots in the market. Although the gap is large, both Apple and Samsung will be looking nervously over their shoulders.