China Smartphone Market in 2H 2018: From Price War to Flagship Battle

Beijing, Hong Kong, Seoul, San Diego, Buenos Aires, London, New Delhi – November 29, 2018

Smartphone sales in China are showing no signs of recovery, ending Q3 with 13% YoY decline according to Counterpoint’s Market Pulse Service. This performance continues the established trend and is driven by a mix of a gloomy macroeconomic outlook and weaker consumer purchase intentions .

Chinese OEMs occupied the top five positions  in 3Q’s top-selling charts, together accounting for  over 78% market share in their home market. Among the top five brands, VIVO, Huawei and Honor grew against the trend and stood out by achieving a positive YoY performance. The sales volume of VIVO was up by 2% compared to same period last year, and for the first time it surpassed OPPO to become the sales leader in China controlling close to a 20% share of the market. Huawei and Honor enjoyed the strongest growth momentum—the dual brands both grew by 14% year on year and combined they captured close to 27% of the market. OPPO, was second overall  with almost the same volume as  VIVO, although OPPO’s sales volume had fallen by 11% YoY.

 Xiaomi, ranking 5th in the market, dropped by 15% YoY as the sales performance of its flagship Xiaomi 8 series fell short of market expectation in China.

 Apple was  ranked 6th  in China behind Chinese competitors in 3Q. Apple also declined by 17% YoY during the quarter due to the weak initial performance of the newly-launched iPhone XS series. A lack of clear innovation in products design and and functionalities compared to its predecessors and the high prices dampened the purchasing passion of Chinese consumers for the iPhone XS series .

Exhibit 1 : China Smartphone Sales in Q3 2018

Commenting on brand performances in Q3, James Yan, Research Director at Counterpoint, said,  “The growth of VIVO,  Huawei and Honor can be attributed to their strength in product innovation and supply chain management. This helped them improve their offerings and bring advanced features akin to premium level smartphones, such as AI-powered processors, bezel-less screens, dual cameras, faster screen-unlock and gradient color back cover, to new models in the mid-to-affordable-tier segments. In addition, the sumer holiday and back-to-school seasonal sales in 3Q also stimulated upgrade demand for smartphones among Chinese consumers, especially young adults. Thus, models with trendy designs and affordable prices, such as the vivo Y83 / Y85, vivo Z1, Huawei Nova3 / Nova 3i, Honor 8X / 8X MAX, Honor 9i, Honor Play, Honor Changwan 7A/7C, won the hearts of Chinese consumers and gained the best market traction during this period.”

Smartphone market outlook in Q4 2018: From Price War to Flagship Battle

Entering the fourth quarter, the competition in China is getting more intense following the debut of annual “spotlights” such as Huawei Mate 20 series, Apple iPhone XR/XS series and Honor Magic 2. The market giants and their flagship models have just concluded the first battle in 4Q during the 11.11 Single’s Day Sales in China. According to the public data from e-commerce platforms, Honor and Apple were the winners during the Single’s Day Sales this yearHonor was the leader on JD.com in terms of both sales volume and sales value on 11th November, while Apple led on Tmall.com by sales value.  As for cumulative sales from 1-11 November, Honor was the leader in terms of sales volume on both platforms (JD.com and Tmall.com) and Apple was the best performer by sales value.

Q4 is usually the “hot-sales” season for flagship and premium smartphones in China, driven by joint efforts of both smartphone OEMs and their channel partners to launch new products and carry out promotional campaigns, such as 11.11 Single’s Day Sales, 12.12 E-commerce Sales, the year-end promotions and more. Commenting on the competitive landscape in Q4, Counterpoint Research Analyst, Flora Tang, said, “The market is likely to shift from the ‘price war’ in Q3 to the ‘flagship battle’ in Q4. Confronted by the competition from the latest iPhones, elevating brand image to take share  from Apple in the premium market will be the major challenge for the Chinese Android giants. The market is expected to ramp up as the most ‘exciting’ battle of the year is coming—the competition between the growing star Huawei (including Honor) and the long-term authority Apple in the Chinese premium market.

According to Counterpoint’s Market Pulse service, in 3Q 2018 (Exhibit 2), Huawei (including Honor) surpassed Apple to lead in the $400-$600 premium segment, taking a 43% share due to the popularity of Huawei P20 and Honor Note 10 series; Apple continued to lead the above-$600 super-premium segment with an increased share of 65%, driven by attractive channel promotions to push sales of iPhone X and iPhone 8 Plus before the launch of new iPhones in September. The share of Huawei in the super-premium segment also rose to 20% due to the popularity of the Huawei P20 Pro.

Exhibit 2: Q3 2017 Vs. Q3 2018: China premium market share by brands (wholesale price in USD)

We expect Huawei (including Honor), with its latest flagship models, Huawei Mate 20 and Honor Magic 2 series, to continue to lead in China’s premium market through the end of the year. Meanwhile, Huawei’s Mate 20 Pro is also expected to challenge Apple in the super-premium segment.

Apple, by raising prices of its latest iPhones in 2018, is expecting to see growth in hardware revenue and profits, even sales volumes of iPhone XS and iPhone XS MAX combined turn out to be just equal to that of iPhone X alone last year. According to Counterpoint’s Model Sales Database, sales of the latest iPhones in the initial month after launch appeared plain compared to their predecessors. After channels offer discounts and price-cuts to stimulate market demand, sales of the iPhone XS MAX have started to ramp-up, but sales of iPhone XS remain feeble. Apple expects the less-expensive iPhone XR to drive sales volume, but it is likely that iPhone XR, due to its limitations – single camera, 6.1-inch LCD display and non-compatibility with the Gigabit LTE communication technology— will be challenged by Huawei Mate 20 Pro, which is more aggressive in product design and innovation with the classic four-point headlight structure embracing the new Leica triple cameras at the back,  and Honor Magic 2, which has specs on a par with premium flagship models such as the Huawei Mate 20 and iPhone XS,  features AI triple cameras and a more intelligent YoYo digital assistant (details please see here). In the meantime, Xiaomi Mix 3, OPPO Find X and VIVO NEX are also providing different choices to consumers in the premium market.

Exhibit 3: Comparison on Key Specifications

 

For the in-depth analysis on  China mobile phone market, please contact:

press(at)counterpointresearch.com

 Analyst Contacts:

James Yan闫占孟

+86 15810182576
[email protected]

 Mengmeng Zhang

+86 18611804269
mengmeng@counterpointresearch.com

 Flora Tang

+852 5545 2529
flora@counterpointresearch.com