China’s <$150 Smartphone Market Posts Surprising Surge in Q1 2023

  • China’s entry-level segment (<$150) rose 22% YoY in Q1 2023, despite a decline in the overall domestic smartphone market.
  • Demand in the segment appears resilient as smartphones in China are a necessity for payments and job-related tasks.
  • Due to falling manufacturing costs, OEMs are offering more features in the <$150 segment, such as 5G.
  • Demand for entry-level products may continue but will decrease over time as customers move toward higher price segments.

China’s smartphone market is witnessing a surprising shift in the landscape. In Q1 2023, China’s overall smartphone market fell 5% YoY. However, going against the grain, the entry-level segment (<$150 wholesale price) increased significantly by 22% YoY during the quarter, according to Counterpoint’s China Quarterly Smartphone Report.

Over the years, Chinese OEMs have been mostly targeting the premium segment. Android smartphones have actively pushed the trend of premiumization in China, hoping to capture more market share from established players like Apple in the ultra-premium (>$800) segment. Nevertheless, Apple’s market share has continued to grow, reaching its highest in recent years.

China Smartphone Market Share by Price Bands Q1 2022 vs Q1 2023
Source: Counterpoint Market Pulse Service

The surprising rise in the entry-level price band in Q1 2023 serves as a reminder of the segment’s resilience. In China, people are increasingly reliant on smartphones as the digitalized society accepts mobile payments almost everywhere. Smartphones have become a necessity for finding jobs or working for the gig economy in areas such as food delivery and car chauffeuring.

Looking at historical data, China’s entry-level segment reached its peak in 2020 during the first wave of the COVID-19 pandemic when the smartphone penetration rate increased as the government promoted non-contact services. People also needed smartphones to register and scan their health codes when visiting public spaces.

China Smartphone Entry Level Segment Sales Share, 2018-2022
Source: Counterpoint Market Pulse Service

However, in the following year, the chip shortage led to a rapid increase in manufacturing costs for smartphones. OEMs had a hard time introducing major updates in entry-level price band smartphones, resulting in fewer choices for customers. Meanwhile, OEMs were more focused on the high-end segment where profit margins are typically higher.

Manufacturing costs have now declined over the past few quarters, allowing OEMs to introduce specification upgrades in the entry-level segment. One notable upgrade is the inclusion of 5G features, with several 5G models now available in the segment.

We do not expect most customers will replace their smartphones with cheaper ones priced below $150 considering the difficult macroeconomic situation. Customers are likely to hold on to their current smartphones longer. The replacement cycle in China has now exceeded 40 months.

Moreover, we expect the average selling price of smartphones to increase again by the end of 2023 as Android OEMs continue with their premiumization strategy and as foldable smartphone shipments continue to increase.

Demand in the entry-level segment is expected to persist in the future, as certain consumer groups may continue to prefer products in this price range. Apart from lower-income groups, which may decrease in size over time as the economy develops, teenagers and senior citizens may still opt for entry-level smartphones. This is because senior citizens typically are not very interested in technology products, and parents of teenagers often choose entry-level devices to limit their children’s smartphone usage.

When designing future smartphones in the entry-level segment, OEMs should consider adding group-focused features and specifications such as screens that reduce eye strain, easy parenting controls and stronger checks against fishing or click-bait ads. Such features would address the concerns of consumers in this segment and also draw in more customers.

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