The Rebound of the Smartphone Market in China
Several research data released by various institutions indicate that the smartphone market is on the path to recovery. In the last quarter of the previous year, the global smartphone market returned to positive growth. The recently published data for the Chinese market reflects this trend as well. Whether looking at shipment volumes or sales figures, the anticipated recovery that everyone has been waiting for throughout the year is finally demonstrated in the data.
According to Counterpoint’s report, in the fourth quarter of 2023, smartphone sales in China hit bottom and rebounded, increasing by 6.6% year-on-year. This marks the first quarter-to-quarter increase after 10 consecutive quarters of year-on-year decline. On the other hand, IDC’s data indicates that in the fourth quarter of 2023, the shipment volume of smartphones in China was approximately 73.63 million units, a year-on-year increase of 1.2%. This rebound comes after 10 consecutive quarters of year-on-year decline.
Image Source: @Visual China
It is important to note that due to differences in statistical methodology, Counterpoint and IDC may have some variations in their data and rankings. Generally, shipment volumes represent a brand’s expectations for the market and its operational strategies, while sales figures better reflect the actual purchasing intentions of the consumer market. For example, Xiaomi shows a significant difference in the two lists. The explanation provided by the institutions is simply attributed to the differences in statistical methodologies. In essence, Xiaomi in the fourth quarter consumed more of its previous stock, leading to a substantial increase in sales figures.
However, despite the differences in data, one thing remains unchanged – the overall market has finally returned to a growth trend.
According to observations from the Titanium Media App, as market enthusiasm rises and product innovation iterates, demand in the entire smartphone market is gradually improving, although not yet fully unleashed. The demand primarily comes from high-end markets. It is almost certain that the negative growth will come to an end in 2024, but the growth rate is not expected to be too high. Single-digit growth is the most probable scenario. In contrast, India experienced a 20% rebound in the last quarter of the previous year, surpassing China and becoming the new battleground for many mobile phone brands.
Regarding brand performance, whether in terms of sales or shipments, Apple continues to dominate the Chinese market. With Huawei’s return in the 5G sector, it has gradually regained its position in the top three. Xiaomi, relying on the stability of the Xiaomi 14 series in the high-end market, has further boosted overall sales. As for brands focusing on the mid-range market, competition in 2024 will intensify, requiring more differentiation and innovation beyond price wars to attract consumers.
High-end Demand Unleashed, Chinese Smartphone Market Bottoming Out
Research institution TechInsights predicts that the global average replacement cycle for smartphones will exceed 4 years in 2023. Rewinding a year ago to the beginning of 2023, there were high expectations for the smartphone industry, and several institutions had optimistic forecasts at the beginning of the year. The timetable for returning to positive growth even advanced to the third quarter at one point.
However, as monthly data emerged, coupled with the performance of the 618 shopping festival, the turning point for the recovery of the Chinese smartphone market was continuously delayed. Canalys research analyst Zhong Xiaolei shared with Titanium Media App, “At the beginning of January, we were still quite optimistic, thinking that after normal inventory levels in the first half of the year, Q3 would witness a growth turnaround.” This optimism lasted a whole year until the smartphone industry finally saw the long-awaited dawn in the fourth quarter.
Image Source: IDC
According to IDC’s data, in the last quarter of the previous year, the shipment volume of smartphones in China was approximately 73.63 million units, a 1.2% year-on-year increase. However, the overall annual data continued to show negative growth, with a shipment volume of about 271 million units, a 5.0% year-on-year decrease, marking the lowest shipment volume in nearly a decade. In the report, IDC pointed out that in the first half of the year, the overall mobile phone market remained in a downturn due to the economic environment and the prolonged impact of the pandemic. In the second half of the year, as the economic environment improved and the smartphone market gained more attention and interest from various sectors of society, market demand gradually improved.
While the return to growth is a cause for joy, there are still concerns. The 1.2% growth in shipment volume and the 6.6% growth in sales cannot provide sufficient confidence to the entire industry. Market demand in the fourth quarter has not been fully unleashed, and manufacturers are still relatively cautious overall. Ethan Qi, Deputy Director at Counterpoint, mentioned that achieving year-on-year growth in the fourth quarter of 2023 was influenced by various factors, as the market was at a low point in the fourth quarter of 2022, making the year-on-year comparison more favorable.
Image Source: IDC
Furthermore, looking at the price curve, most of the growth comes from the high-end and entry-level markets, while the mid-range market has not been fully activated yet. IDC’s data on the pricing trends in the Chinese smartphone market in 2023 indicates that the share of the high-end market, priced over $600, reached 27.4%, an increase of 3.7 percentage points year-on-year. The share of the low-end market, priced below $200, recovered to 27.5%, an increase of 5.2 percentage points year-on-year. While high-end consumers maintain their purchasing power, more mid-range users are beginning to upgrade and choose flagship products to extend the replacement cycle.
Current Market Trends in the Smartphone Industry
The current market demand mainly stems from the high-end population in first to third-tier cities. Successful products are predominantly concentrated in the flagship product series of various brands such as Apple iPhone 15, Huawei Mate 60, Xiaomi 14, vivo X100. On the other hand, sales of mainstream mid to low-end products have not significantly improved. The replacement demand of mid to low-end users, who occupy a large portion of the market share, is still not fully realized.
Image Source: Counterpoint
The global market echoes a similar sentiment. According to a report by Counterpoint Research, sales in the global high-end smartphone market (wholesale price ≥ $600) are expected to increase by 6% year-on-year in 2023, setting a new record. The high-end market is anticipated to account for nearly one-quarter of the global smartphone market sales volume in 2023, contributing to 60% of the revenue. Analysts point out that the effectiveness in stimulating the replacement demand of consumers in fourth to sixth-tier cities will be a key factor influencing market recovery.
Apple Dominance: An Act of Humility Towards the Chinese Market
Typically, Apple experiences a surge in sales in the fourth quarter due to the annual flagship product release in September. Data from IDC and Counterpoint reveals that Apple consistently ranks first in the Chinese smartphone market in the fourth quarter. Moreover, for the first time, Apple also claimed the top spot for the annual sales.
After Huawei faced sanctions, the vacant high-end market share was not taken over by other domestic brands but rather surprisingly by Apple, which saw a continuous increase in sales in China in recent years. However, Apple’s outstanding performance in China in 2023 was not just due to product strength but more so because of its willingness to adjust pricing – essentially showing humility.
IDC’s report highlights that despite facing significant competition in the domestic high-end market and declining attractiveness due to limited product upgrades, Apple managed to attract a considerable amount of consumers through substantial price cuts and promotions via third-party channels. Although Apple no longer holds a significant advantage over Android flagship products, the overall product superiority of iPhones remains one of the best. However, Apple’s products are now priced more competitively than before, with adjustments made to channel delivery prices happening earlier and earlier.
During shopping festivals like Double 11, despite the iPhone 15 series dominating the sales, it was accompanied by subsidies on platforms like JD.com and Taobao, with discounts reaching up to 1100 RMB. Post-festival, discounts on the iPhone 15 series continued on e-commerce platforms, with even more substantial reductions. Following Apple’s characteristic, these promotions were not arbitrary. Recalling last year, Apple’s distributors went through a round of promotions to clear inventory.
At that time, discounts on the iPhone 14 series were offered at authorized stores and third-party e-commerce platforms, topping the trending charts with headlines like “iPhone 14 series price cut by 700 RMB”. An employee at an authorized store shared with media outlets that due to excess inventory pressure, heightened sales pressure at the beginning of the year, and a generally sluggish industry, reducing prices was the fastest and most effective way to boost sales.
Factors such as product inadequacy, strong performance from competitors, and a shrinking market compelled Apple to adjust prices to attract consumers for purchases in China. It should be noted that even shortly after the release of the iPhone 15 series, several research institutions predicted a less impressive performance.
CINNO Research forecasts that Apple’s smartphone sales in the Chinese market in 2023 may reach 45.5 million units, a slight decrease of 2% compared to the previous year. Among these, the latest iPhone 15 series is projected to sell around 10 million units in 2023, reflecting a 22% decline from the sales of the previous iPhone 14 series during the same period, with a decrease of around 2.9 million units.
In early 2024, Apple announced price reductions once again. Notably, this price adjustment comes directly from the company rather than through distributors or third-party online platforms. IDC China’s Senior Analyst, Guo Tianxiang, indicated to media outlets that “At the beginning of this year, Apple had already adjusted the channel prices of the iPhone 15 series, marking the earliest such adjustment in history, indicating greater room for price adjustments in some third-party channels and e-commerce platforms.”
Counterpoint’s Senior Analyst, Ivan Lam, believes that the upcoming Chinese New Year symbolizes a traditional sales peak. To fully leverage this seasonal demand surge, Apple strategically implemented price reductions to stimulate sales during this period. However, this move also reflects the intensified competition in the current market.
“Chinese brands are enhancing their competitiveness in the flagship product segment, not limited to Huawei’s resurgence. The Xiaomi 14 series, vivo’s X100 series, and Honor’s foldable screen series have exerted significant pressure on Apple’s market performance,” further added Guo Tianxiang. Data shows that in the fourth quarter of the previous year, Xiaomi and Huawei’s smartphone sales surged by 36.4% and 71.1% respectively.
Sales Soar by 71%, How Far is Huawei from Regaining the Top Spot?
While the rankings may vary slightly among different institutions, there is no dispute that Apple holds the top position. Among domestic phone brands, another undisputed fact is Huawei’s high-profile comeback. Looking at the shipment data, Huawei saw a growth of around 40% in the fourth quarter of last year, ranking fourth. In terms of sales data, Huawei surged back into the top three in the Chinese smartphone market with a remarkable 71% growth, trailing only behind Apple and Xiaomi.
Image Source: Counterpoint
Previously, analysts from the Wall Street investment bank Jefferies reported that in the first week of 2024, iPhone sales in China dropped by 30%. In contrast, Huawei phones experienced a rapid growth, reemerging as the top-selling brand in the Chinese market with a 19.2% share.
In fact, signs of Huawei’s resurgence in the smartphone market were already evident early last year. A report on the smartphone market in the first quarter of 2023 pointed out that Huawei, which had long been categorized under “others,” turned the tables by becoming one of the only two brands among the top seven to experience a positive growth in sales, with a year-on-year increase of 41% and an increased market share of 9.2%. Huawei had mentioned at that time that its product release cycle had returned to normal since being sanctioned by the United States over three years ago.
By mid-year, Huawei announced its comeback with the Mate 60 series, causing a scarcity in the market and driving up prices in the secondary market. A set of data obtained by the Titanium Media App from Huaqiang North revealed that for the Huawei Mate 60 series, except for certain versions, most were priced between 150-500 yuan higher. Even the folding screen Huawei Mate X5 saw prices hiked by over 1000 yuan, sharply contrasting with the price cuts of the iPhone 15 series.
At the end of last year, the release of the mid-range flagship Huawei nova 12 series further accelerated the growth of Huawei’s smartphone sales. According to data released by BCI, domestic smartphone activations in the first week of 2024 reached 5.592 million units, and thanks to the launch of the nova 12 series, Huawei secured the top spot with 1.073 million units sold.
Moreover, Huawei’s rapid growth has played a key role in rejuvenating the Chinese smartphone market in the fourth quarter. Analysts at Counterpoint pointed out that Huawei’s Kirin chips were a major factor driving the brand’s growth. The inclusion of Huawei’s self-developed 5G chips in new phones significantly contributed to the recovery in the fourth quarter of 2023. The mid-range Nova 12 series is expected to continue attracting loyal users.
Following a series of strong performances, the focus now shifts to when Huawei can reclaim the top spot in the domestic market. Currently, in terms of sales, Huawei’s market share was 9.1% in the third quarter of last year, increasing to 15.2% in the fourth quarter. This puts it five percentage points behind the top-ranked Apple, representing a 42% reduction in the gap compared to the second quarter of last year. While this gap may seem small, in the competitive smartphone market, every percentage point growth requires double the effort, involving both product factors and operational strategy adjustments.
For Huawei, the full return of its entire product line to normalcy is still pending. The real resurgence of Huawei will occur only when the P series and the rest of the product line return to 5G. Besides product-related factors, the ability of Huawei’s supply chain to keep up with market demands is another crucial point and a test for Huawei’s supply chain.
Lastly, it’s worth noting that while the Chinese market saw a rebound of less than 10% in incremental growth, the Indian market achieved a 20% growth in the fourth quarter. Canalys data revealed that smartphone shipments in the Indian market reached 39 million units in the fourth quarter of 2023. Although still lagging behind the Chinese market by a significant margin, the rapid growth in India has become a focal point for many smartphone brands.
Among the top five in shipments in the Indian market, Chinese brands occupy four positions. In a bid to tap into even greater growth, despite various operational risks, Chinese brands have expressed intentions to increase their investments. Ivan Lam, an analyst at Counterpoint, pointed out to the Titanium Media App that India has become the most populous country and with a decent birth rate, along with a large and active young demographic. For smartphone brands, India represents an important potential market for the next decade.
To some extent, there is no direct comparison between the Indian and Chinese markets, but the difference in growth rates will influence how smartphone brands assess and invest in these markets. For the Chinese smartphone market, the challenge ahead lies in how to further stimulate existing users’ demand for upgrades and boost market vitality.
Guo Tianxiang, senior analyst at IDC China, noted that although the Chinese smartphone market has returned to a growth trend, a cautiously optimistic attitude should be maintained towards market performance in 2024. Consumers who bought heavily during the peak of shipments in the second half of 2020 will gradually enter the replacement cycle in the first half of this year, forming the basis for market rebound. Satellite communication and AI large models are not expected to become rigid demands for consumers in the short term, driving massive upgrades.