Last Friday I reported how China’s smartphone market had hit its first major slowdown in 27 months, as the growth engine of Asia slowly matures.
Well, I’ve been back to the analyst house where those stats came from to ask specifically who the biggest handset winners and losers are in China at the moment.
Unsurprisingly Samsung remains number one with a market share of 19 per cent, followed by local players Lenovo (13 per cent), Coolpad (11 per cent) and Huawei (10 per cent).
Apple rounded out the top five with a 7 per cent share – which various reports have shown was a one per cent improvement on the previous quarter and signs that things are picking up in China for the US giant.
Well, I’m not quite so sure. IDC senior research manager Melissa Chau told me that the biggest year-on-year movers were actually Lenovo (+57%), Coolpad (+36 per cent) and Huawei (+26 per cent). Samsung posted not unimpressive 20 per cent growth, but Apple’s year-on-year share actually dropped 2 per cent.
By comparison, its nearest rival, home-grown star Xiaomi, notched impressive 91 per cent growth to take sixth place with 6 per cent of the market.
So will Apple be worried? Well yes and no, according to Chau.
On the one hand the Cupertino giant has always been a high margin business, making way more money on handsets than Xiaomi and most of its Chinese rivals. To that extent it doesn’t need to shift smartphones in volumes quite so great.
However, the counter argument is that Apple needs to be seen as an attractive, popular platform, for the sake of its ecosystem.
“It is relevant to look at shipments because they affect Apple’s market power; it’s ability to attract developers,” Chau explained.
“Apple must walk a fine line making sure it doesn’t drop so far down that Android is the only ecosystem in China. It won’t be a risk it’s taking this or next year but it needs to watch [this trend]. That’s why it makes sense to launch a lower cost model there.”
You can’t argue with this logic. With Xiaomi’s low margin, high volume strategy potentially lifting it above Apple the last thing Cupertino wants is to be left floating outside of the leading pack, even if it is still hovering up revenue in one of its biggest markets.
Much has been written about the potential sales lift Apple’s recently announced deal with China Mobile – the world’s largest operator by subscriber numbers – will give it. However, as Chau told me, this might have been overplayed by some commentators – after all, we’re not talking about a new iPhone model here.
“Given the model has been out for some time I’m not sure the bump will be as significant as people are making out,” she argued. “The bump will come with the next iteration of the iPhone.”
All at Apple will be hoping that creates more buzz than its last major launch here. Or it could seriously be time to go back to the drawing board.
I’ve been doing a bit of work researching a piece on the latest Lenovo bombshell to hit the tech world – its $2.9bn bid for Motorola Mobility. Now, in my innocence, I reckoned there might be quite a few hurdles for Lenovo on this one, but the analysts I spoke to were pretty upbeat on the deal.
Remarkably, most were pretty confident this was a good buy and that it’ll help propel the firm to third in the global smartphone stakes in a matter of a couple of year.
It’s easy to see why on paper. Here’s what Canalys APAC MD Rachel Lashford told me were the main benefits for Lenovo:
· Immediate entry to the US market, Motorola’s major market, as well as key markets in Western Europe and Latin America.
· A unique relationship with Google.
· Credibility with operators and consumers worldwide.
· Existing US operator relationships and a handful of global ones.
· Additional experienced phone sales teams.
· Additional and highly rated phone engineers.
· Additional tablet and phone shipments, as it becomes the key manufacturer of Google’s Nexus line.
Hard to argue with that lot. It’s also hard to see how Lenovo could have done better than Motorola – there wasn’t much choice out there, after all (BlackBerry? HTC?). Except that doesn’t mean it’s going to be a success. Although it has high brand recognition in the US, Motorola is a fading star, with neither innovative designs or huge volume sales to its name.
I wonder then if it’s really going to give Lenovo that huge leg-up into the US smartphone space it desperately wants. I’ll be even more surprised if Lenovo merges the two brands, as various analysts told me will happen eventually, unless Plan A has succeeded perfectly.
The thing I imagined would cause the biggest potential roadblock is a US political backlash. Lawmakers can be a pretty obstinate bunch, especially when they feel their country is being invaded by ‘foreign hordes’.
It’s certainly right to say that Lenovo has a better relationship with the US government – where ThinkPads are still used – than most Chinese firms, and that consumer smartphones are hardly a national security matter, unlike telecoms infrastructure (sorry Huawei, ZTE). But I still think there’s the potential for a unwelcome bit of political interference here, especially if some more news comes to light on Chinese spying and state links to tech firms.
Given the stakes, it’s not surprising Lenovo has apparently hired some big name attorneys, some of whom have worked for the CIA and Homeland Security, to help it lobby the deal through.
Lashford even speculated that “announcing two deals in one month will ease its progress, not complicate it”. I suppose we’ll all have to wait and see on that one.
One thing’s for certain: Motorola employees will be a happy bunch. I wonder how may will be queuing up for Lenovo CEO Yang Yuanqing’s annual $3m employee bonus giveaway?
Lenovo is the number one PC maker in the world and rapidly gaining popularity in the smartphone space, where it’s second in China, yet it’s been forced to delay its planned entry into the US mobile space by up to 3 years.
Reports from CES last week had Lenovo execs lowering expectations in front of the media rather than the usual ambitious predictions and bravado that characterise the world’s biggest consumer electronics show.
However, at CES Lenovo’s Americas president Gerry Smith told journalists it could be another 2-3 years, and that the firm was waiting for the “right time”, the “right product” and looking to boost marketing/branding spend first.
It’s certainly a given the firm will eventually take on Apple in its own back yard, but with PC sales tanking globally, why such a long lead time?
I spoke to some local analysts to find out.
IDC’s Melissa Chau argued that it comes down to brand recognition and industry partnerships.
“The biggest challenge any smartphone player has in breaking into the US has to do with partnerships. Even Nokia found it a problem building the right relationships with carriers and I wouldn’t be surprised if Lenovo is finding the same,” she told me.
Lenovo needs also to find a unique selling point – something to differentiate it from the likes of Huawei, ZTE and others which have already shown they can produce decent handsets for US punters at low cost.
Canalys analyst Jessica Kwee was more optimistic, arguing that Lenovo already has good brand recognition thanks to its Thinkpad laptop line.
“Lenovo is one of the most well-known Chinese brand with a good brand image even in the US, which may help it do better than some of its Chinese peers when it does launch its smartphones there, although there are plenty of other reasons that will help determine its success, such as the products, channels, marketing and timing,” she told me.
In the end there’s nothing wrong with a company like Lenovo taking its time before launching into an important market.
But I have a feeling that it will make a move sooner rather than later. Giving your rivals – especially Chinese ones like Huawei – a 2-3 year head start is never wise, let alone in a fast-moving and highly competitive space like the US smartphone market.
Well, it’s a name which may well become more familiar to tech-watchers in 2014 if its sales predictions for the year turn out to be more than the usual new year marketing hype.
The Shenzhen-based firm, which is slightly better known under its Coolpad brand, said it’s hoping to shift 40 million 4G handsets this year in China, in addition to 20m 3G devices.
Some local media reports have the company claiming this will help it topple global leader Samsung in the 4G stakes, even though the Korean giant is currently way out in front in the Middle Kingdom with a market share of nearly 20 per cent – almost double that of Yulong.
They would appear to be a combination of mis-reporting and vendor hype, though, as Samsung told me it hasn’t even released any predictions on how many 4G handsets it will sell this year.
A Lenovo spokeswoman, meanwhile, said: “It’s not our practice to comment or make prediction on unannounced products.”
That aside, however, Coolpad has been gradually creeping up the smartphone rankings in its home country over the past few years, largely without the media attention that has greeted Huawei, ZTE, Lenovo and, of course, Xiaomi.
That might be because it has neither Xiaomi’s flair, Huawei’s big bucks, nor ZTE’s propensity to court controversy.
It’s currently third in the rankings just behind Lenovo, according to IDC stats for Q3 2013. If it’s to continue to climb it’ll need to make sure it’s competitively priced relative to Samsung, around the 1-2,000 RMB mark, IDC’s Bryan Ma told me.
Apart from that, “speed to 4G” will also count, he added. To this end, Yulong has already struck a deal with China Mobile to sell its TDD/FDD-LTE handset the Coolpad 8920 and there’ll certainly be more to follow.
So will the firm join Huawei, ZTE and others in aggressive overseas expansion? Well, it already is selling in markets like the US, but headway there has been more difficult given its low brand recognition.
It might have overtaken Apple in the Middle Kingdom last year but 2014 will be a tough year for Yulong and its parent company China Wireless to make an impact abroad – that is, outside of emerging markets where the appetite for cheap smartphones is greater.
So there it is. Apple’s much publicised Beijing iPhone launch event ended. With no news.
It appears that the fruit-themed company, while claiming that China will be its biggest market soon, does not believe it’s THAT important. At least yet. All the poor hacks were offered was a video of last night’s US launch. Ouch.
More importantly for Cupertino, the prices it has stuck on its new 5C and 5S devices will mean only the most hardy fanboys and girls will want to buy them. The iPhone 5C is definitely not budget, so it will fail to appeal to the mass low-end market currently consuming smartphones in China and India like there’s no tomorrow.
A 5C will retail for between 4,488 and 5,288 yuan ($733-864, £466-549). Compare this with the price for the high-end 5S in the US ($649-849) and you can see why some commentators reckon it will fail in the PRC.
It’s certainly not enough to beat Xiaomi’s impressively spec’d Mi-3 at 1,999 yuan ($326).
Forrester analyst Bryan Wang told me that it needs to come down to 2,999-3,499 yuan in order to “eat up the market share” of the likes of Huawei, Lenovo and Meizu, but that at present prices, the local Android players will be “really relieved”.
However, Apple is likely to have left itself some breathing room. It’s plan? Test the market out with these inflated prices and then “lower the price after a couple of months”.
Apple’s other hope of gaining much needed market share in China come from a possible tie up with the world’s largest operator, China Mobile, which has over 700 million subscribers.
No announcement was made at the Beijing press “conference” today but Wang believes it will come, when the carrier has a 4G network to announce. The reason? The 5C and 5S both support TD-LTE, a standard China Mobile helped to build.
Well that was a messy week, made significantly messier by news that broke in Australia that I covered for The Reg on Lenovo. This story has taken enough twists and turns in the past few days to satisfy even the most ardent F1 fan.
The original piece in the well-respected Australian Financial Review claimed that intelligence agencies in the “Five Eyes” allied countries of US, UK, Oz, New Zealand and Canada had banned Lenovo from top secret networks since the mid-2000s (when the firm acquired IBM’s PC biz) after finding serious backdoor vulnerabilities.
Although it didn’t claim Lenovo was in cahoots with the Chinese government, or that it had used such vulnerabilities to spy on foreign powers, the article rightly stated that the PC giant’s biggest shareholder is part-owned by Beijing.
Although it used unnamed sources to corroborate the ban across intelligence agencies like GCHQ and the NSA, the story also quoted an Australian Department of Defence spokesman as saying Lenovo “never sought accreditation” for use of its kit in secret and top secret networks at the department.
Now, whether the firm didn’t seek accreditation because it knew it wouldn’t get it is conjecture at this stage, although IBM servers and mainframes are accredited for such use.
In a carefully worded statement, Lenovo said it was “not aware of any sort of a restriction of sales”, and bigged up its “strong relationship” with the Australian government. Strange then that it didn’t seek accreditation for use on the department’s most secure networks.
The story got more murky when a Lenovo spokesperson emailed me a couple of days later with a hard-to-find link to a Department of Defence statement on the story which said the following:
Reports published on 27 and 29 July 2013 in the Australian Financial Review allege a Department of Defence ban on the use of Lenovo computer equipment on the Defence Secret and Top Secret Networks.
This reporting is factually incorrect. There is no Department of Defence ban on the Lenovo Company or their computer products; either for classified or unclassified systems.
As we reported in an update at The Reg, the original AFR story didn’t claim a department-wide ban had been instituted at all, only that Lenovo hadn’t sought accreditation. The ban piece related to the Five Eyes intelligence and security agencies – a different entity altogether.
Just why the DoD decided to release a statement contradicting an assertion no-body made remains to be seen.
It’s possibly just down to plain old incompetence and human error – after all it’s easy to misread a sentence which refers to “multiple intelligence and defence sources in Britain and Australia” as instituting a ban, but then goes on to clarify that in the case of Australia’s defence department it is just the “non-accreditation” piece that was officially confirmed.
However, the conspiracy theorists will claim it did so after pressure from Beijing, after all the DoD statement was not widely publicised – it appeared to have been filed away on a little visited part of the site – but Lenovo was very quick to alert journalists to it.
I also understand that Fairfax Media, which owns the AFR, has received complaints from senior Chinese officials in the past over a certain controversial story.
The AFR has quite rightly written a follow-up piece to clarify the mix-up, which includes clarification from “subject matter experts” stating that intel agency the Defence Signals Directorate doesn’t use Lenovo kit, despite having previously used IBM gear.
Aside from all of this though is another question: if intelligence officials in the UK and elsewhere knew something about serious backdoor vulnerabilities in Lenovo gear, whether deliberate or accidental, did they share such information with the private sector and if not why not?
That kind of information could seriously hurt a company’s bottom line, although Lenovo remains the world’s biggest PC vendor.
This is exactly the sort of thing the UK government’s much lauded Cyber Security Strategy launched in 2011 was meant to promote – improved information sharing between public and private sector. GCHQ should be an asset exploited for the benefit of UK PLC.
China, where the links between government and private business are more secretive and certainly more pervasive, remains streets ahead in this regard.
Lenovo has been talking up its move into the US smartphone market this week, as global PC sales continue to stagnate, but the analysts I spoke to are far from convinced that the Chinese hardware giant can repeat its success in the traditional computing space.
CEO Yang Yuanqing told the WSJ that the firm would be taking aim at the US mobile space within a year. You can’t argue that it doesn’t represent a “new opportunity” for growth, given that PC shipments are still falling in most markets around the world.
In Western Europe they declined by the biggest ever amount in the last quarter – down 20 per cent year-on-year – and even in the still healthy Chinese market they are only forecast to grow by 3-4 per cent this year.
So can the hardware behemoth, which recently became the world’s number one PC vendor, tap a user trend which is seeing more and more gravitate towards mobile devices instead of traditional notebooks and desktops?
Well, Gartner has forecast it will take the lead in its domestic market – the world’s biggest for smartphones – as early as this year, but the US would seem harder to crack.
“The only way Lenovo would have a way to even have a chance would be to have a key carrier support it by lining up one or more of their products in the portfolio. Even this way, I believe consumers will not necessarily see the brand as sexy,” Gartner research VP Carolina Milanesi told me.
“Lenovo’s position in the corporate PC market might give them an opportunity in the prosumer segment especially if they brought to market an Android based device with an enterprise class security and manageability feature set. Bottom line: it’s a tough job and Lenovo would be better off capturing more of the tablet market first so that they could get one step closer to consumers.”
Canalys research director Nicole Peng was not much more optimistic of its chances in the near term, telling me China sales would continue to make up the majority of its global volume.
“The competition landscape in the US smart phone market is far more challenging for new comers, with Apple and Samsung dominating over 70 per cent share,” she added. “However to start selling smart phone in the US, more importantly to gain carrier support is strategically important for Lenovo’s overall PC+ strategy globally.”
All reasonable comments and I think they’ll be true in the short term, but I wouldn’t be surprised to see Lenovo up there in the top three or five US smartphone vendors in a couple of years’ time. ZTE, with all of its problems and negative publicity in the US, has already nabbed third place, according to new stats from ITG Market Research.
With a hefty R&D team and vaulting ambition, Lenovo will be hard to ignore, even if its brand image is not exactly an enticing one for smartphone users Stateside at the moment.
An interesting bit of research cropped up on one of the few English language sites covering Chinese news in this region, Taiwan’s WantChinaTimes, claiming the average lifespan of a Chinese electronics manufacturer is a shade over 13 years.
Now this sounded pretty low to me, not having anything to compare it to, but it struck as an interesting stat which serves to illuminate a lot of the pressures Chinese manufacturers are facing today, and where the country wants to be in a few decades time.
The research itself came from a Chinese manufacturer called Global Market Group, which interviewed over 1,000 firms in the economic zones of the Pearl River Delta and the Yangtze River Delta. It’s not a huge sample, given the sheer size of the industry in the PRC, but it’ll have to do.
The first thing to note is that 13.2 years is much longer than the average for survey respondents of 11.1 years – the report argues that this could be because electronics makers are forced to adapt quickly to changing tech to keep afloat.
More generally, though, 13.2 years doesn’t seem like a long time for a firm to be in business. But it does illustrate the rapid pace of change in the tech industry – where many fall by the way side in time because they simply can’t keep up with the latest trends.
It also shows, as Forrester analyst Dane Anderson told me, the intense pressure on Chinese manufacturers burdened with rising labour and energy costs and competition from other low cost suppliers in Asia.
US politicians and loathsome right wing media outlets often make out China to be the bad guy – taking American jobs by offering brand owners by far the lowest cost of production. However, increasingly it’s becoming a more complex picture than this.
“The perception in the West is often that the manufacturing industry in China is a bullet-proof juggernaut, but this view is inaccurate,” said Anderson. “It is a dynamic and highly competitive sector squeezed by thin margins and demanding customers.”
But as China looks to move up the stack, away from being a land of contract manufacturers mass producing at low prices in incredibly competitive market conditions, things might change, according to IDG’s senior research manager William Lee.
“The electronics industry is typically a high clockspeed industry, meaning the average product lifecycle time span is shorter than say automotive, aerospace, industrial equipment. So electronics manufacturing companies’ lifespan is typically shorter than other companies in other industry,” he told me.
“However when the manufacturing industries mature and many of these companies begin to evolve to brand owners, the average lifespan will increase.”
With China still some way behind Taiwan, South Korea and other countries, it will be a while before this happens, but it surely will, as this is the direction the Chinese government wants it to go in. It recently announced ambitious plans to create eight super-companies in the tech space each the size of Lenovo ($100bn in revenues per year), which would have globally recognised brands.
When that finally happens, and the sweat-shops move out to Vietnam, Indonesia and elsewhere, maybe the US will have to invent another bogeyman.
Just finished an interesting piece on what to expect from Chinese tech firms in 2013 so thought I’d précis the key points below.
To be honest as with any year end predictions to an extent there’s always more-of-the-same than anything else, and to that point there’ll be greater international expansion on the mobile handset front by ZTE, Huawei, Lenovo, and potentially TCL-Alcatel.
Aside from the big names, Canalys analyst Nicole Peng told me there could also be attempts by feature phone vendors like Gionee and K-Touch to make it overseas, claiming that the technical and business support offered by chipset companies like Qualcomm and MediaTek is making it easier than ever to break into new smartphone markets.
But away from hardware, what about China’s growing raft of web companies?
It would be easy to write a story saying “the Chinese are coming, look out Facebook, Twitter et al!”, but the honest truth is that the likes of Tencent, Sina, Alibaba and others have become successful in China in part by copying their US rivals and in part thanks to local restrictions banning their rivals.
Where they have done well is in localising their platforms for the domestic user – something Alibaba and Baidu are doing now even for their mobile OS platforms – and innovating on top of what has gone before.
Aside from the odd service like Tencent’s WeChat which has managed to cross the Great Firewall to acceptance elsewhere, I’m sceptical that these firms will expand successfully in 2013, and to an extent, with less than half of the vast Chinese population online, there’s probably enough untapped growth left domestically to keep them busy for now.
Peng is slightly more optimistic, however.
“Many of the local mobile services/applications we have seen in China, such as Tencent Weixin, Sina Weibo provide great user experience and innovative features that we could not find from the international big name,” she told me.
“As long as they continue to innovate and own their IPs, I do not see Chinese internet companies having any major disadvantages in competing, as mobile services become device/OS agnostic in the future.”
Perhaps. But with local incumbents like Twitter, Facebook, Google et al, mature Western markets will certainly be too tough a nut to crack.
On top of this, Chinese tech firms will have to put up with increasingly hostile attitudes from various national governments.
National security concerns will continue to dog Huawei and ZTE on the telecoms infrastructure front, and there are signs that US regulators may soon begin the process of de-registering Chinese firms from US stock markets for failing to comply with domestic securities laws.
Oh, and there’s the small matter of a potential conflict over that bunch of barren rocks known as Diaoyu/Senkaku.
Plenty to look forward to, then, in 2013!