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.
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.
I spent the first part of the week at Huawei’s global analyst summit just across the border in sunny Shenzhen. There wasn’t an awful lot of news per se, but a good many bold financial predictions from the fast-growing firm, which is trying to manage the unheard of triple whammy of success in carrier, enterprise IT and consumer device markets.
No firm has managed to succeed in all three, but Huawei is certainly going the right way about it. The firm stands third in the worldwide smartphone market, is breathing down Ericsson’s neck in the carrier space and has big plans to grow its enterprise business. On that front we heard the firm expects 45 per cent growth this year, and a CAGR of around the same to reach $10bn in revenue by 2017.
It’s not all hunky dory at the Shenzhen headquartered vendor though. Alternate CEO and EVP Eric Xu effectively said at the event that it had given up on the US as a potential growth market. Now that’s not to say it wouldn’t like that to change in the future, but given the intractable stance of Congress on this it’s not likely. So where’s the enterprise growth to come from?
Analysts told me developing markets like Indonesia and Myanmar represent potential but not immediate revenue growth at the moment – for that it needs to tap developed regions. China still represents the major slice of the enterprise pie for Huawei and that’s all dandy, but there are mutterings that local government spending may tighten in the near future, which would be bad news for the firm.
“In enterprise, Huwaei is strong in the networking and infrastructure segment. It also has other products around unified communications, contact centre and security, but overall market share is very small outside China,” Frost & Sullivan analyst Pranabesh Nath told me.
“Like the Japanese firms of the post-world war era, it is mostly positioned as a value oriented player, but is trying to improve its products to move up the value chain.”
A potential roadblock on this journey is a perceived lack of clarity around its product lines, according to IDC’s Ian Song. He said the Fusion datacentre brand in particular has caused some confusion amongst the analyst community, which view Huawei’s enterprise message as a “work in progress”.
That said, its technology is sound, R&D spend is massive and it’s got a great base to start with its strength in the carrier space. IBM, Cisco, HP et al won’t be breaking into a sweat just yet but they’d be foolish not to see the crouching tiger hidden in plain sight.
On the device front, we heard from CMO Shao Yang about Huawei’s plans to shift 60 million smartphones this year. This won’t exactly propel it into the top two among Samsung and Apple, but it’s a pretty clear statement of intent. In this industry, brand perception is all-important, and it’s something Huawei, which didn’t really have a brand until it launched the Ascend line last year, has historically struggled in.
That said, it’s learning fast and the high-end handsets its coming out with are pretty slick, so expect a whole lot more on the marketing front this year and an increasing number of Huawei-branded devices to manage as part of your BYOD strategy.
There’s a great deal of ambulance chasing that goes on in the IT press. Spot any major geopolitical news event and some vendor will try and shoehorn in a thinly veiled sales pitch for their products and services in the most blatant way possible.
There are certain events which do bear closer analysis, though, and I think the situation in North Korea is one of them. Given the impact of the earthquake and tsunami in Japan 2011 and the Thai floods of that same year, on the ICT supply chain, it’s clear that major events in Asia can have knock-on effects.
The major impact of a possible conflict in Korea would be on Samsung, which is the world’s largest supplier of LCD panels, Flash and DRAM and a major producer of lithium-ion batteries and chips. However, if China were brought into the conflict, this may also spread risk to the huge number of tech manufacturers in the People’s Republic.
So are suppliers getting twitchy? Are staff and assets being moved around to minimise risk? Are customers spending their money on cans of tinned food and bomb shelters rather than Galaxy Notes?
Well, as I reported in The Reg, none of that so far actually. The main message has been one of “business as usual”, with a caveat of continued monitoring of the situation.
“We didn’t observe any significant drop in consumer sentiment so far and don’t expect any major changes unless North Korea really launches a missile. There has been no big changes in Korea’s import, export and sales activity but tourism and foreign capital inflow could be impacted,” IDC analyst YoungSo Lee told me.
“The tension in Korea won’t ease that quickly and there are people who have started stocking up on daily necessities and even pulled out some money from the banks. There is talk of some foreign vendors making plans to send senior executives back to their home countries but there is no concrete evidence of that yet. All of the above are sensible precautions in response to continued uncertainty over how the crisis might develop.”
That said, just because there is widespread public apathy towards the kinds of threats being uttered daily by Pyongyang doesn’t mean nothing will happen – it only takes one piece of military or political misjudgement to spark a full-on confrontation which could impact IT channels.
“There are low expectations of anything serious happening, perhaps only a minor skirmish in disputed seas between the North and South,” Canalys APAC MD Rachel Lashford told me. “But of course low expectations does not mean that the risk is definitely zero.”
So, long story short – no panic yet, but worth keeping an eye on for future developments. One thing North Korea is not known for is it’s predictability.
China watchers will be well aware of the story by now. Most of the shiny tech kit we buy in the western world is produced in conditions ranging from ‘challenging’ to downright miserable. Apple provider Foxconn is often highlighted as a prime offender but the depressing truth is that it is one of the better employers. As long as labour rights abuses continue, though, they should continue to be reported.
The below is a piece I wrote up from my chat with IHS analyst Tom Dinges:
Half of China-based OEMs still don’t require third party audits of their manufacturing providers despite many high profile cases emerging this year involving serious breaches of labour laws and widespread strikes, according to market watcher IHS iSuppli.
The supply chain analyst revealed the news as part of a wider survey of the global technology industry.
Over the past year incidents at factories belonging to Apple supplier Foxconn, as well as plants run by contract manufacturer VTech and Samsung provider HEG Electronics, among others, have highlighted the poor level of compliance with local laws at many plants.
Although China has strict labour laws which prevent children under the age of 16 working, keep working hours and overtime to manageable levels and prohibit discrimination, they are poorly enforced.
Not-for-profit groups including China Labour Watch and Hong Kong-based SACOM have time and again uncovered incidents alleging such rules have been broken, with reports claiming physical violence, bullying and filthy living conditions are the norm in many factories.
Staff dissatisfaction comes to a boil periodically in the form of strikes or bouts of violence. In October it was claimed that thousands staged a walk out at Foxconn’s Zhengzhou factory where the iPhone 5 was being made, while a month earlier, scores of workers were hospitalised after a mass brawl at a managed dorm near Foxconn’s Taiyuan plant.
“There are aspects of the labour laws many firms turn a blind eye to for the sake of satisfying their customers and getting products out of the door,” IHS analyst Tom Dinges told me.
“Considering how much of the supply chain is embedded in China it’s too costly to move to another region so the issue is ‘what do we do to ensure our suppliers adhere to the local labour laws they’re supposed to?’.”
Dinges added that the ‘headline risk’ of bad publicity, especially as it filters down to middle America through regional media outlets, should be forcing change on this front.
Foxconn is one notable supplier which seems to be taking a lead on this, having agreed with Apple to on-going audits by the Fair Labor Association, although worrying cases of rights abuses continue to emerge at some of its plants.
China Labor Watch also claimed at a Congressional hearing in the summer that the audit process is flawed in many cases, with widespread bribery and collusion on the part of suppliers and auditing companies.
Dinges said that as the industry matures this situation should improve, with auditors taking their cue from financial investigators.
“These organisations will have to meet a certain expected level of authenticity, vigour and independence,” he added.
“We’re past the stage of hyper growth. Now a lot of what is produced there ends up staying in China. If that’s the case then the factory employee is also a customer and you want to be sure to treat your customers well.”
This time it was Samsung that had its supplier factories investigated, and what was revealed, as always, was not pretty.
HEG Electronics’ plant in Guangdong – which apparently makes phones, MP3 players and other electrical kit for the Korean giant – was infiltrated by spies from not-for-profit China Labor Watch, yup, the same group that warned of severe irregularities in the auditing system of the tech supply chain.
The same old problems came to light as at Foxconn and VTech, of low pay, staff bullying and physical abuse, dangerous working conditions and forced and excessive overtime.
However, HEG was also accused of employing kids as young as 14 year’s old – illegal even in China –and paying them, and the huge intake of student interns it uses to man its factory, just 70 per cent of their rightful salary.
To its credit, Samsung did respond with a little more than we got from VTech and its customers:
Samsung Electronics has conducted two separate on-site inspections on HEG’s working conditions this year but found no irregularities on those occasions.
Given the report, we will conduct another field survey at the earliest possible time to ensure our previous inspections have been based on full information and to take appropriate measures to correct any problems that may surface.
Samsung Electronics is a company held to the highest standards of working conditions and we try to maintain that at our facilities and the facilities of partner companies around the world.
The issue here again goes back to the validity of the inspections. Unless they are independent – conducted for example by not-for-profits like China Labor Watch – and unannounced then they are virtually useless.
Samsung, if you remember, was highlighted as a client of Intertek, the professional auditing company that has in the past been found guilty of accepting bribes from clients in return for passing a clean bill of health.
There’s no suggestion that happened at its HEG audits, but it’s clear that the audit card should no longer be accepted as a reasonable explanation of such irregularities.
More news on the continuing plight of Chinese workers in tech manufacturing plants, and the apparent blind eye the major multinationals are paying to their condition, emerged this week.
Li Qiang, founder of NGO China Labor Watch, claimed to the Congressional-Executive Commission on China on Tuesday that the audits which most MNCs commission aren’t worth the paper they’re written on.
He pointed to widespread bribery of auditing firms by the big name companies – basically, they bung a few thousand dollars and the auditors agree not to expose any problems in the factories which might require lots of money to fix.
Although Li didn’t accuse any outright of corruption, Dell, HP, Samsung and Apple were all said to have “severely flawed” auditing systems. He also exposed auditing firm Intertek as having been caugt in the past for accepting bribes.
Said firm has Samsung and Siemens as clients and a lot more tech companies besides.
Now the CECC is most definitely sympathetic to the aims of Li and his counterparts in other NGOs, and one can’t help thinking the reason they’re so keen to expose malpractice in China isn’t to get the workers a better deal but to force such a public outcry that US firms decide to bring jobs back to their homeland.
In fact, it was certainly mentioned several times at the hearing that US workers couldn’t hope to compete against factories where staff are paid a pittance and over-worked to the point of exhauston.
Whatever the motives, though, this needs stuff exposing – factory audits are commonly used by tech companies whose plants are found wanting, as a handy cure-all to keep the media and customers happy.
If they fail, there is literally no point – but we kind of knew that anyway. The only way to change things long term is consumer pressure on companies to improve working conditions followed up by independent and random inspections from NGOs.
Needless to say none of the tech companies above have come back to me.
The lack of response is not just typical of local PR failure – I’ll bite my tongue on that one for the time being – but endemic of the lack of transparency at these big tech brands. If they’re really confident in the conditions at the factories – dismiss such accusations out of hand, invite random inspections etc
Hopefully, as consumers and politicians get more savvy to what’s going on and start to ask more searching questions, these multi-nationals will find it harder to fob them off with the old audit card.
There’s a long way to go yet.
I covered a story this week detailing comments Samsung China’s CEO Kim Young-ha apparently made to the FT, which basically summarised are – China’s austerity measures are dampening down consumer spend and this is BAD news for IT suppliers everywhere.
Now, I’m not suggesting Mr Kim doesn’t have his finger on the pulse over in that there China.
After all, Samsung has such a broad portfolio of electronics items covering virtually every conceivable category, from NAND chips to tablets, that the company should be a good canary down the mine when it comes to taking the pulse of the IT market in China, if you’ll excuse the mixed metaphor.
However, the piece overwhelmingly came across to me as fear-mongering. Kim told the paper that the Chinese government’s austerity measures targeted at the housing market had gone a bit over board and were having an impact on consumer spending.
Yet there is no evidence for this, aside from a brief reference to the fact that TV sales were disappointing in the recent Golden Week holiday period, and an unsubstantiated prediction from Kim that the domestic tech market would likely grow by just seven per cent in 2012.
I’m not sure whether this can quite be viewed as incontrovertible evidence that there is a decline, but even if spending were to slow down slightly, it’s still way above that of the West and probably had to slow down at some point.
The other benefit IT manufacturers have when it comes to the Chinese economy is that government feels much less beholden to international markets – within reason – and much more capable of acting swiftly and decisively to address any economic instability; whether this means slowing down one part of the economy or injecting a bit of stimulus in another part.
To top it all off, the signs from the analyst houses are all pretty rosy when it comes to IT sector growth in China. IDC predicts a surge in consumer tech spending of nearly 30 per cent while IHS iSuppli says PC sales there will grow 13 per cent this year.
The times they are a-booming in the PRC, despite what Samsung says.