Chinese Phones Challenge ‘Cheap’ iPhone

Sep 11, 2013

Chinese Phones Challenge ‘Cheap’ iPhone

YUN-HEE KIM

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While Samsung Electronics Co.005930.SE -0.28% and Apple Inc.AAPL +1.06% own the majority of profits in the smartphone industry, their market shares are falling globally. The reason?  Cheaper alternatives in markets such as China where there are a slew of startups that are launching high-spec phones at nearly half the price. In Hong Kong’s bustling electronics market in Sham Shui Po, it’s easy to find cheaper smartphones that are giving Apple and Samsung a run for their money.Take the Zopo C2 made in China.  It runs on Android, has a full high-definition screen and a 13.1-megapixel camera as well as a high-speed graphic processor. The price?  A little over $300, compared with the more than $600  you would pay for an unsubsidized Galaxy S4 or an iPhone. Xiaomi Inc.’s new smartphone called the Xiaomi 3 retails for just 1,999 yuan ($327 ), while Gionee’s Dream D1 costs $230.

Samsung currently ranks No. 1 in China with a market share of 18%, while Apple ranks seventh with 5% of the market, according to data from researcher Canalys, as other manufacturers muscle in.

Zopo Founder Kevin Xu says his company’s smartphones are mainly sold online, but it also has 100 retail stores across China.

“Apple and Samsung owe their initial fast development to technological advantages . They have been frontrunners. But as the speed of technology advancement slows, most people can produce similar products,” Mr. Xu said.

Research firm Sanford Bernstein estimates that nearly half of global smartphone sales in 2014 will be priced below $200. That means smaller profit margins for all smartphone makers.

The challenge for these upstarts is to expand outside of their home market.

“To continue growing, they need to go to high price points and go internationally,” said Mark Newman, analyst at Sanford Bernstein. “They need to develop relationships with distributors outside of China, and high-end phones means you need advertising.”

Part of Apple’s and Samsung’s success in smartphones has been the billions of dollars they pour in for advertising and marketing.

Still, stiffer competition is leading companies like Apple to launch more affordable phones. On Tuesday, Apple unveiled its iPhone 5C, which is geared for emerging markets. Samsung, meanwhile has been aggressively pushing out low-cost smartphones in emerging markets that cost less than $100.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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