Counterpoint: China's smartphone shipments fell 1% in 2017 compared to last year

The latest research data from Counterpoint Research, a well-known international market research company, shows that in 2017, China's smartphone shipments fell 1% year-on-year, but sales increased 5% year-on-year. In the fourth quarter of 2017, China's shipments fell 5% year-on-year, but driven by the strong promotions of mobile phone manufacturers during the "Double Eleven" and "Double Twelve" sales events, shipments increased 5% compared to the third quarter.

James Yan, Research Director at Counterpoint Research, commented, "The Chinese smartphone market was booming in 2016, with shipments growing strongly by 8% year-on-year, but 2017 was a difficult year for mobile phone manufacturers. The decline in mobile phone shipments in 2017 was due to the need to clear the inventory accumulated last year in 2017 as many manufacturers shipped a large number of units in 2016 to balance the huge marketing expenditure in the second half of the year. At the same time, the market share of some small and medium-sized manufacturers that performed well in 2016 was gradually eroded by the top 4 manufacturers, resulting in a decrease in overall market shipments."

James also said, "In the second half of 2017, the full-screen war in the Chinese market started, and major manufacturers rushed to launch full-screen mobile phones. However, the promotion of new full-screen models is also a double-edged sword - while stimulating consumers' demand for replacement phones, it also brings competition to old models, making it more difficult for manufacturers to clear their old phone inventory. We expect that by 2018, full-screen mobile phones will become the mainstream standard for new models in the Chinese market, covering all price segments of the market."

Huawei's shipments increased by 8% in the fourth quarter of 2017 and 19% in the full year. Huawei occupied 19% of the Chinese smartphone market in both the fourth quarter and the full year, becoming the top 1 manufacturer in the Chinese market and the top 3 manufacturer in the global market, reaching its historical peak.

Figure 1 : China’s smartphone market share in the fourth quarter of 2017 and in 2017

James added on Huawei's performance, "Huawei's growth was mainly driven by its sub-brand Honor, which accounted for more than 60% of Huawei's total shipments in 2017, even overshadowing the parent brand Huawei. Honor surpassed Xiaomi to become the number one smartphone brand in China's online channels in 2017. However, the parent brand Huawei faced fierce competition from OPPO and VIVO in the mid-to-high-end market, and was impacted by Xiaomi's recovery in the mid-to-low-end market, resulting in slower growth."

In the fourth quarter of 2017 and the whole year of 2017, OPPO and vivo ranked second and third in China respectively, and together they accounted for more than one-third of the market share in China. In the whole year of 2017, the growth rate of OPPO and VIVO was higher than the overall market, and their market share rose to 18% and 17% respectively. However, in the fourth quarter of 2017, OPPO and VIVO faced fierce competition from Xiaomi and Huawei with their online advantages during the "Double Eleven" and "Double Twelve" events, and their growth rate slowed down significantly.

In 2017, Xiaomi returned with a rich portfolio of models and active offline expansion, and performed well. In the fourth quarter of 2017, Xiaomi's market share increased significantly to 14%, making it the fastest growing brand in China in the fourth quarter (up 31% year-on-year). This brought Xiaomi's market share for the whole year of 2017 to 12%, ranking higher than Apple.

Mengmeng Zhang, a research analyst at Counterpoint Research , said, "In 2016, OPPO and VIVO vigorously expanded their offline sales networks in China's third- and fourth -tier cities. Driven by the strong replacement demand in these cities, OV became the fastest growing smartphone brand in China in 2016. OPPO's growth slowed down in 2017 and began to focus on improving its brand image. OPPO plans to build super flagship stores in super first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) to expand its brand image in developed regions. It also plans to create high-end models to bring more halo effect to the brand."

Figure 2 : Best-selling smartphones in China in 2017

Mengmeng also believes that, "Thanks to Xiaomi's product portfolio strategy, Xiaomi's shipments rebounded in 2017, especially the Redmi series, which boosted the overall shipments. Xiaomi's supply chain has been greatly optimized compared to 2016, and its offline channels have been expanded, better meeting the market's demand for cost-effective and low-cost mobile phones. Xiaomi's "Double Eleven" performance was eye-catching, with Tmall ranking first and JD ranking second. 2018 is crucial for Xiaomi, and there are reports that Xiaomi will go public in the second half of 2018. Sales performance in the global market will affect Xiaomi's listing valuation, so Xiaomi hopes to significantly increase its market share in China and achieve its achievements in India and other new markets in China, thereby increasing the company's valuation before listing."

Although domestic brands occupy the top 4 rankings in the Chinese market and account for 2/3 of the market share, Apple is still one of the most watched brands in the Chinese market. The market is looking forward to whether the new iPhone X can usher in another "super cycle" for Apple after the iPhone 6 series.

Apple's market share in China fell in the first half of 2017, but recovered in the second half. Apple's strategy was to offer discounts on older iPhones while promoting new models (such as the iPhone 6 32GB, which was tailored for the Chinese market). The simultaneous hot sales of new and old models pushed up Apple's overall sales growth. In addition, despite the high prices of the iPhone X and iPhone 8 series, sales of both began to rise in the fourth quarter.

Tarun Pathak, Associate Director of Counterpoint Research , commented, "Although iPhone X demand in China grew in December, it still performed below Apple's expectations, mainly due to supply issues or high prices. The first quarter of 2018 is very critical for Apple. Whether iPhone X can maintain its hot sales during the Chinese holidays will affect its sales performance throughout the product cycle."

In addition, there are still a large number of consumers in China who are using the old iPhone 6/6Plus phones, and these users may buy new phones this year. Regarding the choice of iOS users to change phones, James Yan commented, "The high price of iPhone X may cause Apple users to switch to competitor products, or choose the relatively cheaper iPhone 7/iPhone 8 series. But we also observed that Apple has lowered the retail price by reducing the channel profit of iPhone X, so we predict that Apple will gradually reduce the price of iPhone X to attract users to buy. If the retail price of iPhone X can be reduced to less than RMB 7,000 in 2018, we expect that the sales volume of iPhone X in the Chinese market will usher in explosive growth."