In Beijing's Bai Nao Hui electronics market, a power shift in the global smartphone wars is under way.
Smartphones made by Samsung Electronics Co. Ltd. and Apple Inc. remain consumers' top choices – if they can afford them, vendors here say. But a wave of low-cost competing devices is enticing swarms of buyers, as local newcomers give the giants of the smartphone industry a run for their money.
"This one is a good price and good quality," says vendor Zhang Lei, 30, showing off a made-in-China device made by an upstart called Xiaomi (pronounced shao-me, literally "little rice") which has rocketed to success by adapting Google Inc.'s Android Platform and copying Apple in its handset size, style and restricted-release marketing. The company claims to have sold more than five million phones since opening less than three years ago and now employs 1,700 people.
Smartphones made by Chinese firms are gobbling up market share. Of the 64.7 million smartphones shipped in China in last year's fourth quarter, according to research firm Canalys, South Korean manufacturer Samsung still held the top spot. But Chinese firms Lenovo Group Ltd., Yulong Computer Telecommunication Scientific (Shenzhen) Co., Ltd., Huawei Technologies Co. Ltd. and ZTE Corp. came in second, third, fourth and fifth respectively, making up some 70 per cent of smartphone sales in the country collectively. Apple was sixth.
Success in China is crucial for major smartphone makers. It's the world's largest market – a country with 1.1 billion registered mobile phone subscribers, out of a population of 1.35 billion. Total smartphone sales are thought to have hit 224 million last year.
And the fast rise of Chinese smartphone firms – up from a combined share of just 10 per cent in China in the fourth quarter of 2010 – is likely to spread far beyond China as the upstarts take aim at the industry's established players. Companies such as Huawei, ZTE and Tecno are gaining share in emerging markets from Latin America to Africa, helped by Google Inc.'s Android platform, which is levelling the software playing field between Western tech giants and cheaper Asian manufacturers.
Chinese-made phones may lack the brand appeal of Apple and Samsung, but they have a major advantage on price. Samsung's Galaxy S III sells for the equivalent of just under $800 (U.S.); the cheapest iPhone model is about $850. But Chinese-made brands are half that price, or even less. The Meizu MX runs under $400, while the Coolpad 8060, a device made by China Wireless Technologies that outsells iPhone, is just under $100.
Unlike in the past, when low-cost devices by Chinese manufacturers meant low-functioning clones, today's Chinese-built smartphones are designed to appeal to its tech-savvy youth.
Xiaomi launched its Mi-2 phone last fall with a run of 50,000 units available only online. With a price tag of around $230 (U.S.), it sold out in less than three minutes. "The strategy is to build top-end handsets. That's what we're good at," Lin Bin, the company's co-founder, told AllThingsD.com at the time.
First-time smartphone users are playing a key role in market growth, said analyst Nicole Peng, and in this area companies like Apple and Samsung are losing out.
"There are more people looking for entry-level smartphones, their first smartphone, and that is where the dominant smartphone vendors are looking at the market. … That is where domestic vendors are really gaining their share," said Ms. Peng, the Shanghai-based China research director for Canalys. "The consumer is getting more mature, and in two years' time, the people now buying their first smartphone will be looking to upgrade. … These international brands should try to maintain their present position in China because they will lose opportunity otherwise."
Apple, which sold two million iPhone 5s in China in its opening weekend alone, is counting on China to drive its growth; its China PR team refers to January's earnings report and to CEO Tim Cook's surprise visit here earlier this year when asked of the importance of this market to their iPhone series.
"China is currently our second-largest market. I believe it will become the first," Mr. Cook is reported as having told the state Xinhua news agency.
Canada's BlackBerry, made by Research In Motion Ltd. and used mainly by employees of foreign companies for its encryption abilities, has little market share; a BlackBerry vendor in the Bai Nao Hui market sheepishly admits that even he no longer uses the phone. "It didn't have enough software," Li Xuan said of his former phone, a BlackBerry 9900, which gave out late last year, long before the introduction of the new Z10. Instead, he switched to a Prada-branded phone by South Korea's LG, priced at about $476.
Low prices are luring others to Chinese-made smartphones. Cai Lin, 26, a university student majoring in urban planning, bought a Xiaomi through a reseller on Taobao.com, a Chinese version of eBay, last month. "Xiaomi is for students, or people who are not very rich who want to play with a smartphone," she said, adding her friends with more means still prefer Samsung. "This brand is good for daily use. It's cheap, and the technology is good."
Over lunch at McDonald's, iPhone 5 user Chen Wanfang, 29, said he is happy with the phone, after years of using other Apple products. Still, he can envision a time when many of his friends embrace other phones.
"I think the real loyal fans of iPhone and Apple products are few," Mr. Chen said. "A lot of people are just following the fashion."