Chinese discount phone makers were supposed to rival Apple's iPhone globally. Instead, the...

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Ever since iPhones officially went on sale in China back in 2009, pundits have claimed that local production of cheaper smartphones would not only block Apple's growth prospects in China but also invade smartphone markets globally. They were wrong, here's why.

China's phone threat was a crank call


Three years ago, there were 300 Chinese companies selling cheap knockoff smartphones. Pundits claimed that their "percentages of growth" in unit shipments and their ambitious global expansion plans were a dire threat to Apple, especially as they started bringing cheap products to the United States.

One of these, LeEco, made waves in 2016 after it bought up Yahoo's old offices in Silicon Valley and announced plans to sell everything from VR Headsets to electric vehicles, Android-based TVs and smart bicycles.

The Verge profiled LeEco's CEO as promoting its smartphones in China by attacking Apple with Nazi imagery that depicted iOS as "tyranny" and spoke of an "arrogant regime of iOS domination," despite the supposed supremacy of Android in terms of unit market share. Last year, LeEco ran into financial difficulties and its plans for U.S. expansion subsequently collapsed.

LeEco--along with many other aspiring Chinese firms--is now also facing problems back home in China. Cheap phone makers are being hit by the same problems that were only supposed to have an impact on Apple: a longer replacement cycle for smartphones, a "lack of innovation" driving new sales and intense competition from other cheap commodity makers.

At this year's Mobile World Congress being held next week in Barcelona, a variety of Chinese brands that formerly showed off phones won't even attend, including LeEco, Meizu, Gionee and Coolpad. Huawei and Vivo will attend, but won't be showing off new models.

"In 2017, the minor upgrades that Chinese smartphone companies made to their offerings were not enough to move consumers to splurge on new models, resulting in a general slowdown in the market," noted IDC analyst Tay Xiaohan.

Outside of Apple's premium growth: commodity death

China is the world's largest market for smartphones. Last year, however, the nation's consumption of new phones followed a global trend of retracting sales. Gartner just reported a nearly 6 percent drop in global smartphone shipments in the 2017 holiday quarter. In China, weak sales led to a nearly 5 percent annual shortfall in new sales over the last year, according to IDC.

While Apple has weathered the storm to report solid growth in China in the most recent quarter, many smaller Chinese makers have been unable to stay in business.

A report by the South China Morning Post cited IDC's Tay as stating that "more of the smaller smartphone players will be forced to exit the market in 2018 as we expect handset shipments in China to continue declining."

One hundred phone makers are already gone, and the majority of new sales in China are increasingly going to the top five brands: Huawei, Oppo/Vivo, Apple and Xiaomi. That leaves just 23 percent of China's sales for the remaining 200 firms to fight over, even as the size of that pot is also shrinking.

Apple's sales pace in China grew by nearly 20 percent

That contraction was supposed to hit Apple. Instead, the company's chief executive Tim Cook reported that over the December quarter, Apple's sales in Greater China increased 11 percent, despite the quarter being compared against a year-ago quarter that included an extra week of sales.

Cook noted, "on an average weekly revenue basis, we were up 19 percent [in Greater China]. We had an all-time record for revenue in mainland China and of course a key part of that was iPhone.""Everywhere I look I feel really good about how we're doing in China" - Tim Cook

Apple's iPhone sales in China are not directly competing against cheap brands targeting lower-income buyers; they're focused on affluent consumers in top-tier cities where Apple has been building new retail stores. That's why Cook could note that "Kantar reported that the top five selling smartphones in urban China were all iPhones."

Cook added, "we could not be more pleased with how we're doing," further noting that Apple's success in China wasn't just limited to phones. "We obviously grew share for iPhone in the quarter, but we also grew share in iPad and Mac during the quarter and wearables were extremely strong there in the quarter. And so you know everywhere I look I feel really good about how we're doing in China."

Cook had previously pointed out that 70 percent of all iPad sales in China were new to Apple, while 90 percent of Mac sales were to new buyers or PC switchers. So Apple isn't just selling iPhones; it's introducing millions of new buyers in China to a broad ecosystem of its iOS products, Macs and wearables. That has helped (and will help) to keep buyers loyal to Apple.


It doesn't have to be true to get published

Loyalty is turning Chinese knockoffs into training wheels for iPhone

Chinese brands have proven popular among younger buyers, with nearly half of all Oppo sales going to buyers between 16 and 25. However, a report by Counterpoint noted last year that only a quarter of Oppo and Vivo buyers chose to repurchase the same brand again, while more than half (53.4 percent) of all iPhone buyers chose to get another iPhone. Conversely, just 7.2 percent of Samsung buyers opted to get another Samsung phone.

Samsung has been the largest producer of smartphones globally. However, at the launch of iPhone X and other new models including iPhone 8, 8 Plus and a new low entry price for iPhone SE, Apple's total sales of iPhones exceeded Samsung's in the winter quarter, despite the fact that Apple's Average Selling Price for iPhones reached within five dollars of $800, while Samsung and other Android makers were offering handsets at an ASP of less than $250.

Incessant reports of iPhone X supposedly experiencing "weak demand" due to its price--as Tripp Mickle claimed in his thin, poorly researched article for the Wall Street Journal--were totally wrong. Apple's stand-out, premium-priced iPhone X was, in fact, the company's best selling model every week it was on sale during the quarter, as Apple confirmed in its quarterly earnings call.

Meanwhile, commodity sales of cheap Chinese brands (including BKK's formerly fast-growing Vivo and OnePlus; LeEco; Coolpad and scores of others) collectively tanked by 22 percent, with total shipments falling from 193.6M in the year-ago holiday quarter when iPhone 7 debuted, to just 150.2M in the most recent holiday quarter, according to Strategy Analytics.
magman1979tmaylostkiwicornchipanantksundaramwatto_cobra
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Comments

  • Reply 1 of 35
    Daniel,

    As always, a fantastic editorial, full of facts I think Wall Street is allergic to, and trolls loath!
    lkruppracerhomie3lostkiwicornchipanantksundaramwatto_cobraMacsplosionnetmagepscooter63jony0
  • Reply 2 of 35
    Yea there's a lot of media who want to see Apple fail in so many ways. Here's more proof that cheap copies doesn't make a great deal and Apple will usually win out eventually. Poor build quality, lousy software and cheap components don't make it in the real world as an iPhone competitor.
    racerhomie3lkruppcoolfactormagman1979lostkiwicornchipanantksundaramwatto_cobraRobPalmer9netmage
  • Reply 3 of 35
    I have not completed the article, but I can already say DED , is dropping bombs on the WSJ’s hit pieces.
    edited February 2018 magman1979lostkiwicornchipanantksundaramwatto_cobrajony0
  • Reply 4 of 35
    This doesn’t really explain why...

    Basically anyone can design a phone, and slap Android on it.  Samsung does well because they have the best hardware.

    Apple beats everyone because they have the superior ecosystem and integration.  Google is trying break in on that by creating their own phone.  They thought good software (Android) was enough, but supporting thousands of different phones (hardware) is a fools game.  Updating them with new software is a monumental task.  Without the latest software (OS) users can purchase the latest software apps, and that’s where Google gets their cut.

    Theoretically Google has an edge on all other Android phones long term, but that’s not true in China...

    In China, there will probably be 5 (or less) survivers, and they’ll be the ones with massive resources needed to build out their own ecosystems. 

    Sad but true, the little guys “discount phone makers” don’t stand a chance.  The large manufacturers have scale advantages, customer tie-in with the ecosystem, and don’t necessarily need to make a profit by selling the phone (hardware).


    lostkiwi
  • Reply 5 of 35
    That's really not good for technology or society. 
  • Reply 6 of 35
    spice-boy said:
    That's really not good for technology or society. 
    What's the alternative?
    cornchip
  • Reply 7 of 35
    horvatic said:
    Yea there's a lot of media who want to see Apple fail in so many ways. Here's more proof that cheap copies doesn't make a great deal and Apple will usually win out eventually. Poor build quality, lousy software and cheap components don't make it in the real world as an iPhone competitor.

    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system, and will never been as well-aligned as iOS. Just a shame so many Android developers bring junk apps to the platform.
    magman1979lostkiwiwatto_cobranetmagepscooter63jony0lolliver
  • Reply 8 of 35
    misamisa Posts: 827member
    horvatic said:
    Yea there's a lot of media who want to see Apple fail in so many ways. Here's more proof that cheap copies doesn't make a great deal and Apple will usually win out eventually. Poor build quality, lousy software and cheap components don't make it in the real world as an iPhone competitor.

    I regularly read (or troll, depending on the context) some pro-open-source/pro-linux type of forums and the general tone, or tone-deafness tends to be that they are still holding their breath for the iPhone to fail.

    The reality is that the iPhone has appeal to pretty much everyone except for the people who see it as a political anathema to promoting open source. Which is fine. Less nerds interested in the iphone, less jailbreaking and subsequent security issues will show up.

    Really, the question is, why can't these other idiot smartphone makers actually appeal that nerd market? Because they're after Apple's market. That's the market they can't make any headway into because you can't use Apple's software on non-Apple phones, Android is a miserable experience, and the two other mobile phone OS's out there don't have any market share. Quite honestly I'm surprised the Chinese vendors didn't just make their own OS from scratch, but I guess that would require them to worth together on something that isn't rubbish. It just won't happen. It's bad enough that most Android phones appear to be designed without any UX designers.

    magman1979lostkiwiwatto_cobrapscooter63jony0lolliver
  • Reply 9 of 35
    coolfactor said:
    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system
    A good enough operating system that runs  on nearly 90% smartphones worldwide. I think you are underestimating how good android really is. I remember the day when apple never discounted iphones, but since last year discounts are getting bigger and bigger meaning competition is tuff which is good for us consumers.

    If you read the article below apple have issues in the core markets, that's the real story:

    http://uk.businessinsider.com/apple-ios-market-share-us-europe-japan-2018-1
  • Reply 10 of 35
    tmaytmay Posts: 3,818member
    saltyzip said:
    coolfactor said:
    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system
    A good enough operating system that runs  on nearly 90% smartphones worldwide. I think you are underestimating how good android really is. I remember the day when apple never discounted iphones, but since last year discounts are getting bigger and bigger meaning competition is tuff which is good for us consumers.

    If you read the article below apple have issues in the core markets, that's the real story:

    http://uk.businessinsider.com/apple-ios-market-share-us-europe-japan-2018-1
    Discounts are via the Carriers. so it comes out of their pockets as a cost of acquisition no different than BOGO and price discounts Samsung, et al, make. Apple does give a good credit for an iPhone traded in on a new iPhone, likely due to the value that every iPhone retains that Android OS phones do not. Focussing on marketshare is nice if you're ahead, but for Samsung, only getting a third of Apple's ASP, and very little benefit from Android OS's ecosystem, is a high price to pay for marketshare.

    I would also note that iPhone users hold on to their current iPhones longer, about 6 months longer than the average Android OS device, which impacts unit sales, Still, those same customers have a very high loyalty to the iPhone, Apple, and Apple's ecosystem, and very few ever switch to Android OS. Unfortunately for Android OS device makers, the corollary is not true; there are more switchers from Android OS to iOS.

    Bet you weren't aware that the user base of Apple's iPhone is over 50% of the total smartphone user base in the U.S.; now you are.

    That's all of those iPhone users holding onto their iPhones longer. Sooner or later, they will be upgrading,


    edited February 2018 magman1979lostkiwicornchipanantksundaramwatto_cobraRobPalmer9netmagejony0lolliver
  • Reply 11 of 35
    saltyzip said:
    coolfactor said:
    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system
    A good enough operating system that runs  on nearly 90% smartphones worldwide. I think you are underestimating how good android really is. I remember the day when apple never discounted iphones, but since last year discounts are getting bigger and bigger meaning competition is tuff which is good for us consumers.

    If you read the article below apple have issues in the core markets, that's the real story:

    http://uk.businessinsider.com/apple-ios-market-share-us-europe-japan-2018-1
    Ehhh, no.  The cost to produce the average iPhone (even with Apple’s extreme buying power) is more (~$350) than the average selling price (ASP) ($250) of an Android handset. But hardware isn’t the key to iPhone success, it is the means that make possible iOS functionality. Design of the OS (ease of use, stability and intuitiveness) is a bigger reason for iPhone’s pricing power. It’s one thing to put a nice looking skin on Android, but that’s just putting lipstick on a pig. 

    Android apologists all respond with the same trite answers, Android has greater market share (it does in the sub $400 space where there are no profits), Android hardware specs are better (doesn’t make the user experience better), etc.  My response is that Android users, by and large, are feature phone buyers that appreciate larger screens.  Period. The vast majority of Android users have no use for “smartphone” functionality, hence the very low numbers (compared to iOS users) of app or online purchasing. There’s nothing wrong with glorified feature phones, but don’t confuse them with a true smartphone that people are willing to pay twice as much for. 

    If Androids could be upgraded without having to buy new it’s unit sales numbers would plummet. The proof in that is that Android installed base is about 2.7 billion units, compared to 1.3 billion iOS units.   Remove churn caused by the inability to upgrade an Android handset, and instead of 17% iOS quarterly market share, iOS would be about 42%. 
    magman1979tmayradarthekatanantksundaramwatto_cobranetmagejony0lolliver
  • Reply 12 of 35
    saltyzip said:
    coolfactor said:
    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system
    A good enough operating system that runs  on nearly 90% smartphones worldwide. I think you are underestimating how good android really is. I remember the day when apple never discounted iphones, but since last year discounts are getting bigger and bigger meaning competition is tuff which is good for us consumers.

    If you read the article below apple have issues in the core markets, that's the real story:

    http://uk.businessinsider.com/apple-ios-market-share-us-europe-japan-2018-1
    It's funny how Android trolls can be spotted usually by their first sentence...

    Android is GARBAGE, no and's, if's, or but's about it. There are MOUNTAINS of data to this effect, so do yourself a favour and just stop now, before you make a bigger fool of yourself.
    cornchipRonnnieOwatto_cobranetmagejony0lolliver
  • Reply 13 of 35
    sflocalsflocal Posts: 4,652member
    saltyzip said:
    coolfactor said:
    Android loyalists can shout as loud as the want from the mountaintops. At the end of the day, it's just a good-enough operating system
    A good enough operating system that runs  on nearly 90% smartphones worldwide. I think you are underestimating how good android really is. I remember the day when apple never discounted iphones, but since last year discounts are getting bigger and bigger meaning competition is tuff which is good for us consumers.

    If you read the article below apple have issues in the core markets, that's the real story:

    http://uk.businessinsider.com/apple-ios-market-share-us-europe-japan-2018-1
    It's funny how Android trolls can be spotted usually by their first sentence...

    Android is GARBAGE, no and's, if's, or but's about it. There are MOUNTAINS of data to this effect, so do yourself a favour and just stop now, before you make a bigger fool of yourself.
    True... Android is garbage, yet its "success" speaks loudly of what people are willing to accept.  The truth that is loudest about the sham that is Android is the fandroid silence when the next article of government and police officials loudly complaining about the difficulty of cracking an encrypted iPhone.  I have yet to read, nor find any article, discussion, video... anything... that any official has said about the difficulty of Android security.
    lostkiwicornchipwatto_cobraMacsplosionnetmagejony0lolliver
  • Reply 14 of 35
    fallenjtfallenjt Posts: 3,976member
    Don't know the Chinese or Asian? They can sell a kidney to land a latest/most expensive phone. To them, phone is a social status, a bling bling thing. Also, USA products are always premium in Asian eyes. This is the real damn quote from a young Vietnamese guy in Vietnam:
    "For me, the Galaxy 7 got me more uses than iPhone 7. The problem is: no girl even looks at me with that phone on my hand. So, I'm buying an iPhone". This is a truth story.
    edited February 2018 watto_cobrajony0
  • Reply 15 of 35
    tzeshantzeshan Posts: 1,980member
    The Chinese smartphone makers try to copy every new feature of iPhone in order to justify their "flagship" smartphones are competitive to iPhone. Unfortunately they are falling behind in the last two years. The iPhone 7 Plus introduced dual rear camera which is popular. One the selling points of Chinese smartphone is always they shoot better picture than iPhone. But after more than one year the Android world is still not able to produce a dual camera as good as the iPhone.  The examples are Samsung S8 Edge and Google Pixel 2 Plus. Then last year Apple introduced highly accurate FaceID in iPhone X. Several component makers are trying to create a FaceID compatible kit. It seems the MWC no smartphone has FaceID compatible smartphone to show off. So it seems an Android FaceID is still far off. So without two very important new features in iPhone, the Chinese smartphone makers stopped being able to increase their sales every in the home country. 
    netmage
  • Reply 16 of 35
    Photo of actual android phones that are considered to be  in use...
    cornchipRobPalmer9anantksundaramwatto_cobrajony0lolliver
  • Reply 17 of 35
    avon b7avon b7 Posts: 3,938member
    tzeshan said:
    The Chinese smartphone makers try to copy every new feature of iPhone in order to justify their "flagship" smartphones are competitive to iPhone. Unfortunately they are falling behind in the last two years. The iPhone 7 Plus introduced dual rear camera which is popular. One the selling points of Chinese smartphone is always they shoot better picture than iPhone. But after more than one year the Android world is still not able to produce a dual camera as good as the iPhone.  The examples are Samsung S8 Edge and Google Pixel 2 Plus. Then last year Apple introduced highly accurate FaceID in iPhone X. Several component makers are trying to create a FaceID compatible kit. It seems the MWC no smartphone has FaceID compatible smartphone to show off. So it seems an Android FaceID is still far off. So without two very important new features in iPhone, the Chinese smartphone makers stopped being able to increase their sales every in the home country. 
    The iPhone 7 Plus wasn't the first dual camera phone.

    It was the only Apple phone that had dual cameras for a year, though. For a while, one of the big features of that phone (Portrait Mode) was in beta.

    A portrait mode equivalent already existed on the phone that had dual cameras before the iPhone 7 Plus.

    The manufacturer had a whole family of dual camera phones out before Apple shipped its second dual camera model. I'm not sure what you are referring to by 'better' camera. 

    How do these photos look to you?

    https://petapixel.com/2016/05/31/review-huawei-p9-phone-camera/

    They are from a dual camera phone and months before the first Apple dual camera phone even existed.

    'Android FaceID' is not 'far off'. It already exists and was even revealed just weeks after Apple revealed FaceID. The roadmap had it scheduled for Q118 and AFAIK, that is still the plan although the one I'm thinking about won't appear at MWC itself but the following month (and have three cameras FWIW). That doesn't rule out someone else announcing such a feature at MWC though. I can think of two candidates.
  • Reply 18 of 35
    tzeshantzeshan Posts: 1,980member
    avon b7 said:
    tzeshan said:
    The Chinese smartphone makers try to copy every new feature of iPhone in order to justify their "flagship" smartphones are competitive to iPhone. Unfortunately they are falling behind in the last two years. The iPhone 7 Plus introduced dual rear camera which is popular. One the selling points of Chinese smartphone is always they shoot better picture than iPhone. But after more than one year the Android world is still not able to produce a dual camera as good as the iPhone.  The examples are Samsung S8 Edge and Google Pixel 2 Plus. Then last year Apple introduced highly accurate FaceID in iPhone X. Several component makers are trying to create a FaceID compatible kit. It seems the MWC no smartphone has FaceID compatible smartphone to show off. So it seems an Android FaceID is still far off. So without two very important new features in iPhone, the Chinese smartphone makers stopped being able to increase their sales every in the home country. 
    The iPhone 7 Plus wasn't the first dual camera phone.

    It was the only Apple phone that had dual cameras for a year, though. For a while, one of the big features of that phone (Portrait Mode) was in beta.

    A portrait mode equivalent already existed on the phone that had dual cameras before the iPhone 7 Plus.

    The manufacturer had a whole family of dual camera phones out before Apple shipped its second dual camera model. I'm not sure what you are referring to by 'better' camera. 

    How do these photos look to you?

    https://petapixel.com/2016/05/31/review-huawei-p9-phone-camera/

    They are from a dual camera phone and months before the first Apple dual camera phone even existed.

    'Android FaceID' is not 'far off'. It already exists and was even revealed just weeks after Apple revealed FaceID. The roadmap had it scheduled for Q118 and AFAIK, that is still the plan although the one I'm thinking about won't appear at MWC itself but the following month (and have three cameras FWIW). That doesn't rule out someone else announcing such a feature at MWC though. I can think of two candidates.
    You are fooled by the media too.  Huawei p9 dual camera is very different from the iPhone 7 Plus. And watch out for claims of FaceID in the Android world. Face recognition has been bragged by Chinese media months before iPhone X in use in train stations. But is this face recognition as good as iPhone X FaceID? I doubt it. 
    anantksundaramwatto_cobranetmagejony0lolliver
  • Reply 19 of 35
    tzeshantzeshan Posts: 1,980member

    avon b7 said:
    tzeshan said:
    The Chinese smartphone makers try to copy every new feature of iPhone in order to justify their "flagship" smartphones are competitive to iPhone. Unfortunately they are falling behind in the last two years. The iPhone 7 Plus introduced dual rear camera which is popular. One the selling points of Chinese smartphone is always they shoot better picture than iPhone. But after more than one year the Android world is still not able to produce a dual camera as good as the iPhone.  The examples are Samsung S8 Edge and Google Pixel 2 Plus. Then last year Apple introduced highly accurate FaceID in iPhone X. Several component makers are trying to create a FaceID compatible kit. It seems the MWC no smartphone has FaceID compatible smartphone to show off. So it seems an Android FaceID is still far off. So without two very important new features in iPhone, the Chinese smartphone makers stopped being able to increase their sales every in the home country. 
    The iPhone 7 Plus wasn't the first dual camera phone.

    It was the only Apple phone that had dual cameras for a year, though. For a while, one of the big features of that phone (Portrait Mode) was in beta.

    A portrait mode equivalent already existed on the phone that had dual cameras before the iPhone 7 Plus.

    The manufacturer had a whole family of dual camera phones out before Apple shipped its second dual camera model. I'm not sure what you are referring to by 'better' camera. 

    How do these photos look to you?

    https://petapixel.com/2016/05/31/review-huawei-p9-phone-camera/

    They are from a dual camera phone and months before the first Apple dual camera phone even existed.

    'Android FaceID' is not 'far off'. It already exists and was even revealed just weeks after Apple revealed FaceID. The roadmap had it scheduled for Q118 and AFAIK, that is still the plan although the one I'm thinking about won't appear at MWC itself but the following month (and have three cameras FWIW). That doesn't rule out someone else announcing such a feature at MWC though. I can think of two candidates.
    I think one of Google Android strategy is to use sea of Android smartphones to bury iPhone. To make it harder for Apple to claim innovation the new features will appear in this and that Android smartphones.  Even though they don't sell because of poor quality. 
    anantksundaramwatto_cobrajony0
  • Reply 20 of 35
    Once again, just one of the paragraph headings in Dilger's piece contains more information than most AI articles, and unlike those articles, is also witty! Great work, Daniel! The most interesting thing about Apple over its amazing rise through the past 18 years is the way a growing number of people, from all walks of life, are voting with their money saying, 'We don't want pieces of shit - we want quality!' No one else in China, Europe or TUSA have managed to produce anything as good as Apple. I imagine the future of Apple as providing the only viable source of technology, which is a HUGE improvement over the 90's and 00's where it was Microsoft. I really hope Apple can refine its software to the point where an update doesn't have random issues, and where there are no more bugs.
    lostkiwicornchipwatto_cobranetmagejony0
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