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Smartphones conquered even impoverished consumers in desperately poor
countries, giving them access to things they couldn’t even imagine a few
years ago. The devices and the activities they spawned have been one of
the world’s growth engines. China’s consumers adopted them at stunning rates.
But even that growth engine is slowing down on a global basis.
And in China, it just skidded backwards into the ditch.
Globally, smartphone sales in the second quarter rose 13.5% to 329.6
million units, the slowest year-over-year growth rate since 2013, Gartner reported today.
What drove growth were cheaper 3G and 4G smartphones in emerging markets in
Asia/Pacific – excluding China – Eastern Europe, the Middle East, and Africa.
The winners in these markets were Chinese and local brands.
But in China – the world’s largest market for smartphones, accounting
for 30% of global sales last quarter – unit sales fell 4%, the first decline
ever.
Gartner’s explanation of the phenomenon, after years of mind-bending
growth, featured the very unwelcome S-word:
China has reached saturation – its phone market is essentially driven by
replacement, with fewer first-time buyers. Beyond the lower-end phone
segment, the appeal of premium smartphones will be key for vendors to attract
upgrades and to maintain or grow their market share in China.
It’s getting tough in China. “Saturation” inspires fear. It turns a market
into a war zone of pricing and innovation, of margin pressures and profit
declines. There will be shakeouts and losers. But in China, it’s worse: the
market actually shrank.
Don’t blame Apple. Its large-screen iPhones have been kicking butt in
China – and elsewhere. Globally, Apple’s market share rose by 2.4 percentage
points to 14.6%. Unit sales rose 36% to 48.1 million. Apple saw strong iPhone
replacements in all markets, but “particularly in China,” according to
Gartner. In China, iPhone sales soared 68% to 11.9 million units.
But Samsung, still number one globally, saw its market share drop 4.3
percentage points in Q2 to 21.9%. And unit sales fell 5.3% to 72.1 million.
The chart shows global smartphone sales. The declining sales of Lenovo
include those by Lenovo and Motorola in both quarters. Note how super-hyped
Chinese maker Xiaomi is falling further behind Huawei and Apple.
Apple ate their lunch….
Apple’s double-digit growth in the high-end segment continued to
negatively impact its rivals’ premium phone sales and profit margins. Many
vendors had to realign their portfolios to remain competitive in the midrange
and low-end smartphone segments. This realignment resulted in price wars and
discounting to clear up inventory for new devices planned for the second half
of 2015.
China dished out a brutal lesson in operating systems. For a company to
grow in a shrinking market it must surgically remove market share from other
players. And that’s what Apple’s iOS did, taking share from Android for the
third quarter in a row. Android lost out with a shrinking share of a
shrinking market.
That debacle in China dragged down Android’s global growth to 11%
year-over-year. Its global market share dropped 1.6 percentage points to a
still phenomenally successful 82.2%.
And Microsoft’s operating system? Forget it. Gartner, gently: “In light of
Microsoft’s recent cuts in its mobile hardware business, we’ll await signs of
its long-term commitment in the smartphone market.” I wasn’t quite as gentle
when I wrote a few weeks ago, Microsoft
Tallies True Costs of M&A Boom: Layoffs, Write-Offs, Shut-Downs, and
Economic Decline
The fact that smartphone sales in the world’s largest smartphone market
declined in the second quarter, for the first time ever, is another
warning that the official GDP growth figure of 7% is delusional.
“Saturation” is becoming a new economic reality in China. For years,
global companies have been spoiled with hyper-growth. That era is over.
But actually shrinking sales are worse than what could be expected in a
merely “saturated” market, which would imply flat or slowly growing sales.
It’s hard to blame “saturation” for shrinking sales. Something more
complex is going on, something that the official figures refuse to
acknowledge.
Smartphones are not the only consumer item facing this debacle of
shrinking sales in China after years of breath-taking growth. Numerous other
products are now wading through the same mire. For example, passenger
vehicles sales in China, the largest auto market in the world both in terms
of manufacturing and sales, declined in June and July from a year ago. But
incredulous manufacturers are still building plants and adding capacity.
So Volkswagen, whose sales in China – its largest market – have declined
three months in a row, is now busy
denying that it’s slashing production to deal with ballooning
overcapacity; yes, it’s slashing production, but for other reasons, it said.
Overcapacity is too terrible in the car business. It simply cannot be
publicly acknowledged.
And GM has already figured out how it will deal with its overcapacity in
China. Read… LEAKED:
GM Sees Overcapacity Fiasco in China, Hopes Americans Will Buy Lots of
Chinese-Made Buicks
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