Given its huge population, China has long been considered a critical battle ground for retailers, particularly in the wireless and smartphone spaces. When you juxtapose Wednesday's announcement of a key partnership between Nokia (NYSE: NOK ) and China Mobile (NYSE: CHL ) with a recent report from research firm IDC that places Apple (NASDAQ: AAPL ) in sixth place in smartphone market share in the country, the landscape suddenly takes on an unexpected look.
While the release of the iPhone 5 has pushed Apple back into first place in terms of U.S. sales, retaking the spot from Google (NASDAQ: GOOG ) Android-based devices, international sales are another matter. Ultimately Nokia, which sells the front-running Microsoft (NASDAQ: MSFT ) Windows phone, looks like the biggest recent winner in China -- but Google's still quietly dominating the market.
Nokia plays leapfrog
While a deal with China's largest wireless carrier has long been on Apple's holiday wish list, it was Nokia that secured the first critical contract with China Mobile. The company's Windows-based Lumia 920T will begin selling in China and will take advantage of wireless provider's TD-SCDMA network. The Lumia 920T is Nokia's flagship smartphone and the one best equipped to directly compete with the iPhone 5, which is slated to begin selling later this month .
The Microsoft OS has been slower to be accepted in the U.S., where the ecosystem that goes with your smartphone is of greater importance . In markets in which the smartphone itself is but a part of the equation -- a reality that is not always the case in China -- Apple and Google still lead the way, with Apple sales looking strong since the iPhone 5 was introduced. The first-mover status Nokia receives as a result of the China Mobile agreement, however, gives it a chance to gain momentum, even at the top of the price spectrum.
In addition to the China Mobile deal, Nokia also recently announced the release of the Lumia 620. This lower-end smartphone completes the Lumia family, with the 920 as the flagship and the 820 offering a mid-range option. The Lumia 620 is expected to be released in Asia sometime in January of 2013 and may play a critical role for the company in that market. The smartphone market in China is known to be largely price-driven, so a significantly lower price point should be favorable for generating sales.
While not attributable solely to news out of China, Apple's stock has had a hard few days, taking a pounding so far this week. After rebounding to start the week above $590, the stock is down over 10.5% near $530 as of this writing. Fellow Fool Evan Niu, took a thorough look at what sparked the sell-off, ultimately concluding the Apple bulls are taking a rest after driving the stock up by roughly 18%. I believe the situation in China will be critical to Apple's long-term success, but agree that recent price action is not specific to any given event.
In the third quarter, Apple's shipments within China dropped it two spots in the rankings during a quarter in which smartphone sales hit a new record of 60 million units sold. Despite the slip, IDC expects the iPhone release will help Apple recover somewhat during December. Chinese regulators approved the iPhone 5 for Chinese sales last week.
The critical element for each of these companies when developing a strategy for China is to recognize the trends that are firmly in place. Price is a huge driver of demand in China and in other developing nations. To put this into perspective, while smartphone sales growth surged at a blistering 46% globally in the third quarter, that figure climbed to a dizzying 63% in emerging markets . These consumer dollars must be a critical part of each of these companies' growth strategy.
In the bulk of emerging markets, where smartphone growth is enormous, consumers are largely opting for lower-priced models. This is one of the primary drivers of Android's success. In markets where the accompanying ecosystem is less critical, local Chinese brands and other cheaper options are by far the fastest-growing market segment . Many of these devices run on Android, although in several cases, the included user interface has been so customized that it bears little resemblance to anything conceived by Google.
Making sense of it all
While the results of the smartphone wars are interesting under most any circumstances, translating them into investment decisions is the critical step. Based on the range of news coming out of China, Nokia and Microsoft seemed to be the strongest positioned in the short term, and the most likely to move on news. Apple will recover and Google will continue to silently dominate. Each of these options plays an important role and can be selected based on your given portfolio's needs.
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