Apple's "Real Smartphone" Market Share in China Is Much Higher Than You Think

High-end smartphones may be more popular in China than you thought.

According to Umeng, 27% of smartphones used in China cost more than $500, and 80% of those high-end phones are made by one company: Apple (NASDAQ: AAPL  ) .

Contrary to popular belief, Apple is not getting its lunch eaten by Samsung (NASDAQOTH: SSNLF  ) in China. Moreover, its new agreement with China Mobile (NYSE: CHL  ) went into effect Jan. 17, which means Apple stands to gain even further ground in China.

Real smartphones
Tim Cook said in a recent interview with The Wall Street Journal: "I look at the mobile phone market as having three kinds of phones: feature phones, smartphones that function as or are used as feature phones, and real smartphones. I care about the market share of the last one."


Source: Umeng

More than one-third of smartphones sold in China fall into the "smartphones that function as feature phones" category, with 35% of phones sold for less than $150. Apple is more interested in transitioning these customers into real smartphone purchasers than catering to the low-end market.

If we generously categorize "real smartphones" as those priced above $150, Apple has one-third of the market in China. It took half the market of smartphones priced above $330.

Comparatively, Apple accounts for 41.6% of the U.S. market as of January. The U.S. smartphone market is largely composed of devices priced above $150, with the average smartphone selling for about $500. So, Apple isn't far off in China.

Better than Samsung
Here's the real interesting thing. Despite Samsung's efforts to control market share by flooding the market with smartphones at every price range, it hasn't succeeded.

By owning 80% of the 27% share of high-end phones, Apple maintains 21.6% total market share.


Source: Umeng

Meanwhile, of the other 78.4% of smartphones that make up the Android camp, Samsung only took 24%. Counting non-Android phones, Samsung's 24% of the Android share represents only 18.8% of the total smartphone market. Indeed, the market is much more fragmented in China than it is in the U.S.

Perhaps Apple's success stems from its ability to differentiate itself from the Android camp in China. Samsung has tried to separate its products from the pact by implementing different user interfaces. In 2014, the company may introduce its first phone that runs on Tizen OS, an Android alternative the company is heading up with Intel.

The impact of China Mobile
China Mobile began selling the iPhone in January, which ought to boost iPhone sales in China. The wireless carrier has 760 million subscribers, with 160 million being 3G subscribers. However, an estimated 40 million of China Mobile's subscribers were using gray-market smartphones on China Mobile's 3G network last year.

Analyst estimates for the number of iPhones sold through China Mobile in 2014 range from 12 million to 39 million. In January, the effect of the iPhone debut was clear. China Mobile added 14.2 million new 3G subscribers, which is 7.4% growth from December. That number represents the fastest month-to-month growth in 3G subscribers since last August and the biggest absolute 3G subscriber increase ever.

Not only will adding China Mobile as an official carrier help boost sales of the iPhone in China, it should also help quell the number of jailbroken iPhones. When a user jailbreaks his iPhone, he can use his phone with any carrier and bypass the Apple App Store.


Source: Umeng

The number of jailbroken iPhones has declined significantly over the last year, from 30% in January to 13% in December. Security risks are much higher on jailbroken phones. The introduction of the iPhone on China mobile will ensure that number continues to decline. As a result, Apple's iTunes revenue will see the benefit.

Making the best
Tim Cook has iterated several times that Apple doesn't care about market share, it cares about making the best products. Eventually the market will catch up. If you look at China, the largest smartphone market in the world, Apple's philosophy is starting to pay off. It's better than Samsung, and the second most popular phone maker in the country by active users. The deal with China mobile, along with the expanding economy, will fuel Apple's sales going forward.

People in China want the iPhone, it's just a matter of affording it.

Editor's Note: A previous version of this article misstated Sony's share of the Android market in China. It has since been corrected.

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Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2014, at 10:33 PM, mikelaowry wrote:

    You need to work on your research and analytic skills. I was loving what I first saw about Apple having 80% of the phones priced above $500 but then you made a huge blatant error that leads me to believe you are probably wrong about that 80% figure. Sony has 2% of the smartphone market according to that pie chart... The 30% I assume belongs to other manufacturers...

  • Report this Comment On March 18, 2014, at 9:41 AM, adamlevy wrote:

    Whoops. Thanks for pointing that out. Really just bad at seeing colors. :)

    Go ahead and crunch the numbers for yourself (besides the Sony one). They all work out.

  • Report this Comment On April 15, 2014, at 4:58 AM, chinadweller wrote:

    The big problem i think here is that you give China tooooo much credit, like most apple longs. First, take quant out of the formula and lets look at Apple now until tomorrow. From here until there, do they have a pipeline of new innovative and cool stuff? no. Are they making phones bigger and ipads smaller? Yes. Will this lead to possible cannibalization or slower growth for both? perhaps.

    Now lets add the quant figures back into China. China's growth story in the smart phone market was around 2007 when upper and upper upper class people were just finding out what an apple smart phone was. Apple's inability to innovate has created a scenario where android basically ridiculously dominates the market from very high end smart phones to very low end smart phones.

    Staying on the topic of low end, the growth market in China will now turn to quality over glitz and glamour because most iphone users will not turnover their iphone after one cycle. Sure the rich will keep buying but that is a small percentage of the population. What you have to look at is this number 6,500. Or USD6,500, that is the per capita GDP of the average Chinese citizens. Do you expect them to pay nearly 1000 dollars for an iphone? What about China mobile? China mobile has 760 million accounts. They are also the cheapest carrier by far, in CHina, and who is attracted to value? Thats right, the average consumer. Xiaomi, Lenovo and Huawei are the better buys in China, apple has worms

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