Samsung Is Losing China to Newcomer Xiaomi

New data shows Chinese upstart Xiaomi took the top smartphone vendor crown from Samsung in the second quarter.

Aug 7, 2014 at 4:29PM

It's been a rough few weeks for Samsung's (NASDAQOTH:SSNLF) smartphones in China. Just last month the company said it experienced increased competition in the country, which led to more smartphone inventory and fewer sales. A lack of demand for Samsung's 3G phones in the China --- as well as increased competition in Europe -- helped pushed Samsung's operating profit down 24% year over year in the second quarter.   

If that weren't enough, research firm Canalys this week published data showing that for the first time in more than three years Samsung was pushed out of the top smartphone vendor spot in China.

Xiaomi Mi
Samsung is losing market share in China because of devices like the Mi 3. Source: Xiaomi.

In the second quarter, Samsung's smartphone sales fell 15% year over year in the country, partly because of the push for more 4G phones, as China Mobile (NYSE:CHL) rolls out its new TD-LTE network. Samsung has previously focused on selling its 3G devices in China because that has been the dominant network, but China Mobile increased its 4G subscribers from 1.3 million in February to 14 million in June. The company expects to have 50 million such subscribers by the end of the year. The switch from 3G to 4G devices caused some channel inventory problems for Samsung, which led to lower shipments.

But the biggest contributor to Samsung's recent fall in China is the rise of Xiaomi. The Chinese company took 14% market share in China in the second quarter, growing by 240% year over year. Canalys said in its report that "In little over a year, Xiaomi has risen from being a niche player to become the leading smart phone vendor in the world's largest market, overtaking Samsung in volume terms in Q2."

Here's how Xiaomi's smartphone sales stack up to Samsung's over the past year:

Samsung Xiaomi
Source: Canalys.

Xiaomi has grown its smartphone business quickly by offering high-end device at mid-range prices, and by creating a loyal following at the same time. Xiaomi's smartphones feature a modified version of Android that is updated every week with user suggestions, which sets the company apart from Samsung and other competitors.

In addition to its software and high-spec products, the company set aggressive goals last year to grow unit sales, and that is starting to pay off.

In 2013, Xiaomi sold 18.7 million smartphones -- more than doubling sales from the year before. This year, the company expects to ship 40 million phones, but it could be as high as 60 million, according to CEO Lei Jun. Adding up the first two quarters of this year, Xiaomi had already shipped 27 million smartphones. All of that growth eats into Samsung and Apple's market share in China, as 97% of Xiaomi's smartphone sales come from its home country.

Why Samsung should be worried
In the second quarter, China accounted for 37% of worldwide smartphone shipments. Samsung is still the global smartphone leader, holding 26% market share, but its stranglehold is loosening. In the second quarter of 2013, the company held a 32% share, and in the first quarter of this year it had 31%.

To regain its position in China, Samsung will have to focus on 4G LTE devices. The second quarter was a transition period for Samsung in China, as it shifted inventory for the faster networks. As China Mobile -- and eventually China Telecom and China Unicom -- build out their 4G networks, Canalys expects Samsung's sales in the country to tick back up, at least in the current quarter.

The big unknown is whether Xiaomi can continue growing at its current levels. If it does, Samsung and other vendors will have a hard time gaining back lost ground. And as Xiaomi begins expansion into Indonesia, Mexico, Russia, Thailand, and Turkey, Samsung and other smartphone makers may have more to worry about than just their China market share. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple and China Mobile. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information