Last week, Flurry Analytics reported that China had officially become the world's largest mobile market. We knew this was coming, but it doesn't mean that it's any less important for tech companies -- or investors. Chinese tech companies are giving the traditionally big players a run for their money, and China's mobile space is up for grabs. Investors should take note of Chinese competitors keeping the traditional tech dominators at bay.
Growing like a weed
In just a few days, there will be 246 million active mobile devices in China, compared to 230 million in the U.S. This may not seem like a big deal at first glance, but it is when you consider that the U.S. isn't likely to ever regain that top spot. China is the sixth fastest growing mobile market in the world, while the U.S. didn't even make it to the top 12 fastest-growing markets.
Not only is China's mobile market growing faster than the U.S., but from 2012 to 2013 China added about three times the amount of mobile devices than the U.S.
Who's leading the way?
In 2012, Chinese smartphone shipments easily took the majority of all global shipments, and increased more than 30% from a year earlier.
It's not just China's growth that investors need to pay attention to – it's who is causing all the growth. Let's take a look at who's putting the most phones into Chinese hands.
The interesting thing to note in this pie chart is the market share of two popular companies for investors, Apple (NASDAQ:AAPL) and Nokia (NYSE:NOK). Although Apple has made a big push in the country, it still doesn't have the iPhone on China Mobile, China's largest network. For Apple to make more inroads in China, it needs to make this happen in the near future.
Apple is also hitting roadblocks when it comes to the plethora of low-cost smartphones available to Chinese consumers. The company needs to seriously consider a low-cost version of the iPhone to compete with these handset makers. Without a China Mobile iPhone and a low-cost alternative to the mountain of Android-based phones, Apple can't expect to dominate the world's largest mobile market.
Nokia is a completely different story. The Finnish company used to hold 50% of China's handset market (not just smartphones) just two years ago, but now has about 1%. Nokia is trying to regain some of its previous dominance in the country, but so far it's fallen short. Nokia recently faced some supply problems in China with its Lumia line, resulting in a lack of Lumias on China Mobile's network.
When Nokia switched over to the Windows Phone platform it decided to create phones for U.S. consumers first, then for the rest of the world. It'll take some time to see if that strategy will pay off, but in the meantime Nokia just launched two new low- and mid-priced Lumia phones that could be a good fit for Chinese consumers -- if the Windows OS can win them over.
And then there's tablets
China's mobile growth is more than just smartphones, though. Tablet growth is exploding. So far, western companies are dominating the tablet scene in China, and Apple has a stranglehold on the market.
Microsoft (NASDAQ:MSFT) is (somewhat) understandably far behind the iPad and Android tablets considering it only launched the Surface in China back in October. The real problem for Microsoft is that the company only managed to sell about 30,000 units in China in Q4 2012, according to research firm IDC. The Surface Pro isn't available to Chinese consumers, and the higher price point it carries may be a deterrent to Chinese consumers anyway.
To gain any significant tablet market share in China, Microsoft is going to need to start selling gobs of Surface RTs, and right now that just doesn't look like it's going to happen. Microsoft has said that the Surface is a way to show OEMs how great a Windows tablet can be, so it's possible the company is less interested in units sold as it is in showcasing the future of Windows.
Completely absent from the tablet space is Google's Nexus 7 and Amazon's Kindle Fire. The two companies have yet to introduce their tablets to the Chinese market, and Apple and Android devices have benefited from that.
A bright future
When it comes to China, tech companies like Apple, Samsung, and Microsoft are not just competing with each other, but with major Chinese players like Lenovo, Huawei, ZTE and others. It's not just about Microsoft vs. Apple or Apple vs. Samsung in this country -- the Chinese tech companies are formidable opponents. American consumers may not recognize all the names, but investors should be aware of these new mobile players.
As China's mobile market grows, investors should look at not only what American consumers are used to purchasing, but also what Chinese consumers demand. Right now, it seems Chinese consumers want many of the same products western consumers are looking for, but Chinese wages and brand loyalties are different that Americans'. Investors need to see companies like Apple adjusting price-point strategies and products to appeal to a wider range of Chinese consumers. They also need to see companies like Microsoft and Nokia succeed in selling their new products. If tech companies can't sell tablets and smartphones in China, their future in the worldwide mobile space doesn't look good.
Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, China Mobile, Google, and Microsoft. 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.