For smartphone manufacturers, there's arguably no bigger prize than China. Its combination of a large population, increasing smartphone-penetration rates, and growing middle class points to a large runway for growth. Just as important: investors in smartphone makers need to be keenly focused a country that boasts 700 million smartphone users.
However, competition has been fierce in the Middle Kingdom. Outside of homegrown competitors Huawei and Lenovo, China boasts of smartphone giants Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF). However, if the fourth quarter is any indication, privately owned Xiaomi is quickly becoming the smartphone-maker of choice in China by taking nearly 14% of the total market.
IDC's quarterly mobile phone tracker shows huge growth for Apple and Xiaomi
According to market-research firm IDC, 107.5 million smartphones were shipped to China in 2014's fourth-calendar quarter, presenting growth of 2% quarter over quarter and 19% year on year. However, if there were two companies that outrperformed this quarter it had to be Apple and the aforementioned Xiaomi. Xiaomi edged out Apple by 1.5 percentage points to take the market-share lead at 13.7% and saw its year-on-year unit growth in China jump an astronimical 150%.
Apple took second place on the back of a successful iPhone 6 and iPhone 6 Plus launch, propelling the company to a 12.3% market share of units shipped according to IDC. On a year-over-year basis, Apple grew its fourth-quarter units shipped in China 99.7% as investors were treated to a blowout first fiscal quarter. According to Apple's quarterly earnings filing, China is quickly becoming the most important region for growth. For perspective, by growing revenue 70% year over year, Greater China growth was responsible for nearly 40% of Apple's total revenue growth during that period.
And by growing units shipped more than the country average Apple and Xiaomi stole market share from other vendors.
Lenovo and Samsung had a tough quarter
Of the top five vendors in China, there were two that struggled this survey: Lenovo and Samsung. Lenovo saw a year-over-year unit drop of 14.3% as competition from Xiaomi, Apple, and Huawei hurt the company. Last quarter Lenovo completed the purchase of high-end Motorola Mobility from Google but its Lenovo-branded low/mid-end strategy appears to be struggling as the company's units-shipped market share fell on both a year-on-year and a sequential basis.
However, things could be worse for Lenovo -- it could be Samsung. There's been no greater collapse in China's smartphone market than Samsung. Last year the company was the No. 1 vendor boasting an 18.8% market share -- last quarter the company commanded only 7.9%, dropping to No. 5 in the process. Investors were affected as well; Samsung's third fiscal quarter reflected its poor smartphone performance with operating income dropping 60% on a year-over-year basis.
A good sign for all is this market is still fluid
However, a positive takeaway for all vendors is the market appears to still be fluid. When the No. 1 vendor only has a 13.7% market share, and the broad category of "Other" has nearly 50% of the total market, there's an opportunity for each of these vendors to grow market share going forward. Currently, Xiaomi and Apple have a reason to be optimistic but shouldn't rest on their laurels in the Middle Kingdom -- competition will continue to be fierce.