No commodity, iPhones sizzle again in China

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No commodity, iPhones sizzle again in China

After years of declining smartphone prices globally, it looked as if the once-hot technology had quickly become a commodity. A slump that took decades in computers seemed to have happened to phones in just a few years. Perhaps most troubling example was China, the biggest smartphone market and traditionally one of the leaders in growth. Not only were Chinese settling for cheaper phones; by the beginning of this year, they were buying fewer of them for the first time since the modern smartphone was invented.

While China is no longer the mobile industry’s unstoppable growth machine, it could become the next profit frontier. From October 2014 to March 2015, the average price of a smartphone sold in China jumped dramatically, according to data from the research firm IDC. The average price went from $192 in the third quarter of 2014 to $239 in the fourth, and then to $263 in the first quarter of 2015.

The unexpected change can be attributed primarily to Apple, said Bryan Ma, an analyst at IDC. The company added more expensive models with bigger screens that became popular; they actually moved the huge Chinese market substantially and helped Apple rocket into first place there. “The most recent increases are a reflection of the popularity of the iPhone 6 and 6 Plus,” says Ma, citing IDC data.

The results are an important validation for Tim Cook. Apple’s chief executive officer was being pressured by analysts and shareholders to lower prices and create cheaper models to adapt to what seemed like a permanent change in the industry. But a less expensive plastic model, the iPhone 5C, fell flat. It didn’t take long for Cook to discover the real solution to Apple’s growth concerns: bigger screens. Shareholders saw evidence of Cook’s triumph in the company’s earnings in recent quarters.

Beyond Apple, the numbers are important because they dispel the idea that the Chinese aren’t willing to pay a premium for what they perceive to be a superior phone. After joining in the race to the bottom on pricing, Samsung Electronics went fancy with its latest smartphones, the Galaxy S6 and S6 Edge, and that’s already starting to pay off.

The companies that don’t seem to be paying attention, it turns out, are those based in China. Lenovo, Huawei, and Xiaomi keep trying to one-down each other on price, although Ma says Huawei has been successfully climbing upmarket in recent quarters with products such as the Ascend Mate7.

There are still plenty of Chinese who value a bargain above all else, and we’ll see as time goes on if the new trend holds. But foreign companies are soaking up much of the profit. Apple’s changing fortunes should force the industry to reevaluate what it thinks it knows about what Chinese consumers want.


Bloomberg

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