January 6, 2013 5:32 pm

Big displays of ambition in China handsets

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Chinese handset makers elbowed their way into the limelight a little over a month ago, by snatching smartphone leadership in their home market from global brands.

In the third quarter, sales of Lenovo smartphones in China surpassed those of Apple, while Gionee, a brand few outside China had ever heard of, squeezed past HTC, according to Gartner, the research firm.

The rise of homegrown handsets is unlikely to stop there. After having rolled up the mature smartphone market, Chinese manufacturers are now following the global brands into the new, supposedly higher-margin segment of “phablets” – devices with displays larger than 5 inches that seek to combine phone and tablet features.

This category, bolstered by devices launched in 2012 such as Samsung’s Galaxy Note II and Apple’s iPad Mini, barely existed a year ago. According to IDC, the research firm, worldwide shipments of smartphones with 5-inch displays soared from just 1.2m units in 2011 to 16.6m last year.

IDC expects this trend to continue. As long as the iPad mini and low-cost large-screen smartphones continue to sell well this year, annual growth in the phablet segment will exceed 50 per cent, says Dickie Chang, senior market analyst at IDC.

Others are even more bullish. According to Barclays, shipments of smartphones with display sizes of 5 inches and above jumped from 4.5m in 2011 to 27.4m in 2012. The bank expects shipments to grow more than fivefold to 142.6m this year and hit 228.5m in 2015.

“Vendors are targeting this segment [because it promises a] better profit rate,” says Mr Chang of IDC. “Consumers are somehow willing to pay more for a bigger device.”

But that could turn out to be a miscalculation as the fast followers from China, the world’s largest smartphone market by shipments, have kicked off a price war, with some offering 5-inch smartphones for less than half of what a Samsung Note costs.

At least 10 large-screen smartphone models have either been launched already or will be launched soon by Chinese companies.

Dale Gai, an analyst with Barclays, says the push into phablets is boosting the smartphone upgrade cycle in China. According to Barclays figures, Chinese handset companies accounted for only 5.5 per cent of the total large smartphone market last year but will expand their share to 15.8 per cent by 2015.

“Large-display smartphones provide differentiation opportunities for mobile brands such as Oppo,” says Pete Lau, Oppo vice-president. The company has launched the Find5, a 5-inch smartphone that sells at about Rmb3,000 ($480), and says it might release more 5-inch devices.

But many of the new Chinese-made large smartphones carry price tags of less than Rmb2,000. This includes two models by Lenovo, the country’s leading smartphone brand, a model by Gionee, but also phones offered by new entrants.

Zopo, a company that only sold its first smartphone in March last year, launched a 5.3-inch phone in October which sells for only Rmb1,699. It plans to launch a 5.7-inch device later this month and a 5-inch phone with a high-resolution screen soon, both for under Rmb2,000.

Though Chinese companies are offering cheaper devices – Samsung’s Note starts at Rmb4,199, for example – analysts say domestic brands may struggle to turn a profit.

“We are, again, seeing a price war in the Chinese market,” says Sandy Shen, head of consumer research at the IT research firm Gartner in China. She sees young white-collar workers who want to show off, but whose incomes do not allow them to buy a Galaxy Note, as the main customer group for the homegrown phablets.

“The main driver behind this is second-tier Chinese smartphone brands – they achieve a cost-down by localising components, mainly the display, and then offer a larger device at the same price,” says Mr Gai.

Additional reporting by Zhao Tianqi

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