Xiaomi Passes Samsung as China’s Top Phonemaker

Samsung Electronics (005930:KS) is no longer at the top of the smartphone market in China. Local favorite Xiaomi shipped just under 15 million phones in China in the second quarter of this year, compared with 13.2 million for Samsung, according to research firm Canalys. Xiaomi had been the third-largest vendor in China in the first quarter and the sixth-largest in the world. The chart below shows smartphone sales in China by unit and by vendor:

Increasingly, the Chinese market is served by Chinese companies; Samsung is the only foreign company in the top five. The Korean company told investors it was having trouble in China when it reported disappointing smartphone sales last week. It acknowledged that it is losing ground in the lower end of the market, which accounts for more than half of smartphones sold in the country. “Particularly in China, we are negatively impacted by the challenging market circumstances, including intensified competition among vendors and weaker demand for 3G phones in anticipation of an extensive 4G LTE rollout,” said Kim Hyun-joon, a senior vice president with the company’s mobile division.

Samsung is preparing to release new devices to compete with lower-cost phones in China. Never shy about spending money on marketing, the company has been spending even more to clear out its inventory of older phones to make room for the new ones. These moves are squeezing Samsung’s profit margins now and could continue to do so even if its new, cheaper phones do well.

Xiaomi, whose star has been rising in China for some time, has a strategy that is the opposite of Samsung’s in several ways. While Samsung spends lavishly and cultivates deep relationships with retailers, Xiaomi spends little on marketing and sells pretty much only online. It keeps almost no inventory on hand, which means it regularly runs out of new phones quickly. While Samsung is trying to figure out how to sell cheaper phones, Xiaomi is moving relatively upmarket: Last month it released its new iPhone-esque Mi4.

The challenge that Samsung faces mirrors the one faced by Apple (AAPL). While Apple has been saying it is gaining increasing traction in the country, Canalys reported that its share shrank during the quarter.

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4 August 2014 | 3:32 pm – Source: businessweek.com

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