Apple Will Revert To Niche Status As Chinese Advance, Expert Says

How safe are Apple and Samsung in smartphones - could one or the other be vulnerable, right now, to a new hit phone?

Continuing my conversation with Hong Kong-based mobile expert Tomi Ahonen, I asked for his view on the status of the Apple vs Samsung battle. I say this competition defines the smartphone sector. Tomi's view is that the relevance of Samsung vs Apple is already on the wane. Here's why.

Apple and Samsung look as though they have smartphone device markets sewn up - but in China the lesser known players are as important as Samsung and more so than Apple. Are we on the edge of some kind of disruption here?

The view that 'Apple and Samsung have sewn the smartphone market up' is widely held in the West, especially in the USA, but does not accurately depict the world market.

Samsung is undeniably the world's largest smartphone maker at about one in three smartphones sold, and will very likely hold roughly that share when its dumbphone customers are migrated to smartphones, as Samsung has over 25% market share in the far cheaper dumbphones. Its fair to say, Samsung is the handset giant, the 'gorilla in the room' so to speak.

But Apple is not. The iPhone has about 20% market share currently yes, but most of Apple's strong market is in the most affluent nations, USA, Western Europe, Australia, Japan, Singapore etc.

Apple has nothing near 20% in the emerging world. In China it has only about 5% and in India under 3% and Africa under 2% of the market.

This is the case as the global smartphone market shifts to ever-cheaper smartphones that cost one tenth the price of an iPhone, after carrier subsidies are removed.

And while the iPhone does very well in markets where smartphones are highly subsidised by carriers, it does very badly in markets where there are no subsidies. Most mobile phone users of the planet live in countries or served by carriers who do not offer subsidies.

Apple's current 20% market share will not hold to the end of this decade, as the global handset production shifts from the current 45%/55% smartphone/dumbphone mix, to 100 smartphones produced by 2020.

Apple's market share likely falls to half its current level, to be similar to the historical share that the Macintosh had for decades in the PC market, as a highly-desirable 'Apple way' to do computers, for a luxury niche end of the global PC market, doing particularly well in the affluent West.

With that, today the Samsung-Apple pairing has half of the global market in smartphones (and barely over a third of all mobile phone handsets when dumbphones are included) so there is clearly plenty of room for other rivals, contenders and pretenders.

The Chinese lower-cost smartphone makers, led by Huawei, ZTE and Lenovo have a very strong surging position in this space to challenge.

Huawei became the world's third-largest smartphone manufacturer late last year, and Lenovo burst into the Top 10 selling only smartphones in China by middle of last year. Since then Lenovo has spread to many major emerging markets from Russia to India.

When we add the 11th biggest smartphone brand, Coolpad, the four Chinese smartphone makers have over 20% of the market and are larger than Apple today. These four Chinese brands roughly doubled their combined market share during 2012 while Apple picked up only 1 market share point in the year.

Then we have four of the past traditional major smarthphone makers: Sony, Blackberry, LG and HTC. Each has struggled recently, Sony breaking up from the SonyEricsson partnership, Blackberry (ex RIM) with its failed tablet launch and delays to its BB10 OS platform, LG with the disastrous flirtation with Windows OS, and HTC.

Blackberry/RIM was the world's second largest smartphone maker as recently as 2010, Sony was briefly in 3rd place last year, and HTC and LG have been regulars in the Top 5 in past few years.

The handset business is a hits business. Consider the Samsung Galaxy right now, but remember also the recent past with the iPhone, the Nokia N95, the Motorola Razr etc. One phone can leapfrog one handset maker to strong growth, and these four perennial players have the potential to produce the next big hit phone, at any time, in any year.

My bet is on Sony as the next dark horse to make a big splash, after its new CEO said mobile was 'front and center' to Sony's global entertainment empire's future - Sony is the world's largest home electronics and entertainment giant. A good contender for that title would be a PlayStation branded smartphone tied in to a big Hollywood movie release and some big gaming brand new releases.

I think the trends suggest that Samsung is relatively safe in a 'holding' position, as it shifts ever cheaper featurephone/dumbphone users to low-end smartphones. Its Galaxy S4 will keep the top end safe as a strong smartphone there.

For Apple this is a critical year, can the next iPhone be a big hit again to protect the top end where Apple is no longer always the coolest most desirable device; but more importantly when will Apple give us a lower-cost i.e. mid-price iPhone to help its position in less-affluent emerging world markets, and hold some market share at the lower price points?

I think Apple's share this year will decline but gradually, as the global smartphone market breaches the 1 billion new devices sold per year level by Christmas.

The four Chinese makers are all growing strongly now, its pretty safe to guess they will continue to grow, and also to take market share.

Huawei may close in on Apple by year-end for second place, Lenovo likely enters the Top 5 and Coolpad will almost definitely throw out Nokia from the Top 10 when it enters this Spring, like Lenovo did for Motorola last year. ZTE would be fighting Sony and Blackberry for fourth place rankings.

When you asked about 'disruption' I don't see it as such, because on a global scale the Chinese came in a few years ago and have thus disrupted the global market already. Go to Africa or India and you see Chinese brands very widely in the stores.

But for the 'story' I do think yes, it will be somewhat a shock this year, which no doubt some will then call the 'year of the Chinese invasion' in smartphones, or something like that, especially if in one quarter this year Huawei manages to outsell iPhones.

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