SHANGHAI (Reuters) – Smartphone retailers in China say it's a tough sell of late with consumers reluctant to upgrade, put off by chill economic winds.
FILE PHOTO: Xiaomi founder and CEO Lei Jun attends the launch ceremony of the new Xiaomi Mi 9 flagship phone in Beijing, China February 20, 201
Even so domestic brands led by Huawei have made big strides, wooing consumers with top-notch hardware and innovative features as they move upmarket in the $ 500- $ 800 price range. The result: a loss of share in a key segment for Apple Inc. and fresh price cuts for iPhones by Chinese retailers.
"Of those people who are upgrading, there are many switching from Apple to Chinese brands but very few switching from Chinese brands to Apple," said Jiang Ning, who manages a Xiaomi store in the northern province of Shandong.
Huawei Technologies Co. Ltd., Xiaomi Corp., Oppo and Vivo, once sought to gain a share in the world's largest smartphone market with value-for-money devices, but consumer demand for better phones has prompted strategic rethinks.
"People are more attached to their phone than ever and have higher expectations for the feature and experience it offers. The response has been constantly upgrading hardware specifications, "said Alen Wu, global vice president at Oppo.
He Fan, CEO of Huishoubao, who buys and resells used phones, said he has seen a consumer shift to Huawei from Apple, driven by the Chinese love of selfies and emphasis on camera quality. Huawei has had a tie-up with German camera maker Leica since 2016.
"Huawei's cameras have become noticeably better than Apple's in that they suit the tastes of Chinese consumers more," he said.
In comparison to dual-cameras common in most smartphones, Huawei's P20 Pro device boasts three rear-facing cameras, with the additional one improving zoom capabilities.
It is one of several new devices in its P20 and Mate 20 lines, which helped Huawei's share of the $ 500- $ 800 segment in China surge to 26.6 percent last year from 8.8 percent, data from research firm Counterpoint shows.
Apple, by contrast, saw its share of the segment tumble to 54.6 percent from 81.2 percent, also hurt by its decision to move even further upmarket with the iPhone X series.
"Most Chinese smartphone buyers are not ready to shell out beyond $ 1,000 for a phone," said Neil Shah, research director at Counterpoint. "This left a gap in the below- $ 800 segment, which Chinese vendors grabbed with both hands."
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Shipments of phones priced above $ 600 in China grew 10 percent in 2018, data from research firm Canalys shows. By contrast, the overall market has shrunk 14 percent, marking a second year of contraction.
The weaker cachet for Apple in China was underscored this month when several major retailers simultaneously cut iPhone prices for the second time this year.
A 64GB iPhone 8 sold at Suning.com Co. Ltd now costs 3,899 yuan ($ 580), roughly 25 percent less than it did in December. That's also lower than its $ 599 price tag in the United States, where iPhones typically cost less to buy than in China. Most iPhone models through to the iPhone 8 series have seen prices in China cut, albeit not equally.
In earnings too, it seems to be a tale of divergent fortunes. Apple's October-December revenue from the Greater China region fell by about a quarter from a year earlier. Greater China currently accounts for 15.6 percent of its total revenue.
Huawei, the world's No. 2 smartphone maker has estimated revenue for 2018 rose 21 percent, which analysts attribute in large part to robust smartphone sales.
More broadly, fewer sales for Apple means fewer customers for its App Store and media streaming services. The shift to high-end phones by Chinese brands has also meant greater inroads in overseas markets.
Huawei's shipments in Europe jumped 55 percent in the latest quarter and now has a 23.6 percent market share, according to Canalys. That's not far behind Samsung Electronics and Apple, which saw small declines in shipments.
If Huawei takes the lion's share of turf that Apple once had in China, Oppo and Vivo – brands owned by electronics hardware conglomerate BBK – are the newest threats.
In June, Vivo launched the Nex which starts from 3,898 yuan ($ 610) and in July, the Oppo launched the Find X, priced at 4,999 yuan ($ 755).
The models mark the first time the brands have priced a phone above $ 600, and a sharp departure from their roots selling $ 300- $ 500 models to young consumers in second-tier cities.
The devices came with features not available in the iPhone, including under-the-glass fingerprint sensors and "notchless" displays, both of which increase the size of the usable screen.
Xiaomi is also going upmarket, announcing in January that it would split its low-budget Redmi range of phones into a sub-brand. In doing so, it is taking a leaf out of Huawei's book, which has for years sold cheaper devices under the Honor brand, helping differentiate its products.
Redmi will target international markets and e-commerce sales, while the Xiaomi flagship brand will target China and offline retail markets, founder Lei Jun told reporters.
Last month, Xiaomi unveiled the Mi 9, its latest flagship device with a price tag of 2,999 yuan ($ 450). But the company also said it could be the last time the Xiaomi flagship phone would be priced below 3,000 yuan.
"Xiaomi's flagship series were once set at 1,999 yuan," said Lei. "This was a contributing factor to our rise, but it also became an obstacle to our growth," he said.
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Reporting by Josh Horwitz; Additional reporting by Stephen Nellis in San Francisco, Paul Sandle in Barcelona and the Shanghai newsroom; Editing by Jonathan Weber and Edwina Gibbs