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China Will Be a 450 Million Smartphone Market in 2014

Douglas A. McIntyre

China, with more than 600 million people who have wireless connections and 750 million people online, has been the Holy Grail for consumer electronics and enterprise telecom companies for years. Hammering that home, IDC has forecast that there will be 450 million smartphones sold in China next year. The People's Republic rapidly has turned from a market for dumb handsets to one in which smartphones obviously have begun to replace PCs at an accelerated rate, following a pattern already in place in developed nations. The stakes for smartphone companies have risen. Because the market is so new, global leaders Samsung and Apple Inc. (AAPL) do not necessarily have the advantages they do elsewhere.

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As Reuters recently reported, Lenovo, which does not have any meaningful presence elsewhere in the world, is the second largest smartphone company in China, with a market share of 9.8% compared to Samsung's 18.5%. That would seem to lock out Apple, but the history of smartphones in the United States shows that may not be necessarily so. Apple may be the market share leader in smartphones in America today. However, Samsung is gaining on it quickly. Just two years ago, Samsung's success was unimaginable. Odds were that Motorola, now a part of Google Inc. (GOOG) would die by the end of the decade. Its association with Google may allow it to turn around. On the other hand, HTC, which appeared on the march to do as well as Samsung, has fallen apart, plagued by phones that are poorly designed and have glitches.

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Apple is considered at best a dark horse in China. It continues to have a few advantages that could help it though. The first is that its brand power is global. Second, its smartphone designs and features have captured clients in dozens of countries. The third is that it finally will have a deal with wireless giant China Mobile Ltd. (CHL). Apple may not make as much per unit on the partnership as it would like. Apparently the amount the telecom will pay it has been beaten down. Therefore, Apple will pay for access to China in a way it has not elsewhere.

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The China Mobile alliance is old news. What is not is that, at 450 million units, the market in the People's Republic could be reordered. Samsung has snuck up on Apple elsewhere. Now, it could be Apple's turn.

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