As we head into year-end, I thought I’d review the global smartphone market for 2019 and look at what’s ahead in 2020 for this week’s Tech Talk. Since this column is focused on China tech, we’ll zoom in on the country’s three major players, Huawei Technologies Co. Ltd., Xiaomi Corp. and Oppo Co. Ltd., each of which is in a state of flux at the moment that could produce some major shifts in the New Year.
Huawei’s state of flux is a bit double-pronged, the result of the relentless U.S. war against the company dating back to May. Xiaomi has in some ways suffered collateral damage in the Huawei battle for reasons I’ll explain shortly. Meantime, the understated Oppo has found a new secret weapon in its young, lower-end Realme brand, which lately is looking quite like Xiaomi did in its younger, headier days.
The bigger story here is that Chinese brands have rapidly colonized the global smartphone space over the last five years, taking advantage of maturing technology and also their own growing sophistication. Chinese manufacturers now occupy three of the world’s top five spots, with Huawei, Xiaomi and Oppo coming in second, fourth and fifth, respectively, for global shipments in this year’s third quarter, according to IDC.
As someone who has followed the China cellphone market for nearly two decades, I’ve seen a number of sea changes over that time. The market was largely dominated by foreign brands, led by Nokia and Motorola, for most of the first decade of the 21st century. We did see a notable breach by some Chinese players like TCL during that period, which briefly found a space by producing cheap, low quality handsets.
The market remained mostly in foreign hands for the first part of the current decade, with Apple and Samsung edging out the Nokia-Motorola duopoly. But the Chinese brands have been changing that lately with their growing sophistication, and Huawei has made no secret of its ambition to oust Samsung as the world’s top manufacturer.
That leads nicely into discussion of the current state of affairs, which is seeing Huawei’s meteoric rise show early signs of grinding to a halt under the weight of U.S. sanctions. Washington blacklisted Huawei in May, effectively banning all American companies from doing business with the Chinese firm. It took the action as punishment for Huawei’s violation of previous U.S. sanctions against Iran, though many saw links in the U.S.-China trade war that has now dragged on for well over a year.
The result has been that Huawei has retreated somewhat from the global stage and taken refuge in its home China market. Nearly two-thirds of Huawei’s smartphone sales were in China during this year’s third quarter, compared with about half in the first quarter before the U.S. sanctions began. As a result, the company’s share of China’s smartphone market has soared to 42% from just 25% a year earlier. That’s important because China is now easily the world’s largest smartphone market, accounting for nearly a third of all global sales.
Home field advantage
Huawei is enjoying the surge in China on its growing prowess as a maker of quality phones, and also a separate element that is seeing some local consumers buy its products for patriotic reasons. The question is whether the company can continue to grow with a model that depends so heavily on a single market. It does seem like its China market share is probably near topping out, and its share outside China will almost inevitably shrink. That could mean the company is quite possibly at its peak right now, meaning the only way to go is down.
Meantime, Xiaomi is in some ways suffering collateral damage from Huawei’s China resurgence. The company once counted China as its most important market. But it has seen its share there shrink in tandem with Huawei’s surge, including a 30.5% plunge in China sales during this year’s third quarter, according to IDC. Xiaomi has made up for some of that with growing sales in other markets, but is still struggling a bit these days.
Those struggles have been visible in the company’s stock, which has hovered near all-time lows these last few months. Xiaomi also made headlines late last week when it announced a reshuffling that included naming a new chief for its China operations. For Xiaomi, the big question is when its China share will stabilize and it will start posting strong overall growth again. I would argue its China share could still go down a bit, less due to the Huawei challenge and more the challenge from a new kid on the block named Realme.
That leads nicely into the third piece of our 2020 smartphone outlook, since Realme just happens to be owned by Oppo — the last of China’s top players that I’ll discuss. Oppo came a bit from out of nowhere, at least for me, when it splashed into the global top five players a few years ago. The same could be said for Realme now, which is Oppo’s lower-end brand that has suddenly become a hot seller in developing markets.
Realme has found the most success in India, which is also one of Xiaomi’s most important markets. The brand is now trying to parlay that into other developing markets. It sold 9 million smartphones in the third quarter, representing a whopping 573% gain from a year earlier, according to IDC. The brand has been expanding aggressively, and is now trying to copy its India success in a wide range of other developing markets such as Indonesia, China, Vietnam and Egypt.
It’s unlikely that Realme can continue to post such massive growth, though a doubling of sales next year certainly seems within the realm of possibility. That means Realme, and thus Oppo, could be the smartphone-maker to watch in 2020.
Doug Young has lived in Greater China for two decades, including a 10-year stint at Reuters, where he led China corporate news coverage. Send your questions or comments to DougYoung@caixin.com
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