
China smartphone market suffers hard-landing, shipments decline 21% in Q1 2018 - igravious
https://www.canalys.com/newsroom/chinese-smartphone-market-suffers-hard-landing-shipments-decline-21-q1-2018
======
Johnie
See:

* Bass Diffusion Model: [https://en.wikipedia.org/wiki/Bass_diffusion_model](https://en.wikipedia.org/wiki/Bass_diffusion_model)

* Diffusion of Innovation Model: [https://en.wikipedia.org/wiki/Diffusion_of_innovations](https://en.wikipedia.org/wiki/Diffusion_of_innovations)

These models have been fairly accurate in forecasting diffusion of innovation.
While many of the innovators have started to exit and move on, this leaves the
imitators around in a slowing market.

Apple has been surprisingly good at being the forefront of innovation entering
a market. While people play catch up in smartphones, Apple has already moved
onto the next technological innovation: Apple Watch and wearables.

While one may argue that Apple is more of an imitator than innovator, they
have a really unique strategy. They enter a market after the initial
innovators have entered with a product that becomes the Dominant Design [1].
They don't focus on the Innovator or Early Adopter market, but more on the
Early Majority and Late Majority and exit before the laggards arrive. The
Innovator and Early Adopter market require the most capital in R&D and
Marketing with lowest return on investment.

[1]
[https://en.wikipedia.org/wiki/Dominant_design](https://en.wikipedia.org/wiki/Dominant_design)

~~~
ajross
> Apple has already moved onto the next technological innovation: Apple Watch
> and wearables.

Seriously? Are there any number at all to show that wearables are a growth bet
at this point? The Apple Watch (which entered the market _three years ago_!)
has had an uptake at least an order of magnitude lower than the iPad, the last
"next technological innovation" that turned out not to be. Tablets were hot
for a while, but at the end of the day the smartphone market remains an order
of magnitude bigger. The watch has never remotely been that hot.

Basically: innovation is hard. Wearables are not looking like the next big
thing at this stage, and they are _surely_ not going to save Apple from the
expected downturn in smartphone sales.

~~~
influx
The Apple Watch is probably a rounding error when compared to the iPhone,
however:

"But the most interesting stuff came when Cook referred to the success of
Apple Watch. The Watch sales are part of the wearables business which also
includes headphones such as Beats and AirPods.

Last May, he said that business is approaching the size of a Fortune 500
company. More recently, last month, the size had crept up so it would fall in
the top 400"

[https://www.forbes.com/sites/davidphelan/2018/02/15/apple-
ce...](https://www.forbes.com/sites/davidphelan/2018/02/15/apple-ceo-reveals-
watch-business-approaching-fortune-300-size-company)

~~~
StudentStuff
Thing is the Apple Watch is viewed as a status symbol primarily, despite
Apple's marketing and messaging stating its a health monitoring/heads up
display type device. Many of the people who buy it have no idea that it'll
catch some potentially imminently fatal health conditions:
[http://www.dailymail.co.uk/health/article-5683089/Apple-
Watc...](http://www.dailymail.co.uk/health/article-5683089/Apple-Watch-
saved-18-year-old-girls-life-detecting-silent-KIDNEY-FAILURE.html)

Its impressive how many people buy the Apple Watch without understanding what
it offers.

~~~
tsunamifury
I'd hardly call a 200 dollar watch a status symbol by any stretch of the
imagination

~~~
qz3
I think it depends on the income. But, considering many people buy regular
watches costing 20 times more, I wouldn't see an Apple watch as a status
symbol either.

------
bruceb
Almost any $200+ phone made since 2015 has a pretty good camera, screen, speed
for most people.

Why upgrade when what you have is good enough? One used to check out
gizmodo/engadget when a new phone came out but seems not anymore as "the new"
is only incremental.

~~~
akhilcacharya
I’m due for an upgrade but I’m refusing on account of new flagships not having
3.5 headphone jack.

~~~
Afforess
Samsung flagship phones (Galaxy / Note) still have the 3.5mm jack.

~~~
dragonwriter
> Samsung flagship phones (Galaxy / Note)

Pedantically, the Samsung flagships are the Galaxy S and Galaxy Note series;
there are a lot of other Galaxy series.

------
cs702
Wow, a 21% year-over-year drop... and this makes the fourth consecutive
quarter of annual declines (in the previous three quarters, shipments had
dropped -3%, -5%, and -14% year-over-year). A hard landing indeed.

The implications for phone makers are unpleasant: price competition is going
to intensify and profit margins, which are already thin, will get squeezed
even more and might even turn negative. (Only Apple, which makes exclusively
high-end devices for style-conscious, less-price-sensitive consumers, looks
well-positioned to avoid a profit margin squeeze.)

The implications for mobile software applications and services are also
unpleasant: the days of ultra-rapid user/subscriber/revenue growth are likely
to end soon.

~~~
reaperducer
>Only Apple, which makes exclusively high-end devices for style-conscious,
less-price-sensitive consumers,

This is a very tired cliche, and untrue to anyone who's ever seen any of the
hundreds of ads where new iPhones are available for $0 from most carriers.

~~~
1123581321
This is about China, but even in the US a free iPhone is not a common carrier
incentive. You can see a summary of deals here.* Promotions apparently range
from $200-500 in value. Android phones and tablets are the ones routinely
given away for free (e.g. T-Mobile currently offers a free Android tablet just
for switching an existing prepaid account to post-paid), though again, not for
the premium brands like Pixel.

It may be tiresome to hear that iPhones cost more and are popular at the same
time, but it’s still true.

* [https://www.tomsguide.com/us/iphone-x-iphone-8-best-deals,ne...](https://www.tomsguide.com/us/iphone-x-iphone-8-best-deals,news-25833.html)

------
diminish
After relentless growth we're about to arrive at a plateauing smartphone
market. I wish I could read insights from experts on what to expect in coming
years in smartphone market in light of similar markets which entered a no
growth zone.

Specifically what will happen to prices, market shares , unit sales, pace of
innovation, competition, international growth, developer ecosystems.

Anyone?

~~~
rconti
Certainly we're expecting sales to slow as smartphone sales plateau, but why
is it happening in China first? Is it a leading indicator of slowing growth?
After all, smartphone purchases are most decidedly discretionary.

~~~
dv_dt
If there is a utility plateau (i.e. everyone who can justify needing one has
one), then one might expect that areas with more disposable income would have
more people able to keep purchasing for fashion reasons while nations with
tighter margins might continue at more of a replacement rate.

------
dis-sys
Smartphone maker Xiaomi is rushing to get its IPO done, the market is betting
a $100 billion valuation [1]. This reminds me what its founder Lei Jun said a
few years ago - "Even a pig can fly if it is in the middle of a whirlwind"
[2].

Now the market has apparently reached its peak, I am wondering whether those
who are thinking to buy Xiaomi shares will find their whirlwind and fly. ;)

[1] [https://www.telegraph.co.uk/technology/2018/05/03/xiaomi-
pla...](https://www.telegraph.co.uk/technology/2018/05/03/xiaomi-plans-10bn-
float-bid-become-chinas-apple/)

[2] [https://www.economist.com/news/special-
report/21663324-techn...](https://www.economist.com/news/special-
report/21663324-technology-offering-chinese-business-cornucopia-new-
opportunities-its-all-go)

~~~
slezyr
Well, xiaomi produces not just smartphones. Laptops, TVs, Wearables, "Smart"
Scales and other stuff.

~~~
visarga
I have an Xiaomi robovac. It's just amazing, smartest little thing. It's like
the feeling I got when I bought my first iPhone.

------
anilshanbhag
It sometimes amazes me that people switch their phones so often. I tend to
have a phone for 3 years. Many of my friends change every year ! One step to
towards reducing global warming is reducing consumption.

~~~
GFischer
I have a Xiaomi phone. It costs less than 200 dollars after taxes in my
country, and it's great.

My cell phone company basically gives them for free in exchange for the 2 year
contract, so after my 2 years are up, I'm definitely switching it for a newer
model, or I'm leaving money on the table.

Many people are way more careless than I am, or heavier users, and definitely
switch every year (or even less!).

Chinese phones make it much more feasible. OTOH, if you care about
environment, these are no good - no user-swappable batteries for instance.

~~~
ZeroGravitas
They don't give them away free, they build the cost into your contract. If
there's sufficient competition in your local market you'll be able to buy a
sim-only deal that costs less and returns that money to you and let's you
upgrade on your own schedule to a phone of your own choosing.

~~~
tboughen
I thought that too. However last Black Friday I found the best deal on an
iPhone X was to pay £450 up front and then pay £29 per month for 2 years
(totalling £1147 or £6.13 per month above the phone’s list price). The data
and minutes I get would cost me at least £15 per month, making my deal
absurdly good value!

~~~
distances
In UK? My expectation nowadays for a phone bill is 10€ per month, with data,
calls and SMS included. Doesn't leave much room for subsidied phones

------
grizzles
This is a good thing if you want a truly open source phone.

Smartphones have become a commodity. Yet the solidarity among fabricators
against a { us: hardware, you: software } business model has been remarkable.

Margins have been razor thin for awhile, the business is incredibly cutthroat.
Though it might come from Taiwan, I hope this is the straw that breaks the
camels back.

BTW I'm talking on the low end here. It's already being done on the high end
by Fairphone, and a few others.

~~~
reaperducer
"Razor thin" may be something of an exaggeration.

Apple's margin on iPhones is 59-64%[1]. Samsung is 17%[0].

"Razor thin" would be the grocery industry, which is usually under 3%.

[0]: [http://fortune.com/2016/08/23/apple-samsung-smartphone-
profi...](http://fortune.com/2016/08/23/apple-samsung-smartphone-profits/)

[1]: [https://www.reuters.com/article/us-apple-iphone/apples-
iphon...](https://www.reuters.com/article/us-apple-iphone/apples-iphone-x-has-
higher-margin-than-iphone-8-analysis-idUSKBN1D62RZ)

~~~
bitmapbrother
Your second link is broken. Your first link, from 2016, indicates that Apple
made a 38% margin.

>Apple's margin on iPhones is 59-64%. Samsung is 17%

Apple does not make 59-64% margin on their phones. This highly inaccurate
figure was likely extrapolated by taking the retail price of the phone and
subtracting the cost of its parts. The real profit margin which is likely
around 30-40%. As for Samsung, their flag ship phones also generate a profit
margin that is similar to that of Apple's.

~~~
IkmoIkmo
Indeed, and Apple's EBIT margin is around 30%. It's an important figure
because unlike say an LG, I don't think you can really see Apple phones
separate from the rest of the company. Would we buy as many phones at these
prices if we didn't have the App Store, OS X Macs, iCloud, Apple Music, Beats,
Watches, Tablets, etc etc, in short, the ecosystem. All of that needs a
company with massive overhead to work.

------
chrisper
I just bought my first Chinese phone: A Huawei P20 Pro. I am so amazed by this
thing!

~~~
ProAm
I really want that phone but find it too expensive. if Im going to spend that
amount of money, I might as well get a Samsung or iPhone

~~~
chrisper
A Samsung S9+ costs way more and so does the iPhone X.

~~~
ProAm
Way more being around a hundred USD? Last I checked the P20 Pro was ~ $850 USD
the Galaxy S9+ is $939 USD

~~~
chrisper
It's at least 200 CHF difference here.

~~~
ProAm
Ahh yeah makes sense. I wish it was closer to being the OnePlus5T range of
being $500-600USD vs what its priced at. Then it's a no brainer to purchase
but now being so expensive and untested on US LTE bands its too risky (and our
government says not to by Huawei for national security reasons).

~~~
seanmcdirmid
I don’t think the government says not to buy huawei phones. They are more
worried about routers and back end telecommunication equipment, which is their
main market.

~~~
ProAm
[1] [https://www.theverge.com/2018/2/14/17011246/huawei-phones-
sa...](https://www.theverge.com/2018/2/14/17011246/huawei-phones-safe-us-
intelligence-chief-fears)

[2] [https://www.cnbc.com/2018/02/13/chinas-hauwei-top-us-
intelli...](https://www.cnbc.com/2018/02/13/chinas-hauwei-top-us-intelligence-
chiefs-caution-americans-away.html)

------
nadioca
market saturation ?

~~~
killjoywashere
Read Hank Paulson's book, Dealing with China. The Communist Party can only
extract so much value from to masses while corruption and opacity are the norm
in government. Instead of looking at the economy as a virtuous cycle of re-
investment making more resources available for collateral, they treat the
economy like a well and wonder why it keeps running dry.

~~~
gressquel
Peter Navarros Death by China is a good read too

~~~
anizan
I enjoyed reading China's Great wall of Debt and The Hundred-year marathon.

------
yuhong
I wonder how much this is affecting battery prices.

------
genefriend
China’s growth fueled by massive debt is over(350% to gdp, government +
corporate + individuals). it’s barely returning one yuan for every yuan debt
it takes on. The Chinese consumer is weighed down by housing debt and credit
card debt. And the tariff is going to hit the consumers hard; soy prices
increases already has Chinese consumers screaming.

~~~
nopinsight
Interestingly, the US' total private and public debt amounts to 3.5 times the
GDP as well but few seem to have as much concern over its debt as they do
China's. Also, the UK appears to have a similar level of private debt as the
US, and only a bit less public debt.

On public debt alone, China:UK:US is 66:85:107 percent of GDP, according to
the IMF.

So what is the reason for major concerns over one but not others? Developed vs
developing countries? Stronger vs weaker financial institutions/systems?
Something else?

Note that a key measure that the US and other developed countries tend to be
ahead of most developing countries is national wealth, i.e. its assets minus
liabilities, as a percentage of GDP. (This is unsurprising since they have
much more time to accumulate assets.)

"As of the first quarter of 2010, the Federal Reserve estimated that total
public and private debt owed by American households, businesses, and
government totaled $50 trillion, or roughly $175,000 per American and 3.5
times GDP."

[https://en.wikipedia.org/wiki/Financial_position_of_the_Unit...](https://en.wikipedia.org/wiki/Financial_position_of_the_United_States)

[https://tradingeconomics.com/united-states/private-debt-
to-g...](https://tradingeconomics.com/united-states/private-debt-to-gdp)

[https://tradingeconomics.com/united-kingdom/private-debt-
to-...](https://tradingeconomics.com/united-kingdom/private-debt-to-gdp)

[https://en.wikipedia.org/wiki/List_of_countries_by_public_de...](https://en.wikipedia.org/wiki/List_of_countries_by_public_debt)

[https://en.wikipedia.org/wiki/National_wealth](https://en.wikipedia.org/wiki/National_wealth)

~~~
genefriend
1.) dollar is reserve currency. Yuan is not. Yuan is barely convertible

2.) US has large debt but way larger assets. 40% of the worlds wealth in fact

3.) US gdp to debt is only around 100%

~~~
nopinsight
It's clear that the US is much stronger from the asset point of view.

If one looks at real economy, however, China can basically produce almost
anything they need, except oil and some advanced electronics (which they are
catching up fast and might become self-sufficient within 10 years). The US can
do the same in the medium term but it will take time to reestablish its
manufacturing industry to cover all needs.

Both are basically self-sufficient if need be. There is no severe weakness in
the real economies of either country (except oil for both, over the medium
term).

> 3.) US gdp to debt is only around 100%

You mean debt to GDP? Yes for public debt alone, but the same figure for China
is around 66%. Check out my post above for comparisons of various measures and
references.

~~~
DenisM
I don't see how self-sufficiency matters (unless war). In a globalized economy
you want to keep the high-margin business and offload low-margin business to
someone else.

~~~
larkeith
I'm not an expert, but my understanding is that heavy reliance on imports
increases the riskiness of debt, as external pressures and events can impact
the debtor without recourse (whereas even in the event of a local industry
failure, imports remain a stabilizing secondary option).

