Huawei spin-off Honor had one of the most prominent booths at Mobile World Congress in February 2023. It was right next to Samsung’s booth, a sign that Honor is targeting the South Korean company in the premium segment of the smartphone market.
Arjun Kharpal | CNBC
Chinese smartphone manufacturers are looking to enter the high-end device market for the dominance of Apple and Samsung after one of the worst years ever for the market.
At Mobile World Congress — the world’s largest mobile show — in Barcelona, Spain, last week, Chinese smartphone makers featured some of the most prominent booths and displays fresh from new product launches.
Last month, Oppo, the world’s fourth-largest smartphone maker, launched its foldable smartphone, the Find N2 Flip, priced at more than $1,000. Its bigger rival Xiaomi followed with the launch of its $1,000 plus Xiaomi 13 and Xiaomi 13 Pro.
Honor, a company spun off from Chinese telecommunications giant Huawei, then launched its $1,690 foldable smartphone, the Magic Vs.
These expensive smartphones represent a shift in strategy from Chinese companies, which have gained prominence over the years by offering lower-cost devices with flagship-like specs.
“A large number of companies such as Oppo, Xiaomi, OnePlus, Vivo, RealMe and others are eager to flex their muscles as they try to secure a place in the market alongside Apple and Samsung, which are increasingly dominating sales around the world” Ben Wood, head of research at CCS Insight, told CNBC via email.
Chinese giants go premium
That tactical change from Chinese companies comes after shipments in the smartphone market hit their lowest level since 2013 last year. But the share of high-end smartphones, priced above $800, increased from 11% in 2020 to 18% in 2022. Together, Apple and Samsung control almost the entire market.
Still, the opportunity is lucrative as Chinese sellers look to increase their margins.
No doubt Wood said there is “an impetus to the premium market that is forcing higher average selling prices and margins.”
The high-end push also coincides with China reopening after the country abruptly dropped its strict Covid prevention rules in December. This has made it easier for executives, largely trapped in China since the start of 2020, to travel abroad.
And it also coincides with a renewed push from Chinese companies to expand their global reach. In 2022, the market share of Chinese smartphone makers Realme, Oppo and Xiaomi fell in Europe, while Apple and Samsung remained relatively stable. Chinese companies hope to change that now that the domestic economy has started up again.
“The ease of the lockdown is a reboot for the companies that manufacture and export to global customers to meet in person and expand relationships and business opportunities,” Neil Shah, partner at Counterpoint Research, told me via email. to CNBC.
“So over the next 12 months, we will continue to see a surge in Chinese business and tourists outside of China, which will boost their global strategy.”
Challenges to come
Chinese smartphone makers have yet to crack the premium segment of the market. The exception was Huawei, which managed to find success in the high-end, eventually becoming the number one smartphone player globally in 2020, before US sanctions wiped out its handset business.
Xiaomi, Oppo, Honor and other Chinese challengers face some challenges in the premium segment, according to analysts.
Xiaomi showed off its new Xiaomi 13 smartphone at the Mobile World Congress 2023. The $1,000 phone indicates that the Chinese company intends to challenge Apple and Samsung at the top end of the smartphone market.
Arjun Kharpal | CNBC
The first is brand recognition, according to CCS Insight’s Wood, who said Chinese companies are spending “eye-popping amounts of money” on ad campaigns to raise awareness.
But the biggest problem, according to Shah, is sustainable profitability.
He said that Apple and Samsung dominate most of the premium markets, such as the US and Europe. While Chinese brands have also been unable to build profitable software and services businesses like Apple, yielding higher margins.
“Profitability is the biggest challenge as their scale is decreasing as the segments they target (affordable entry to mid-range) shrink,” said Shah.