CELLPHONES: Apple Strong in China, Xiaomi Looks to Africa

Bottom line: Apple will continue to post strong iPhone growth in China but could lose some momentum if the stock market sell-off continues, while Xiaomi’s new push into Africa won’t offset its own rapidly slowing momentum.

iPhone China sales continue strong

Apple (Nasdaq: AAPL) and Chinese imitator Xiaomi are both in the headlines, as the former continues to consolidate its China position at the expense of the fading latter. In this case, Apple’s continuing China surge is reflected in new remarks from CEO Tim Cook, who says his company’s business has remained strong in China during the summer months despite concerns of a slowdown linked to the nation’s tanking stock markets.

While Apple has been feasting on China, Xiaomi is feeling growing pressure at home and is looking to other global markets for growth as it struggles to meet the lofty expectations it set for itself. According to the latest headlines, the latest stop on Xiaomi’s global roadmap is Africa, where the company is eyeing another BRICS country in South Africa. Such a move would put Xiaomi in 4 of the 5 BRICS, following its earlier moves into India and Brazil.

When the history books are written, some may look at Apple and Xiaomi as the story of a global powerhouse and a Chinese challenger that tried but couldn’t quite succeed. Of course everyone would prefer a David-and-Goliath story that sees a tiny challenger like Xiaomi rise up to defeat a global giant like Apple. But in this case Apple is showing that Xiaomi is a clearly inferior rival, both in terms of products and marketing strategy.

Apple reported 87 percent growth for its iPhone sales in China during its latest reporting quarter (previous post), or nearly triple the rate for Xiaomi’s global growth during the comparable period. (previous post) Those rates marked a sharp reversal for trends the previous year, when Beijing-based Xiaomi was posting triple-digit growth and some were predicting it could pose a serious challenge to its much older and highly-respected rival.

The latest Apple headline is relatively straightforward, quoting Cook saying simply that the company’s China iPhone sales were strong in July and August. (English article) Cook added that iPhone activations in China had accelerated over the last few weeks, and that Apple’s Chinese App Store had posted its best-ever performance of the year over the last 2 weeks.

Stock Market Worries

Cook’s comments come as many worry that China’s tanking stock markets could put a damper on broader consumer spending. Chinese stocks dropped more than 10 percent last week, and their downward plunge was showing no signs of easing this week. That volatility is already taking a toll on sales for more expensive items like cars. But so far it hasn’t affected smartphones, and other recent trends have shown that many Chinese consumers are trading up to more expensive smartphones for their second purchases. (previous post)

Xiaomi is emerging as one of the clear losers in the trading-up phenomenon, as consumers abandon its phones for higher priced models from Apple and the fast-rising Huawei. Xiaomi’s rise in previous years was largely due to a cool and trendy image it carefully cultivated through a savvy combination of hunger marketing using online channels that targeted young people. But the actual quality of its products has disappointed many, leading it to abandon the online-only model and look abroad to maintain its growth.

The latest reports say the next stop on Xiaomi’s global roadmap will be Africa, where the company will launch its low-end Redmi 2 for about $160, and its higher-end Mi 4 for a price of about $320 as soon as next month. (Chinese article) The reports say Xiaomi will work in Africa through a local distributor called Mobile in Africa, which has a strong presence in sub-Sahara Africa.

The reports point out that Africa’s smartphone market posted 66 percent growth in this year’s first quarter, in sharp contrast to China’s smartphone market that has recently started to contract after several years of strong growth. Of course it’s also worth pointing out that even after its strong growth, all of Africa still only sold 36 million cellphones in the first quarter. That’s far less than China, which is shipping about 100 million smartphones each quarter.

It would be inaccurate to characterize Xiaomi’s move into Africa as desperate, since the company has been saying for a while that it will expand into other emerging markets this year after launching in Singapore and India in 2014. But it’s quickly finding fierce competition in many of these markets, and the decision to abandon its earlier marketing model is quickly erasing the cool and trendy image that helped to propel Xiaomi to its early success.

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