SMARTPHONES: China Exports Price Wars to India; Nokia Returns to China
Bottom line: Chinese smartphone brands with local production are most likely to survive upcoming price wars they are exporting to India, while Nokia’s new smartphones are unlikely to make any inroads in China over the next 2-3 years.
A case of deja vu is rapidly shaping up in India, where Chinese smartphone makers have flocked over the last two years in search of growth outside their overheated home market. In this case media are reporting that Chinese brands have surged to take half of the Indian market by dumping millions of their cheap look-alike Android phones into the country.
Meantime back in their own home country, nostalgia has become the word of the moment with word that Nokia (Helsinki: NOK1V) has officially re-entered a market it once dominated. Nokia joins a number of other faded brands to rediscover China, including former arch-rival Motorola, which has become the smartphone flagship of the brand’s current owner Lenovo (HKEx: 992).
This pair of stories nicely summarize two major trends in the Chinese smartphone sector, namely the bitter fight for market share that has driven most companies into the loss column, and the belief that former famous brands still have some value. It’s been quite entertaining to watch the Chinese brands export their bitter price wars to India, which is benefiting local consumers but will ultimately worsen losses for Chinese brands like Xiaomi and Oppo that have entered the market.
The latest reports cite market research firm Counterpoint saying Chinese brands took combined share of over 50 percent of the Indian market in November, the latest month for which figures are available. (English article) That’s a huge change from just a year ago, when the Chinese commanded just 19 percent.
The single biggest loser in the rapidly changing market has been global leader Samsung (Seoul: 005930), whose share slipped to 21 percent in November from 30 percent a year earlier. The other big collective casualty has been local Indian brands like Micromax, whose combined share has dropped to less than 20 percent from 40 percent a year earlier.
Those kinds of trends might look alarming for the Chinese, since New Delhi is unlikely to look favorably on this kind of trampling of its own homegrown industry and might turn to protectionist measures to halt the decline. Recognizing that fact, several players including Xiaomi, Huawei and Oppo have turned to local production to lower costs and show they can contribute to the Indian economy.
The bigger question is where does all of this lead? I expect the Chinese will repeat their experience from home and ratchet up the competition to levels where everyone is losing money. They’ll probably bankrupt most of the Indian companies in the process, and one or two of the more recent Chinese arrivals will quickly decide to withdraw. At the end of the day, the names who have built up local production are most likely to emerge as victors, which could bode well for Huawei, Xiaomi and others who have made such moves.
Nokia’s China Homecoming
Next let’s look at Nokia’s China homecoming, which is really just part of a global return to the global cellphone space that it once dominated. Industry historians will know that Nokia’s fall from grace was caused by its failure to recognize the importance of smartphones. Now the company is trying to make amends by rolling out its own Android-based model, which we’re just learning will sell in China for the lower mid-range price of 1,699 yuan, or about $250.
The launch model, the Nokia 6, will officially become available later this month, and will be mostly available initially through online channels like e-commerce giant JD.com (Nasdaq: JD). I haven’t seen any reviews yet for these phones, but I expect they’ll probably get mixed reviews when they come out. After all, it’s quite hard to distinguish yourself from the pack when everyone uses the same Android operating system.
Making life more difficult will be a lack of after-sales infrastructure for Nokia. The company’s brand used to be a ubiquitous feature of the Chinese smartphone landscape, with Nokia sales and repair shops in even the smallest towns. But that network was dismantled a while ago, following Nokia’s sale of its smartphone business to Microsoft (Nasdaq: MSFT) in 2013.
I have a lot of respect for Nokia for the work it did to build up the cellphone sector in the days of less sophisticated feature phones. But the current era dominated by smartphones is new to the company, and the technology is already so mature that there’s probably little Nokia can offer to set itself from the crowd. The situation will be worse in China due to intense competition, and I honestly don’t see Nokia making any significant inroads into the market over the next 2 to 3 years.