Smart Phone and Operating System Industry in China

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1 Smart Phone and Operating System Industry in China NZTE, July 2010 This publication is provided to you as a free service and is intended to flag to you market opportunities and possibilities. Use of and reliance on the information/products/technology/concepts discussed in this publication, and the suitability of these for your business is entirely at your own risk. You are advised to carry out your own independent assessment of this opportunity. The information in this publication is general; it was prepared by New Zealand Trade and Enterprise (NZTE) from publicly available and/or subscription database sources. NZTE; its officers, employees and agents accept no liability for any errors or omissions or any opinion/s expressed, and no responsibility is accepted with respect to the standing of any firm/s, company/ies or individual/s mentioned. New Zealand Trade and Enterprise is not responsible for any adverse consequences arising out of such use. You release New Zealand Trade and Enterprise from all claims arising from this publication.

2 Table of Contents Executive summary 3 1 Market overview Market size and growth Basic characteristics Market structure Brands market shares 10 2 Market forecast Forecast for market size Forecast for market structure 14 3 Market trends Product and technology Operating system Price Channels 16 4 Major players Nokia Motorola Dopod Samsung Apple Research In Motion (RIM) 17 Smart Phone and Operating System Industry in China Page 2 of 17

3 Executive summary China s smart phone market continues to grow quickly as evidenced by the 22.2 million smart phone sets sold in This was up 28.5% compared to 2008 (17.3 million sets sold). Sales revenues reached US$7.8 billion in 2009, up 23.3% compared to The average smart phone price stood at US$352, down US$16 compared to Fierce market competition and a shift in pricing towards the lower end of the market were the main reasons for the increase. Nokia remains the dominant smart phone manufacturer in China. Nokia sold more than 15 million sets and had a market share of 67.6% in Nokia recorded sales revenues of US$4.9 billion out of total industry revenue of US$7.8 billion. The application market is expanding rapidly, with all three main carriers developing their own stores based upon Apple s successful model. China Telecom has opened estore, China Mobile operates Mobile Market and China Unicom has UniStore. 3G is overtaking 2G to become the main market growth driver. In 2009, GSM smart phones dropped to 86.2% market share, down from 98.4% in Approximately 19.1 million GSM smart phone sets were sold in Symbian continued to hold a dominant operating system position in the market, with a market share of 69.8% in Symbian has held the dominant market position since 2004, however Symbian s current dominance is expected to wane. The main price segment for smart phones is the under RMB 2,000 (US$293) and between RMB 2,001 and 3,000 Yuan (US$293 to US$439) price segment which together accounted for 79.8% market share in Nokia dominates these lower price segments with 70.9% and 76.4% market shares in each segment respectively. The smart phone market is forecast to grow to 56.7 million sets by This will represent a more than doubling of the industry since Sales revenues are forecast to reach US$15.4 billion by 2012, up from US$9.5 billion in GSM s share of the market is expected to fall to 43.5% by G is predicted to become the major standard, overtaking GSM during In terms of operating systems, Symbian is forecast to fall from 60.1% in 2010 to 38.3% by The main cause for this fall is expected to be Nokia s adoption of MeeGo, a replacement for Symbian. Smart Phone and Operating System Industry in China Page 3 of 17

4 1 Market overview 1.1 Market size and growth Market size and growth In 2009, China s smart phone market continued to grow fast and approximately 22.2 million smart phone sets were sold for the whole year, up 28.5% year-on-year compared with Market growth benefited from the following factors: Business and entertainment application functions on the smart phone have won greater recognition from consumers. Smart phone vendors are more enthusiastic about launching new handsets. Both product quantity and variety have increased. In particular, low-end models under 2,000 Yuan (US$293) have increased in popularity and users have expanded from high-end consumer groups to ordinary consumer groups. The three major operators have started to promote 3G businesses and mobile phone vendors have actively cooperated with them to introduce more customized 3G smart phone models. In 2009, sales revenues in China s smart phone market reached US$7.8 billion, up 23.3% compared to This growth rate was slower than the 28.5% increase recorded by sales volume growth and indicates a drop in average smart phone prices. Smart Phone and Operating System Industry in China Page 4 of 17

5 Price trend In 2009, average smart phone price stood at 2,401 Yuan (US$352), down 113 Yuan (US$16) from Fierce market competition in this price bracket has led to lower smart phone prices but also the popularity of cheaper smart phones has meant more sales at the lower end of the market. 1.2 Basic characteristics Nokia dominates the smart phone market In 2009, China s smart phone market continued to be dominated by one brand, Nokia. With a sales volume of more than 15 million sets, Nokia took a market share of 67.6%, up 0.3% from This represents year-on-year growth of 29.1%, which was 5.3% higher than in Nokia was followed by Motorola and Dopod, with sales of 4.1 million (18.4%) and 984,000 (4.4%) respectively. Samsung sold 934,000 smart phone sets, up 77% year-on-year, with its market share reaching 4.2%, up from only 1.1% in In 2009, Coolpad sold 554,000 smart phone sets, up 238.4% year-on-year. Coolpad s market share reached 2.5%, up 1.6% from For the first time, Coolpad entered into the top five brands. Big increases in new 3G users for China Telecom were main reasons for Coolpad s fast growth. Smart Phone and Operating System Industry in China Page 5 of 17

6 Touch screen mobile phone has became the standard In 2009, smart phones with touch screens accounted for 33.4% of the overall sales volume, up 8.7% from Touch screen phones also accounted for 68.3% of the sales of the new smart phone models introduced in The touch screen has become one of the most important smart phone functions and is now becoming standard on most new smart phones. The wide application of touch screen technology has also affected user interfaces, applications and services, greatly improving user experience. Both mobile phone vendors and operating system (OS) enterprises increased their product offerings in the touch screen segment. Nokia s new S60 interface supports multi-point touch technology, while Motorola invested in its Sensitive Object technology, a multi-point touch screen platform. Additionally, over 30% of the 150 new mobile phone models which Samsung launched worldwide in 2009 had a touch screen. 3G has caused a drop in demand for GSM smart phones In 2009, China s smart phone market was still dominated by GSM products. However, due to increasing 3G and China Telecom s CDMA mobile phone sales, GSM smart phones saw its share of the total product sales in the market slip to 86.1% in 2009, down from 98.4% in China Telecom greatly expanded its user numbers in 2009, laying the foundation for the rapid growth of the CDMA 1 smart phone market. For the whole year, sales totalled 1.1 million sets (not including the EV-DO smart phone), representing a yearon-year growth of 313.4%, and a market share of 5.0%. The three major operators started to fully promote 3G services in 2009 and as a result, 2 million 3G smart phone sets were sold. The three major operators set up application stores The three major operators have set up application stores to claim the high ground in the application market in a bid to improve their competitiveness in the 3G market. China Telecom, the country s leading telecommunication operator, formally launched its online application store, estore, on 17 March 2010, half a year later than originally planned. estore will sell cell phone applications and services. Mobile telecom giant China Mobile launched its own application store named Mobile Market, last August. The operator respectively introduced a capacity development platform and an application factory to its cooperative enterprises and personal developers. In early February, 2010, China Unicom launched its application store UniStore, which supports Symbian, Android, Windows Mobile and Linux platforms. The second-largest Chinese carrier, China Unicom began trial operations of UniStore in February The online store has been designed to resemble Apple Inc s application store in China. UniStore currently has more than 780 mobile applications (including mobile themes, games and entertainment and system tools) which are categorised into two groups, namely, freeware and paid applications. Besides Android, the store s applications support other leading mobile operating platforms such as Windows Mobile, JAVA, Linux and Symbian. While UniStore has been able rapidly increase its number of applications, it still lags China Mobile s Mobile Market and China Telecom s estore online stores in scale, which boast roughly 18,000 and 1,250 mobile applications, respectively. 1.3 Market structure Product network structure Approximately 19.1 million GSM smart phone sets were sold out of 22.2 million sets in GSM s market share fell to 86.1% in 2009 down from 98.4% in GSM revenue was US$6.4 billion for the year. 1 3G CDMA refers to CDMA-2000 Smart Phone and Operating System Industry in China Page 6 of 17

7 Smart phone sales volume and revenue 2009 Network Sets Share Revenue (US$Billions) Share GSM 19,138, % % WCDMA 1,600, % % CDMA 1,100, % % EV-DO 207, % % TD-SCDMA 180, % % Total 22,225, % % Operating system structure Symbian (owned by Nokia) continued to maintain a dominant position, with a market share of 69.8% or 15.5 million sets in Symbian has increased its dominance since Approximately 3.9 million Linux smart phone sets were sold, with a market share of 17.7%. Microsoft Windows Mobile came in third place, Smart Phone and Operating System Industry in China Page 7 of 17

8 with 2.6 million sets and a market share of 11.5%, up 2.9% from Dopod, Coolpad, Samsung, Motorola and Lenovo were the top five vendors in the Windows Mobile camp. Changes in volume structure by OS OS Symbian 45.7% 68.4% 52.0% 63.8% 67.3% 69.4% 69.8% Linux 1.7% 11.4% 37.7% 29.9% 25.7% 18.0% 17.7% Windows Mobile 4.7% 4.1% 7.0% 5.0% 6.2% 8.6% 11.5% Others 47.9% 16.1% 3.3% 1.3% 0.8% 4.0% 1.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Price segment structure In 2009, the under 3,000 Yuan (US$439) price segment in the smart phone market continued to increase in popularity. Smart phones priced under 2000 Yuan (US$293) and between the 2,001 and 3,000 Yuan (US$293 to US$439) price bracket had a combined market share of 79.8%. The <2,000 Yuan (under US$293) price segment saw its share of total sales increase to over 40% in Changes in volume structure by price segment Price segment (Yuan) <2, % 20.6% 24.0% 34.8% 35.1% 36.7% 41.4% 2,001-3, % 33.0% 34.8% 41.4% 40.2% 39.5% 38.4% 3,001-4, % 28.9% 21.3% 18.8% 17.6% 14.0% 11.6% 4,001-5, % 10.3% 12.6% 3.0% 2.8% 4.9% 4.9% 5,001-6, % 3.5% 2.4% 0.9% 1.8% 3.9% 3.2% >6, % 3.7% 4.9% 1.1% 2.5% 1.0% 0.5% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Smart Phone and Operating System Industry in China Page 8 of 17

9 Channel structure As for smart phone marketing channels, mobile phone chain stores, home appliance marketplace and operators business offices are the three leading channels. Among them, retail chain stores had a market share of 33.8%, while home appliance chain stores with 25.8% and operators own channels with 18.9%, made up the majority of sales. Changes in volume structure by channel Channel type Independent 19.1% 20.9% 21.4% 13.6% 14.1% 14.6% retail store Retail chain store 42.7% 36.2% 27.6% 36.4% 34.3% 33.8% Home appliance 14.4% 20.0% 25.8% 23.4% 25.4% 25.8% store Operator s business office 15.6% 14.5% 15.3% 19.4% 18.7% 18.9% Others 8.2% 8.4% 9.9% 7.2% 7.5% 6.9% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Smart Phone and Operating System Industry in China Page 9 of 17

10 1.4 Brands market shares Overview With sales of more than 15 million sets to its credit, Nokia took a market share of 67.6% in Nokia offers an attractive combination of features combined with competitive pricing and has taken advantage of the increasing popularity of smart phones at the lower end of the market. Motorola is still in product transition mode, but managed to maintain its sales volume by relying on its already successful models. Dopod, which is focused on the high-end of the market, ranked third. Samsung and Coolpad are focused on the the high-end 3G market and made notable advances on the ranking table. For the first time, ZTE entered the top ten in China s smart phone market. Brand structure by sales volume 2009 Ranking Brand Sets Market share 1 Nokia 15,023, % 2 Motorola 4,091, % 3 Dopod 984, % 4 Samsung 934, % 5 Coolpad 554, % 6 Apple 161, % 7 Amoi 129, % 8 Sony Ericsson 118, % 9 ZTE 57, % 10 Lenovo 52, % Others 123, % Total 22,225, % Smart Phone and Operating System Industry in China Page 10 of 17

11 Brand structure by sales revenues 2009 Ranking Brand Sales revenue Market share 1 Nokia 4.93 (US$Billions) 62.9% 2 Motorola % 3 Dopod % 4 Samsung % 5 Coolpad % 6 Apple % 7 Sony Ericsson % 8 Amoi % 9 ZTE % 10 Lenovo % Others % Total % Changes in top ten vendors by sales volume Ranking Brand 2009 Market share Brand 2008 Market share 1 Nokia 67.6% Nokia 67.3% 2 Motorola 18.4% Motorola 18.1% 3 Dopod 4.4% Dopod 4.5% 4 Samsung 4.2% Amoi 4.0% 5 Coolpad 2.5% Samsung 3.1% 6 Apple 0.7% Sony Ericsson 1.1% 7 Amoi 0.6% Coolpad 0.9% 8 Sony Ericsson 0.5% LG 0.4% 9 ZTE 0.3% Mio 0.3% 10 Lenovo 0.2% Lenovo 0.3% 11 Others 0.6% Others 0.3% Total 100.0% 100.0% Market share by price segment The market of low-end smart phone priced under 2,000 Yuan (US$293) was basically dominated by Nokia and Motorola. The two vendors had a combined market share of 94.8%. For the 2,001-3,000 Yuan (US$293 to US$439) price segment, Nokia and Motorola had a total share of 89.7%, marking a slight rise over In the ultra high-end market, Dopod has 30% of the market for smart phones priced over 6,000 Yuan (US$878) and has won favour with consumers. Price structure by brand 2009 Price segment (Yuan) <2,000 2, ,001-4,000 4,001-5,000 5,001-6,000 >6,001 Total Nokia 70.9% 76.4% 52.8% 37.2% 28.7% 56.8% 67.6% Motorola 23.9% 13.3% 23.6% 15.5% 1.0% 0.0% 18.4% Dopod 0.3% 3.6% 12.5% 17.9% 12.4% 30.0% 4.4% Samsung 1.6% 3.2% 6.7% 16.3% 19.3% 5.0% 4.2% Coolpad 0.3% 2.1% 2.5% 11.5% 17.6% 8.1% 2.5% Smart Phone and Operating System Industry in China Page 11 of 17

12 Apple 0.0% 0.0% 0.0% 0.0% 18.7% 0.0% 0.7% Amoi 1.3% 0.1% 0.0% 0.0% 0.0% 0.0% 0.6% Sony Ericsson 0.7% 0.6% 0.2% 0.0% 0.0% 0.1% 0.5% ZTE 0.2% 0.1% 0.9% 0.7% 0.0% 0.0% 0.3% Lenovo 0.4% 0.2% 0.0% 0.0% 0.0% 0.0% 0.2% Others 0.4% 0.4% 0.8% 0.9% 2.3% 0.0% 0.6% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Smart Phone and Operating System Industry in China Page 12 of 17

13 2 Market forecast 2.1 Forecast for market size Future demand for smart phones is forecast to remain strong. In the next three years, smart phones will gradually become the most important product for leading mobile phone vendors. Hence the smart phone market will grow at more than 30%, far faster than the overall mobile phone market. CCID Consulting forecasts that smart phone sales in China will approach 30 million sets in 2010 and reach 56.7 million sets by Industry revenue is expected to increase by 30.3% to reach US$15.4 billion by Revenue growth is expected to remain lower than sales volume growth and this will lead to further falls in handset prices. Smart Phone and Operating System Industry in China Page 13 of 17

14 2.2 Forecast for market structure Network structure As for network structure, GSM smart phones are expected to fall from their dominant position. CCID Consulting forecasts that GSM smart phone will see their market share down to 56.7% in 2010 and 43.5% in 2012 from 86.2% in G smart phones will account for 56.5% of the total sales volume in 2012 and will therefore overtake 2G for the first time. Operating system structure CCID Consulting forecasts that in the next three years, Symbian will lose market share. One reason is that Nokia has yet to gain advantages in the CDMA, TD-SCDMA and EV-DO fields. The second reason is that Nokia is expected adopt MeeGo as a replacement for Symbian in its high-end smart phone. Chinese vendors mainly use Windows Mobile for their TD-SCDMA and EV-DO products. Samsung and LG also have many smart phone models that adopt this OS. In the next three years, Windows Mobile smart phone is expected to secure a stable market share of around 20%. OMS, Android and other OS (such as MeeGo, Bada and Mac OS) will all see rapid development. Smart Phone and Operating System Industry in China Page 14 of 17

15 Price structure In the next three years, there will be a growing trend for smart phones to increasingly become a mass consumer product and this will cause falls in average handset prices. Mobile phones priced under 2,000 Yuan (US$293) will increase in popularity. Channel structure CCID Consulting forecasts that in the next three years, mobile phone chain stores and home appliance marketplaces will continue to be the most important sales channel. The advent of operators application stores will strengthen operators dominant position in the application market. Smart Phone and Operating System Industry in China Page 15 of 17

16 3 Market trends 3.1 Product and technology Smart phone design needs to complement new developments in 3G business applications namely internet, media and video-based services. In respect to hardware configuration and software development, future products need to show support for advances in this area. For example, the current popularity of touch screens will continue and new handsets are expected to have this as standard. Operators will step up their efforts to open up more industry applications and attract more group clients and carry out integrated business innovations. Smart phones are expected to play a certain role in this process. China Mobile has designated government, transportation, logistics, financial services, education and healthcare as its key IT application fields. Among them, government, power and aviation are predicted to have huge growth potential. 3.2 Operating system In the next three years, the OS market will change for two main reasons. The first is that the product system will change, and 3G smart phones will replace 2G. Telecommunications vendors have technological build-ups in three different system fields, hence the brand pattern will be different from the 2G era. Software vendors, mobile phone enterprises and even operators are adjusting their OS strategy which includes introducing their own OS or adopt new system platforms. 3.3 Price CCID Consulting forecasts that average product price of China s smart phone market will continue to fall. The main reasons are as follows: Competition will intensify making it necessary for vendors to lower prices Vendors will pay more attention to the lower end of the market forcing prices down Smart phone prices will fall as economies of scale and more manufacturers enter the market 3.4 Channels In the larger cities, home appliance chain stores have distribution advantages and are expected to get a higher market share. Additionally, operators business office will increase in effectiveness due advances in GPS, internet access and streaming media. Application stores owned by the three major network operators are expected to increase their market dominance. Smart Phone and Operating System Industry in China Page 16 of 17

17 4 Major players 4.1 Nokia In 2009, Nokia sold more than 15 million smart phone sets, up 29.1% year-on-year a rise of 5.3% in growth rate over With a market share of 67.6%, Nokia kept the top spot in the smart phone market, taking a huge lead over other brands. Nokia s product lines cover the low and middle to high end for the market, however it was at the lower end of the market where smart phones have grown the fastest and Nokia has taken advantage of this. Nokia divides products into two major types according to their functions namely, business and entertainment smart phones. Business models are for the high-end market, while entertainment models are for the middle-end market. 4.2 Motorola Motorola has made sweeping adjustments to its product lines. Motorola currently focuses on Android and Windows Mobile to address the problems of too many mobile phone platforms and excessively long product R&D life cycles. Motorola focuses on the middle-end of the market and Motorola s business mobile phone is priced at 5,000 Yuan (US$732). Overall pricing is lower than Nokia s. Recently Motorola has given up a multi-platform strategy to focus on Windows Mobile and Android mobile phone OS s. Motorola employs different development platform strategies for different product series. The Windows Mobile Q series are mainly for the business consumer market, while Android products are for the middle-end consumer market. 4.3 Dopod In 2009, Dopod sold 984,000 smart phone sets, up 26.1% compared to 2008, continuing to keep its position as the third largest vendor in China s smart phone market. Dopod is now the most competitive domestic smart phone vendor in China. Dopod currently co-operates with WLAN manufacturer, HTC in market research, product development and production. Prices are generally in the middle and high bands. Dopod introduced over 10 new models in Product systems cover GSM, CDMA, EV-DO, WCDMA and TD- SCDMA platforms. Taiwanese company HTC is currently the majority shareholder of Dopod. 4.4 Samsung In 2009, Samsung sold 934,000 smart phone sets, up 77% year-on-year. Smart phones have become a key R&D product for Samsung. Its smart phone covers GSM, CDMA, EV-DO, WCDMA and TD-SCDMA platforms. An increasing number of Samsung smart phone models have a touch screen. 4.5 Apple In August 2009, Apple and China Unicom reached a three-year agreement for China Unicom to sell iphone in China. China Unicom launched iphone in China in October As of July 2010, Apple has two retail stores in China, with one in Beijing and the other in Shanghai. 4.6 Research In Motion (RIM) In December 2009, RIM and Digital China reached a deal for Digital China to distribute RIM s BlackBerry handsets in China. In May 2010, China Telecom began selling BlackBerry handsets on its 3G network to government and corporate clients in China. Smart Phone and Operating System Industry in China Page 17 of 17

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