China smartphone sales down for first time since 2009

Sales of smartphones in China — the world’s biggest market, responsible for about one in every three shipments — fell last year for the first time since 2009, raising fresh concerns about the strength of the global handset market.

Data from IDC, the research company, showed that smartphone sales slumped 4.9 per cent in 2017 from the previous year as the local market, a growth engine for the global mobile phone industry, contracted.

Analysts pointed to the fact that Chinese consumers were waiting longer to replace their smartphones than they have in the past, mirroring a similar trend in other markets including the UK.

China’s slowing appetite for new phones is a blow for Apple and Huawei, the country’s top-selling brands, and has prompted manufacturers along the telecoms groups’ vast supply chains to rethink their strategies.

IDC’s numbers come just days after data provider IHS Markit said global smartphone sales had dropped 4.5 per cent in the last quarter of 2017, with only Xiaomi and Lenovo’s Motorola experiencing any growth in shipments.

Sales of smartphones in China — the world’s biggest market, responsible for about one in every three shipments — fell last year for the first time since 2009, raising fresh concerns about the strength of the global handset market.

Data from IDC, the research company, showed that smartphone sales slumped 4.9 per cent in 2017 from the previous year as the local market, a growth engine for the global mobile phone industry, contracted.

Analysts pointed to the fact that Chinese consumers were waiting longer to replace their smartphones than they have in the past, mirroring a similar trend in other markets including the UK.

China’s slowing appetite for new phones is a blow for Apple and Huawei, the country’s top-selling brands, and has prompted manufacturers along the telecoms groups’ vast supply chains to rethink their strategies.

IDC’s numbers come just days after data provider IHS Markit said global smartphone sales had dropped 4.5 per cent in the last quarter of 2017, with only Xiaomi and Lenovo’s Motorola experiencing any growth in shipments.

Apple took the biggest hit in China last year according to IDC, with unit sales down 8.3 per cent year on year, although the company continued to dominate the premium market for phones that cost more than $600.

In terms of overall value, the China mobile market grew 11 per cent in 2017 — from $120bn in 2016 to $134bn.

“Though the iPhone X has already helped to increase the appeal of the iPhones, this model is still not within the reach of most consumers,” said IDC.

Analysts forecast demand will slide further this year. Sam Kao, a researcher at Taipei-based Yuanta Securities, reckoned that worldwide smartphone shipments will dip 2 per cent in 2018, led by a 4 per cent decline for Chinese brands.

Mr Kao attributed the decrease to saturation of the domestic Chinese smartphone market and the higher price tag for the latest devices. A lack of attractive new features in the latest phones was also a drag on the replacement cycle, he said.

Winners last year included Huawei, which saw sales rise 18.6 per cent year on year, giving the company a fifth of the market. But the ambitions of China’s biggest phone maker have been hampered after talks with AT&T to sell its handsets in the US broke down, with analysts blaming fears in Washington that the company is a tool for Chinese snooping.

Xiaomi, which fell out of favour in 2016, surged back with a 32.6 per cent increase in sales ranking it number four in China, still below Vivo and Oppo, sister companies that usurped its position as the premier low-cost smartphone maker.

“Xiaomi is doing surprisingly better compared to 2015-16,” said Rex Wu, tech analyst at Jefferies, attributing its gains to picking up customers from LeEco, the ailing tech conglomerate. “But 2018 will be a bit difficult for Xiaomi to maintain the same 20 per cent growth rate.”

The rise of a new generation of Chinese brands has been curtailed by the downturn. IHS Markit said that Oppo shipments fell 8 per cent in the fourth quarter while Vivo dropped 18 per cent, even though both companies have branched out into south-east Asian markets to reduce their dependence on China.

Others predict a shake-up among small vendors this year with brands including Gionee and Meizu under pressure. Hattie He, an analyst with Canalys Research, said: “The declining Chinese market will have a detrimental impact on those Chinese vendors that have been heavily relying on their home market. It will affect their cashflow and profitability, limiting overseas expansion and bringing into question future survival.”

Suppliers, expecting smartphone growth to slow down globally, are switching focus to new homes for their chips, sensors and materials including internet of things devices and automated cars.

Taiwan Semiconductor Manufacturing Co, which supplies core processor chips for Apple’s iPhones and generates about half of its $33bn annual revenues from mobile devices, expects overall smartphone unit growth to be in the low single digits this year.

“However, the high-end smartphone will be decreasing for this year,” TSMC co-chief executive CC Wei told analysts last month, adding that middle and low-end devices would see growth of a “few percentage points”.

Gokul Hariharan, head of Taiwan research at JPMorgan, noted that chips had historically seen most of their demand for consumer tech, firstly PCs and then smartphones.

“Now applications are widening out quite a bit,” he said. “There are datacentres, industrial applications, smart machines and the internet of things. Over half the global market as it stands today has smartphone penetration of 70 per cent or higher, meaning that is largely a replacement market.”