China Smartphones Challenge 'Cheap' iPhone

China Smartphones Challenge 'Cheap' iPhone

While Samsung Electronics Co. and Apple Inc.  own the majority of profits in the smartphone industry, their market shares are falling globally. The reason?  Cheaper alternatives in markets such as China where there are a slew of startups that are launching high-spec phones at nearly half the price.

In Hong Kong’s bustling electronics market in Sham Shui Po, it’s easy to find cheaper smartphones that are giving Apple and Samsung a run for their money.

Take the Zopo C2  made in China.  It runs on Android, has a full high-definition screen and a 13.1 megapixel camera as well as a high-speed graphic processor. The price?  A little over $300 compared to the more than $600  you would pay for an unsubsidized Galaxy S4 or an iPhone.   Xiaomi Inc.’s new smartphone called the Xiaomi 3 retails for just 1,999 yuan ($327 ), while Gionee’s Dream D1 costs $230.

Samsung currently ranks No. 1 in China with a market share of 18%, but Apple now ranks seventh with 5% of the market, according to data from researcher Canalys, as other manufacturers muscle in.

Zopo Founder Kevin Xu says his company’s smartphones are mainly sold online, but it also has 100 retail stores across China.

“ Apple and Samsung owe their initial fast development to technological advantages . They have been frontrunners. But as the speed of technology advancement slows, most people can produce similar products,” Mr. Xu said.

Research firm Sandford Bernstein predicts that half of the billion smartphones shipped by 2015 will be those below $200. That means smaller profit margins for all smartphone makers.

The challenge for these upstarts is to expand outside of their home market.

“To continue growing, they need to go to high price points and go internationally,” said Mark Newman, analyst at Sanford Bernstein. “They need to develop relationships with distributors outside of China and high-end phones means you need advertising.”

Part of Apple’s and Samsung’s success in smartphones has been the billions of dollars they pour in for advertising and marketing.

Still, stiffer competition is leading companies like Apple to launch more affordable phones. On Tuesday, Apple unveiled its iPhone 5C, which is geared for emerging markets. Samsung, meanwhile has been aggressively pushing out low-cost smartphones in emerging markets that cost below $100.

Watch a video on some of the cheaper smartphone alternatives.