Huawei, Oppo To Dominate China Phones, Says JP Morgan; Xiaomi at a Crossroads
By Tiernan Ray
Half of the Chinese smartphone market, and 20% of the global smartphone market, is controlled by four Chinese handset makers, writes analyst Michael Fan of JP Morgan in a note to clients today: privately held Huawei, Xiaomi, Oppo and Vivo.
The Big Four, as he calls them, are likely to continue to gain share in coming years, thinks Fan, and that’s a problem for South Korea’s LG Electronics (066570KS) and Taiwan’s HTC (2498TW), as the Chinese represent “a structural headwind to global second tier brands” like LG and HTC.
They won’t hurt Apple (AAPL) too much, he thinks:
We believe Apple’s premium brand image remains intact and Chinese brands are unlikely to shake Apple’s leadership in high-end segment and feature innovation. Apple’s further growth is more subject to the global economy, consumer purchasing power as well as its ability to constantly deliver innovation.
But the Four could prove some trouble for Samsung Electronics (005930KS):
We acknowledge the rise of Chinese brands could threaten Samsung’s global leadership in smartphone volumes, as we’ve witnessed its share decline in the China market. Accordingly, Samsung management has set a clear target to maintain profitability (via product mix improvement) over pursuing volume growth. We believe Samsung can maintain a 10%+ OPM for its handsets business with brand premium in the high-end and hardware differentiation (curved display, etc.).
The Big Four are all growing faster than the overall smartphone market:
All of the big 4 outpaced the global market in both units and dollar terms (please see more details in Appendix: Charts and tables). We note that the Big 4 collectively took 19%/18% market share in unit terms in 4Q15/2015, respectively, narrowing the gap with Samsung, which took a 20%/22% share in the corresponding periods.
And, they’ve been taking share in China at the expense of Lenovo Group (0992HK) and China’s ZTE (0763) and Coolpad.
