China smartphones: demand for long life handsets shrinks the market

Receive free Technology sector updates

We’ll send you a myFT Daily Digest email rounding up the latest Technology sector news every morning.

Up until 2019, mobile phone company contracts successfully encouraged customers to replace handsets every two years. Since then, upgrade cycles have lengthened. Chinese consumers now hang on to their phones for about 40 months. Combine that with the popularity of Apple smartphones, and it spells trouble for local manufacturers.

Global smartphone shipments are expected to drop 6 per cent to 1.15bn phones this year, the weakest figure for more than a decade, according to Counterpoint Research estimates. China’s economic slowdown is the main reason. Handset sales hit their lowest level in nearly 10 years in the second quarter.

Apple is one of the few brands to buck the trend. Sales increased 7 per cent in the second quarter, with market share reaching more than 17 per cent. The US devices giant shares the top spot with local maker Vivo. A passionate fan base flocks to every iPhone launch.

That leaves local makers to scramble for buyers who favour Chinese brands. Vivo, Oppo, Realme, Honor and Xiaomi are the top five contenders. Sales at the latter two have weakened this year.

Xiaomi’s decline may come as a surprise given its dramatic rise into a global consumer electronics business. It bet big on creating Apple-style physical stores in China while expanding in India and Europe. This seemed to be paying off.

But Xiaomi has failed to keep pace with a global trend favouring premium smartphones. In India, for example, Xiaomi lost its top spot to Samsung in the last quarter of 2022. The South Korean group launched a higher-end model line-up in the country supported by easy financing. Xiaomi’s record drop in sales in that quarter shows the scale of the damage.

Shares are down 37 per cent since the start of last year, reflecting shrinking operating margins. These have more than halved over the past two years to around 2 per cent.

The better build quality of premium smartphones means they last longer and require replacement less often. The market will continue to shrink. So will the share prices of Chinese manufacturers.