In February 2023, at the Mobile World Congress, Huawei Honor occupied one of the most famous stands. It was located next to Samsung’s booth, indicating that Honor is targeting the South Korean firm in the premium smartphone market.
Arjun Harpal | CNBC
Chinese smartphone makers are looking to enter the high-end device market to challenge their dominance an apple and Samsung after one of its worst market years ever.
At Mobile World Congress — the world’s largest mobile trade show — in Barcelona, Spain last week, Chinese smartphone makers had some of the most prominent booths and displays, fresh from launching new products.
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Last month, Oppo, the world’s fourth-largest smartphone maker, launched its foldable smartphone called the Find N2 Flip, which cost more than $1,000. Its biggest competitor Xiaomi followed by the launch of the US$1,000 Xiaomi 13 and Xiaomi 13 Pro.
Honor, a spin-off from Chinese telecom giant Huawei, then launched its $1,690 foldable smartphone called the Magic Vs.
These expensive smartphones represent a shift in strategy for Chinese companies that have become known over the years for offering inexpensive devices with flagship specifications.
“Many companies like Oppo, Xiaomi, OnePlus, Vivo, RealMe and others are looking to flex their muscles as they try to secure a place in the market alongside Apple and Samsung, who are increasingly dominating sales around the world,” Ben Wood, head of research at CCS Insight, told CNBC via email.
Chinese giants are moving to the premium class
The change in tactics by Chinese firms comes after shipments of smartphones last year hit their lowest level since 2013. But the share of high-end smartphones that cost more than $800 rose from 11% in 2020 to 18% in 2022. Apple and Samsung together own almost all of this market.
Still, the opportunity is lucrative as Chinese suppliers look to increase margins.
Undeniably, Wood said, there is a “push to the premium market that requires higher average selling prices and margins.”
The high-end push also coincides with China’s reopening after the country dramatically abandoned strict Covid prevention rules in December. This has made it easier for executives who have mostly been stuck in China since early 2020 to go abroad.
And it also coincides with a new push by Chinese companies to expand their global reach. In 2022, the market share of Chinese smartphone manufacturers Realme, Oppo and Xiaomi declined in Europe, while Apple and Samsung remained relatively stable. Chinese companies are hoping to change that now that the domestic economy has reopened.
“The lockdown ease is a ‘reboot’ for companies that manufacture and export customers around the world to meet in person and expand relationships and business opportunities,” Neil Shah, partner at Counterpoint Research, told CNBC via email.
“Thus, over the next 12 months, we will continue to see a surge in Chinese business as well as tourists flocking out of China, which will enhance their global strategy.”
Chinese smartphone manufacturers have not yet entered the premium segment of the market. The exception was Huawei, which managed to achieve high-end success, becoming the world’s number one smartphone maker in 2020 before US sanctions decimated its phone business.
According to analysts, Xiaomi, Oppo, Honor and other Chinese contenders are facing a number of challenges in the premium segment.
Xiaomi unveiled its new Xiaomi 13 smartphone at Mobile World Congress 2023. The $1,000 phone signals the Chinese firm’s intention to challenge Apple and Samsung in the high-end smartphone market.
Arjun Harpal | CNBC
The first is brand recognition, according to CCS Insight’s Wood, who said Chinese firms are spending “staggering amounts of money” on advertising campaigns to build awareness.
But the biggest challenge, according to Shah, is sustainable profitability.
He said Apple and Samsung dominate most premium markets such as the US and Europe. While Chinese brands have also failed to build a profitable software and service business like Apple, which provides higher margins.
“Profitability is the biggest challenge because their scale is going down because the segments they are targeting (mid-range affordable entry) are going down,” Shah said.