Chinese smartphone makers are about to take the global market by storm with their rock-bottom prices, especially in price-conscious Europe. ZTE, ranked fourth in terms of global handset shipments in 2010, is selling its San Francisco smartphone via Tesco Mobile of the U.K. for 80 pounds per unit (around W145,000) based on pre-paid calling plans.
By contrast LG Electronics, whose smartphones are almost identical to the San Francisco, sells its handsets in the U.K. for 150 pounds. Although the LG gadgets boast better finish and trim, they are twice as expensive.
◆ Low Production Cost
ZTE and Huawei, China's leading telecom equipment makers, both entered the ranks of the world's top 10 mobile phone manufacturers last year. ZTE, ranked fourth, saw its global market share rise from 2.3 percent in 2009 to 3.7 percent last year, while third-ranked LG Electronics' global market share slipped from 10.1 percent to 8.4 percent.
ZTE plans to sell 10 million smartphones this year, five times more than last year, and recently started selling its products to Japanese mobile communications service provider SoftBank following similar deals in the U.K. and France. Huawei plans to roll out no fewer than 20 smartphone models this year. Most of them will be half the price of their Korean rivals. For example, the Ideos series of smartphones Huawei introduced in September last year are sold at US$100 to $200 each. A mid-priced model to be unveiled in Europe this year will be priced at around $200. "It looks like it costs them no money at all to make the phones," said a Korean telecom staffer.
The main reason Chinese smartphone makers offer gadgets with much cheaper prices is the supply structure. "By and large, there are two types of smartphones: Apple's iPhone and Goole's Android-based smartphones. Brands can vary, but almost the same parts are often used in various models," an analyst at KB Investment and Securities pointed out. Most global smartphone makers have local branches and parts plants in China, making access to cheaper parts easy. Experts forecast that price competition between global smartphone markers is going to be severe this year. According to U.S. research firm Strategy Analytics, the average price of smartphone will decline by over $100 from $343 in 2009 to $233 in 2014.
◆ Market Strategy
Chinese smartphone makers are not only offering their products at rock-bottom prices but also provide other communications equipment. ZTE and Huawei have their own equipment businesses and after forming partnerships with overseas telecommunication providers in Asia and Africa, they expand their business to launching smartphones. Through this strategy, ZTE formed business ties with 42 out of the world's 50 telecommunication companies.
It is also spending heavily on research and development. ZTE ranked second in the world last year in terms of international patent applications and Huawei fourth, way ahead of LG Electronics (seventh) and Samsung Electronics (17th).
Korean smartphone makers have no choice but to fight back with their own cheaper models. Samsung says it will take on the global market for mid- to low-priced smartphones this year by introducing four new affordable models to its Galaxy series and doubling its sales target to 60 million units. LG Electronics is also preparing a full lineup of smartphones featuring both affordable and high-end models. LG plans to unveil around 20 types of smartphones this year, including the Optimus Me and Optimus Chat.