49% Mobile Phones Sold in China in 2012 Were Smartphones

Chinese mobile phone manufacturers shipped 1.18 billion mobile phones in 2012, with an increase of 4.3%, according a report by Chinese Ministry of Industry and Information Technology (MIIT). Every one hundred Chinese own 82.6 mobile phones, 9 more than that in 2011.

Of the 260 million mobile phones sold in 2012, 49.1% are smart phones. It is estimated smartphone sales will surpass feature phones this year.

More than 100 million 3G subscribers were added in 2012 — the biggest number ever. Mobile Internet users account for 74.5%, 5.1% higher than the year before, of the total Chinese netizens, according to the MIIT report.

Local phone makers account for 70% of domestic smart phone market.

Chinese manufacturers estimatedly took about 70% of the domestic smart phone market in 2012. It is reported that most of them raised the shipment target for 2013 by 30%. It is expected competition in this sector will be intensified this year that big names like Samsung, who took over 10% a market share in 2012, will ship more low-cost devices.

Regarding smartphone the almighty gateway for obtaining mobile Internet users, a bunch of Internet companies joined in the smartphone manufacturing industry. Alibaba, Shanda and Baidu rolled out phones with customized Android systems and built-in Internet services of theirs. Netease also came up with a team to design phones. But nothing with those phones could differentiate them from others. Just don’t sell.

Xiaomi, the full-fledged smartphone company operated by a gang of veterans in Internet business, however, did well in the past year. It claimed that 1.6 billion dollar worth of Xiaomi phones were sold in 2012 that generated 200 million dollar in net profit.

Low Profit Margins

Thousand-yuan smartphone was one of the key words in 2012. Smartphone prices dropped from above three thousand yuan to below one thousand yuan. Technology advances lowered the costs that even quad-core smartphone is becoming budget phone. But that doesn’t necessarily mean more profits, for competition drove down prices and squeezed profit margins.

Xiaomi made about 13% in profit, according to the financials disclosed. Most manufacturers could make about 10% or even lower.

Mobile phone distributors lost money for the first time in years.

Chinatelling (SZ:000829), one of the biggest mobile phone distributors, made a net loss in 2012 for the first time in the past ten years after it went public. Aisidi (SZ:002416), another big player in this sector, estimated in Q3 2012 that the company would see a huge number in net loss at the end of the year.

Telecom operators and e-commerce channels grabbed their market shares and profits. To boost 3G subscriptions and make some money from hardware, the three operators, partnering with manufacturers, launched a number of customized phones at relatively low prices or accompanied with free telecom services.

It is estimated that 30 million mobile phones, 10% of the total across the country, were sold through e-commerce platforms in 2012, up from 7 million in 2010. New phone makers like Xiaomi sell every single piece of their products online.

Since manufacturers make way less than before, distributors have no way to profit from selling mobile phones any more. Some of them started selling other goods like appliances, while others shift to somewhere further. Chinatelling established a joint venture with Opera and launched a custom mobile browser in August 2012. It also plans to apply for a license for mobile virtual network operators as Chinese authorities announced to open the market this year.