iPhone Dying in Which Nation?

The world's fastest-growing phone isn't thriving in every nation. Last year we learned that European consumers were abandoning the Apple device for cheaper alternatives. Now Reuters reports that the iPhone is beginning to lose traction in China as well. This is a bit shocking considering the endless amount of fanfare surrounding the iPhone 4S in China, which launched in the nation earlier this year. But from October to December, Reuters said that consumers searched for cheaper alternatives or simply decided to wait for the iPhone 4S to arrive. Consequently, Apple's AAPL sales could not keep up with the pace of China's growing smartphone market. Apple also faces increased competition from a wide array of Chinese manufacturers, including Meizu, which designed and manufactured the hugely popular MX – a blatant clone of the iPhone. Going forward, the competition (and devious cloning) will only get worse as China's mobile subscriber base is expected to top one billion this year. Samsung and Apple will continue to fight for the top position, but they're not the only ones. In addition to smaller companies like Meizu (which has built Apple Store clones to reinforce its creative luster – or lack thereof), ZTE Corp. and Huawei Technologies Co Ltd. are also posing a threat. If we break down the numbers, Reuters said that Apple slipped to fifth place in China as ZTE jumped into fourth during Q4 2011. During the previous quarter (July through September), Apple commanded 10.4% of the market in China. As of December, Apple's stronghold on smartphone users had slipped to 7.5%. Samsung is the new leader, beating Nokia NOK for first place with 24.3% of the market. Reuters' info comes from Gartner, a research firm that recently reported on the pain Apple has been inflicting on its competitors here in America. While Nokia has maintained its status as one of the largest smartphone manufacturers, it continues to lose market share in key regions around the world. According to Reuters, the company held more than 40% of China's smartphone market in 2010. Last year, the company's market share dropped to less than one fifth that amount. CK Lu, a Taipei-based analyst with Gartner, told Reuters that Chinese handset makers have been “actively promoting their smartphones with China's three telecoms operators, so we saw ZTE and Huawei gain significant market share.” If outside smartphone manufacturers can't get a similar degree of support, they're going to have a hard time competing. Apple and Samsung have an advantage that no other has, however: worldwide brand recognition. Both companies are known for designing and manufacturing quality products. And since Apple manufactures all of its products in China, it's not as if Chinese consumers have anything to feel guilty about when buying an iPhone. But as one of the most expensive phones available, many Chinese consumers cannot afford an iPhone. This gives domestic corporations a pricing advantage. Samsung, which sells both low- and high-end phones all over the world, has been able to share in that advantage. To put this into perspective, Jayesh Easwaramony, an analyst with Frost & Sullivan in Singapore, told Reuters, “If you want to sell handsets to the mass market, a simple rule of thumb in China is that the handset price has to be close to 70% of the monthly salary. Today, an iPhone is more than two months salary.” I'm not sure anyone in America can imagine spending two months salary on a smartphone. If you're in high school and work at McDonald's MCD, maybe. If you want a mountain of data, subscribe to AT&T T, and plan to make calls while traveling abroad, it's possible. But otherwise it seems very unlikely. While the decline of Nokia was to be expected, and while many saw the rise of Samsung coming a mile away, Apple should be doubly afraid of the growing Chinese firms that threaten the iPhone's future. According to Reuters, ZTE held just 3% of the smartphone market in China during Q1 2011. By the fourth quarter, the company increased its market share to more than 11%. Follow me @LouisBedigian