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China Smartphone Investing

Written By Brian Hicks

Posted July 29, 2013

You’ve heard about the record 31.2 million iPhone sales in Apple’s (NASDAQ: AAPL) third quarterly report, but don’t be fooled by the hype!

I know you’ve also heard about smartphone saturation and its inevitable innovation decline.

However, looking ahead to China will expand your portfolio.

charging cell phoneSmartphone market penetration in developing markets is expected to surge anywhere from 75 to 85 percent by 2014, CNBC reports.

I’ll give it to you straight: Apple has failed to stay ahead of the curve on this one, at least when it comes to smartphones. Future growth in the smartphone market will come from cheaper smartphones in developing economies like China and India, but Apple has yet to capture a market niche for cheaper iPhones that cater to Chinese needs.

Apple made excellent inroads in Japan and the U.S. in its third quarter report, but not China.

Apple revenue has slipped 43% compared to the previous quarter in mainland China, Hong Kong, and Taiwan to $4.65 billion. Sales in China, Taiwan, and Hong Kong slipped 14% in the third quarter.

But Apple still has its head in the clouds and believes higher-priced smartphones will continue to be the top sellers.

Apple gained in Wall Street shares when the third quarter report was released, but it’s nowhere near its former market value of $700 from last year.

The fact is that consumers can easily choose a previous version like the iPhone 4 and be just as satisfied.

I predict that future model smartphones will continue to decline in sales across the board and here’s why.

We’re coming to a point where previous version smartphones will continue to steal the thunder of future models.

Now don’t get me wrong; Apple is still coming out with diverse products for 2014, and its smartphone market will continue to do well. But it seems Apple is a bit tone-deaf when it comes to picking up on future smartphone trends, and this is what once captured the essence of Apple.

There was a time when Apple set THE standard for big and small companies to emulate. Steve Jobs spoke, and the world listened.

Smartphone Landscape

I know writing off Apple seems premature, but if you’re a smartphone investor and looking for longer term growth, you’re just not going to find it with Apple.

Samsung (KRX: 005935) has 19 percent of the market in China and is expected to surge to $117 billion by 2017.

And get this; Samsung faces more of an encroaching threat, not from Apple, but from local companies offering competitive smartphones to capture the domestic market.

When it comes to smaller companies nipping at the heels of Samsung, you want to look out for ZTE Corp. (HK: 0763), Lenovo (OTC: LNVGY) and Huawei Technologies. Samsung is a dominant smartphone presence in China, followed by Apple. LG (NYSE: LPL) comes in third.

Small smartphone companies are offering quality smartphones in the $100 to $200 range, outflanking Samsung and blowing Apple out of the water.

And these are not junk phones either; they come with the same features and benefits as your average smartphone, and the services offered are on par with the likes of Apple and Samsung.

But Samsung is not to be outdone and has a few tricks up its sleeve.

Samsung has apps and features dedicated to your average consumer in China. In conjunction with China Telecom (NYSE: CHA), Samsung has released a $2,000 luxury smartphone specific to China, with famous actor Jackie Chan acting as spokesman. Such a phone will not gain tons of sales, but it is a good PR move, and it shows that Samsung is invested in China.


What is Apple’s Strategy for China?

Apple still believes higher-end phones will eventually catch wind, but phones like the iPhone 5 are out of the budget ranges of many people in China.

If Apple is looking to further penetrate the smartphone market, CEO Tim Cook may want to think of a larger stratagem. The fact is that Samsung has already established a firm base in China.

Even though Samsung is a foreign company in China, marketers have been adept at crafting Samsung smartphones as the face of Chinese communication.

Samsung has also fostered healthy business ties with telecom companies and government officials.

There is always room for Apple to achieve future growth, but the American company has quite a bit of work ahead if it hopes to become a lasting force in the Chinese smartphone market.

And while Apple is sorting out its Chinese problem, you as an investor want to keep an eye on India and developing economies across Africa as well, as smartphone demand grows around world.


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