Blog Post

One Reason Why Apple's App Payments In Yuan Are So Important

It’s no secret that the mobile market in China is big business: the country’s own officials reported last month that China is now approaching 1 billion mobile users, with some 102 million of them using smartphones. That’s driving a lot more activity in the country — with Apple (NSDQ: AAPL) being the latest to upgrade its app store to take Yuan payments. Now, some numbers out from Strategy Analytics take the growth trend one step further: is says that now China has overtaken the U.S. as the world’s biggest smartphone market.

Strategy Analytics says that smartphone shipments in China overtook those in the U.S. in Q3 2011, at 24 million units in China, compared to 23 million in the U.S..

What’s important to note here is that the figures out today do not claim that more people in China are buying smartphones than in the U.S. — although that could follow if it hasn’t already. These figures, however, only count the number shipped. Shipments relate to devices that have been sold into the channel to resell to consumers. It’s not clear from today’s numbers what those sales figures are.

What is more clear, however, is that China is still at the start of a growth curve, while U.S. is approaching more maturity in its smartphone penetration. Shipments in China grew by 58 percent compared to the quarter before, while in the U.S. shipments actually fell by seven percent. Taking the government’s smartphone figures, that’s still just over ten percent of the market penetrated with smartphones, compared to figures closer to 40 percent in more mature markets.

Although a huge wave of competitors — everyone from Apple to ZTE — is flooding the Chinese market, Nokia (NYSE: NOK) is still hanging on to its lead as the single-biggest smartphone shipper in the country, with a 28 percent share of all devices shipped, working out to 6.8 million units. Samsung is some way behind that with 17.6 percent of devices shipped, working out to 4.2 million devices. “Others,” as measured by Strategy Analytics, dwarf both of them with a 54 percent share of the market and nearly 13 million devices.

Neither Nokia nor Samsung make the very top rankings in the U.S., however. Strategy Analytics notes that, there, HTC is the biggest smartphone vendor. The Taiwanese handset maker has 24 percent of the U.S. market, or 5.6 million devices shipped, with Apple taking at 20.6 percent share with 4.8 million devices. Fragmentation in the U.S. is also strong with “others” accounting for more than 55 percent of the market. (And I suspect that Samsung is probably very high on that list.)

Ironically, the growth in China and the decline in the U.S. are putting the markets on more equal footing in terms of how the smartphone industry will need to target them.

In the U.S. the shift is now to the next segment of buyers, who will be looking for less expensive devices than early adopters. And China, as an emerging economy, will also be driving the trend for cheaper smartphones — some models perhaps for even as low as $100.

That spells opportunity, but also increasing margin pressure, even for margin kings like Apple. That may also mean a greater reliance on content services such as apps to claw some of that profit back.