Chinese Smartphones Are Winning Race to the Bottom

Photographer: Nelson Ching/Bloomberg

Smartphone users in Beijing, China, on Sept. 28, 2012. Close

Smartphone users in Beijing, China, on Sept. 28, 2012.

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Photographer: Nelson Ching/Bloomberg

Smartphone users in Beijing, China, on Sept. 28, 2012.

Two product announcements this month captured the attention of the world's largest smartphone market. No, Google's made-in-the-USA Moto X wasn't one of them.

The hype-worthy new devices are low-end smartphones from Chinese companies. One is the deliciously named Hongmi, meaning "red rice," from Xiaomi, and the other is a line of Android-based smartphones from China Mobile, the state-owned carrier.

Since it was founded three years ago, Xiaomi (pronounced "shao-mee") has amassed a dedicated following in China, helping it to surpass Apple's market share there during the second quarter. (Next quarter could be different. Apple, which has been working on a cheaper version of the iPhone, will hold an event on Sept. 10, Bloomberg News reported.) Xiaomi's Hongmi phone, which hit stores this week, costs 799 RMB ($131). For the features it has, it's a very aggressive price, Bloomberg Businessweek reported.

Marc Andreessen, an influential Silicon Valley venture capitalist, predicted that the $50 smartphone will be the most significant development of the year. China Mobile is getting close to that price. Its low-end M601 with a 4-inch touchscreen sells for 499 RMB ($82). The M701 has a 5-inch screen and costs 1,299 RMB ($212).

China Mobile, the nation's largest operator by subscribers, has been struggling to adapt to the smartphone era. Just 19 percent of its subscribers purchase 3G data services, a significantly lower percentage than its rivals in China, according to data compiled by Bloomberg.

But China Mobile's recent efforts are significant. Smartphone sales in the country are increasing rapidly, and in 2017, 460 million units are expected to be shipped, according to researcher IDC. And you'll be able to thank China Mobile for that.

"China Mobile became the key driver of China's fast-growing smartphone market," James Yan, an analyst at IDC in China, wrote in an e-mail. "Such a low price, it's hard to say no for consumers."

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