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China's smartphone industry feels the pinch in 2018

Mobile phones are seen on display at an electronics market in Shanghai, China, June 24, 2015. Photo: Reuters

The decade-long and spectacular development of China's smartphone industry came to a more apparent standstill in the year 2018 with dwindling shipments and sales as well as the bankruptcies or disappearances of some of the country's once leading manufacturers.

Shipments dropped 15.5 percent to roughly 390 million units for 2018, with a 17 percent slump in December, according to the latest report by the China Academy of Information and Communications Technology (CAICT), a research institute directly under the country's Ministry of Industry and Information Technology.

Shipments in the country had fallen 12.3 percent to 491 million units in 2017, said the CAICT.

Independent market research company Canalys estimated that shipments fell 12 percent in China in 2018, slightly lower than the CAICT statistics, and expected shipments in 2019 to dip below 400 million for the first time since 2014.

The market is shrinking, and several brands were struggling to survive due to financial burden.

Coolpad and Gionee are disappearing from the public view, Meizu, Smartisan, and 360 allegedly laid off employees, Meitu is going to Xiaomi for help, and TCL, Doov, and Nubia saw big slump in sales.

Xiaomi saw its own share of the dwindling market fall by 16 percent in the fourth quarter of 2018 compared with the same period of 2017, while market leader Huawei is also facing slower growth.

Even Apple, once very popular with wealthier Chinese consumers, suffered from disappointing sales of its flagship iPhones in China, causing the company to slash its financial forecast.

Samsung, a South Korean brand and another key foreign player in China's handset market, on Tuesday estimated that its fourth-quarter earnings plunged 29 percent.

Domino effect

After a year-long debt crisis which paralyzed its major business operations, China's once leading smartphone manufacturer Gionee unveiled a framework bankruptcy and reorganization plan in December.

"Gionee's total debt has reached over 20.2 billion yuan (US$2.9 billion) as of the end of August, while the market value of its main assets has been estimated at only 7.5 billion yuan," reported China's leading finance magazine Caixin.

"It means that the tech giant has to repay a debt of 12.7 billion yuan," said Caixin.

Gionee's huge debt and unexpected collapse caused steep job cuts within the company and posed a grave threat to the survival of its parts suppliers.

Coolpad, another major smart phone manufacturer in China, has been in financial troubles since 2016 as the company's liabilities outstripped assets.

It is estimated that the company lost some HKD2.6 billion in 2017, according to an annual fiscal report and a number of its major creditors have lodged claims for loan repayments.

Constant debt risks in the industry have alerted investors and sagged parts suppliers' confidence.

"It has become increasingly difficult to earn money in the smartphone industry," said Zhai Zhu, a creditor of Gionee. "This trend prompted me to consider investing in other artificial intelligence fields."

Lack of innovation

China has become the world's largest smartphone market over the past decade as rising incomes coincided with an explosion in mobile technology.

Shipments growth rates even kept apace at over 10 percent in 2012, 2013, and 2015.

After years of fierce competition, the market is dominated by homegrown brands like Huawei, Xiaomi, Oppo, and Vivo, which held a combined 78 percent market share in the third quarter of 2018, according to a report by research agency Counterpoint.

Apple currently ranks fifth in China with about 9 percent of the market, said the report.

However, the industry has not had any revolutionary breakthroughs in recent years, and consumers' smartphones bought from a couple years back are probably still serving them just well — and for investors, that's a big problem.

"Smartphone industry is highly dependent on the sales of new products which relied on technological advances, which all manufacturers were struggling to make," said Sun Yanbiao, head of the Mobile No.1 Research Institute.

Economy slowdown and skyrocketing housing prices are another two factors, and Chinese consumers tend to cut down their expenditures and spend just to fulfill their needs rather than reaching deeper into their pockets to buy luxury goods, including high-end new smart phones.

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