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Jul 26, 2013, 12.05 PM IST | Source: Reuters

INSIGHT: How Samsung is beating Apple in China

Apple Inc this week said its revenue in Greater China, which also includes Hong Kong and Taiwan, slumped 43 percent to $4.65 billion from the previous quarter. That was also 14 percent lower from the year-ago quarter. Sales were weighed down by a sharp drop in revenues from Hong Kong.

INSIGHT: How Samsung is beating Apple in China

Apple Chief Executive Tim Cook believes that "over the arc of time" China is a huge opportunity for his pathbreaking company. But time looks to be on the side of rival Samsung Electronics Co, which has been around far longer and penetrated much deeper into the world's most populous country.

Apple Inc this week said its revenue in Greater China, which also includes Hong Kong and Taiwan, slumped 43 percent to USD 4.65 billion from the previous quarter. That was also 14 percent lower from the year-ago quarter. Sales were weighed down by a sharp drop in revenues from Hong Kong. "It's not totally clear why that occurred," Cook said on a conference call with analysts.

Also Read: Samsung posts record profit; mobile growth dips

Neither is it totally clear what Apple's strategy is to deal with Samsung - not to mention a host of smaller, nimbler Chinese challengers.

Today, in the war for what both sides acknowledge is the 21st century's most important market, Samsung is whipping its American rival. The South Korean giant now has a 19 percent share of the USD 80 billion smartphone market in China, a market expected to surge to USD 117 billion by 2017, according to International Data Corp (IDC). That's 10 percentage points ahead of Apple, which has fallen to 5th in terms of China market share.

Cook said Apple planned to double the number of its retail stores over the next two years - it currently has 8 flagship stores in China and 3 in Hong Kong. But, he added, Apple will invest in distribution "very cautiously because we want to do it with great quality."

Samsung, with a longer history in China, now has three times the number of retail stores as Apple, and has been more aggressive in courting consumers and creating partnerships with phone operators. It also appears to be in better position, over an arc of time, to fend off the growing assault of homegrown competitors such as Lenovo Group, Huawei Technologies Co and ZTE Corp, former company executives, analysts and industry sources say.

Apple declined requests for comment for this article.

VARIED MODELS

Samsung's history and corporate culture could hardly be more different than Apple's, the iconic Silicon Valley start-up founded by Steve Jobs and Steve Wozniak in 1976. Lee Byung-Chull started Samsung in 1938 as a noodle and sugar maker. It grew over the decades into an industrial powerhouse, or chaebol as Koreans call the family owned conglomerates that dominate the nation's economy and are run with military-like discipline.

Apple, by contrast, became the epitome of Californian cool, an image the company revels in. That hip image translates in China - its stores are routinely packed - but hasn't been enough to overcome the more entrenched Samsung.

A stuffy electronics bazaar in the southern Chinese city of Shenzhen illustrates part of the reason why.

Samsung Galaxys and Apple iPhones of different generations sit side by side, glinting under bright display lights as vendors call out to get customers' attention. With its varied models, Samsung smartphones outnumber iPhones at least four to one.

While Apple releases only one smartphone a year, priced at the premium end of the market, Samsung brings out multiple models annually with different specifications and at different price points in China.

And those models, analysts say, are loaded with features tailored specifically for the local market: apps such POCO.cn, the most popular photo sharing site in China, or the two slots for SIM cards (Apple offers one), which allows service from multiple cell carriers, either at home or abroad.

"The Chinese just love features. They want their phone to have 50 different things that they're never going to use," said Michael Clendenin, managing director of technology consultancy RedTech Advisors. "Apple just doesn't play that game. Unfortunately, if you want to hit the mainstream market in China, and you want a lot of market share percentage points, you have to offer the Swiss army knife of cellphones."

"SETTING THE PACE"

Analysts believe Samsung's increasing strength in China is a critical reason behind its rival's possible intention to introduce globally a new and cheaper iPhone model, as well as one with bigger screens - a staple of Samsung's offerings.

Said a Samsung executive with experience in China: "We definitely think we're setting the pace there. They are having to respond to us."

Most audaciously, Samsung has gone after Apple not simply by offering lower priced smartphones, but by attacking its rival directly in the pricier end of the market. "We put a lot of emphasis on the high end market in China," co-CEO J.K. Shin told Reuters in an interview.

Samsung launched a China-only luxury smartphone together with China Telecom marketed by actor Jackie Chan that retails for about 12,000 yuan. The flip phone, named "heart to the world," is encased in a slim black and rose gold metal body. The sleek look - called "da qi" (elegantly grand) - is coveted by Chinese when they shop for cars, sofas or phones.

"There are a lot of 'VVIP's' in China, and for them we launched luxury phones promoted by Jackie Chan. This helps target niche customers and build brand equity," said Lee Young-hee, executive vice president of Samsung's mobile business.

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