Made in China: Four horsemen of the iPhone apocalypse
Today it's the $100 value handset. Tomorrow it will be the $200 premium smartphone. There's nothing left for the traditional device OEMs with those kind of margins. Huawei, ZTE, Xiaomi and Lenovo are coming, and Apple and Samsung can't stop them.
The cheaper iPhone SE can't be blamed for all of this, though. While the $400 or $500 iPhone SE is still cheaper than the iPhone 6S and iPhone 6S Plus, it still is considerably more expensive than Android phones being made in China serving its domestic market, which can go for half the price of an iPhone SE, or even less.
You see, China is increasingly important to Apple because it is one of the few smartphone markets that is not entirely saturated and has potential for additional growth. It is a nation of 1.37 billion people, which is roughly seven times that of Western Europe (191 million), or over four times that of the United States (324 million).
In China, the iPhone is a highly coveted luxury that most people cannot afford, In fact, the country is rife with look-alike products that run on Android, many of them actually fairly well-engineered, such as the Meizu Pro 6, which looks like an iPhone 6 and a Samsung Galaxy S6 had a tryst and produced a love child.
But Meizu is not the industry leader in China. Far from it. Huawei, ZTE, and Xiaomi -- and now Lenovo, which owns Motorola's mobile brand -- are the four titans controlling that country's smartphone output and the lion's share of their domestic mobile industry.
And make no mistake about it -- the phones these companies make at the high-end are almost as good as what Samsung or Apple makes from a component perspective and are on par when it comes to manufacturing quality. And they can do it for half the price.
For example ZTE's Axon 7, which launches globally this month, is a lot of smartphone for $399. It sports a QHD display, a Qualcomm Snapdragon 820 SoC, 4GB of RAM, 64GB of storage with microSD, a 20MP camera with dual LED flash, a fingerprint scanner, and 802.11ac Wi-Fi.
A comparable unlocked GSM Samsung Galaxy S7 costs over $150 more. An international iPhone 6S 64GB unlocked is about $800.
Eighty percent as good for half the price? If I was Apple, I would be extremely concerned about my prospects in China. And if I was Samsung, LG, or HTC I would be thinking about the longevity of their smartphone business in China overall.
If the idea of a $400 super-premium smartphone is cause for worry for Apple's investors, then what about a $300 one? Or a $200 one?
Sounds crazy? It isn't.
It starts with the low-end handsets in export markets like the United States, Europe, South America, Africa, and India. A few months ago I was singing the praises of Huawei's Honor 5X, which is a sleek-looking Android handset with entry-level specifications. It costs $200.
Nobody who is used to playing with an iPhone 6 or a Samsung Galaxy is going to fawn over the thing. But that's not the point -- first the low end of the market erodes, and then it eats away at the high-end.
If these guys can make an entry-level smartphone for $99, you can bet they can make a high-end device for $199, especially if they use SoCs with domestic designs, like the Mediatek processors and the Kirin 955 that is used in the Huawei P9.
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