The Future of Consumer Hardware Belongs to the Chinese

I’m sharing a scenario, one I’m not certain will play out, but an interesting one to propose and think about nonetheless. What if the vast majority of global market share of computing devices belongs to Chinese OEMs? Huawei, Xiaomi, Oppo/Vivo are making global moves and continue to take share from Samsung. It is like we are watching a saga unfold before our eyes where a host of Chinese OEMs are chipping away at Samsung’s quarterly smartphone sales each passing quarter.

Samsung is very likely on its way to losing the crown of #1 smartphone vendor by sales annually to Apple in 2016. I don’t see their downward spiral recovering. Their unit sales of between 70-80m units will be chipped away at by a number of Chinese OEMs in the low and mid-tier and Apple on the high end. To paint the picture as of today, here is my modeling for Q3 2013 of the top smartphone vendors by volume.

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For the past few quarters, Chinese OEMs have made up over 40% of the total smartphone volume and I expect this to rise. Huawei is on pace to be the first Chinese OEM to pass 100m unit sales annually and only the third smartphone vendor to ever do it. Huawei is inserting itself as a global player. They rank highly in several markets besides China and are rising in many of the segments they compete. What intrigues me about this dynamic is it seems the model proving successful for scale in smartphones is tonscale in China then go global. Huawei did this and Xiaomi is attempting it. Oppo/Vivo grew in China and is now going global. With the size of the China smartphone market (between 90-100m smartphones per quarter at present), brands that grow and scale there are well positioned to go global. We can argue whether Huawei or Xiaomi are the Chinese OEMs of the future but I have a growing conviction whoever it is, they will come from China.

The follow-up question to this is, can this same dynamic play out in other categories? Several of the names mentioned above intend to bring PCs and more capable computing tablets in the shape of 2-in-1 PCs to market over the next year. These devices are not designed to compete with Dell or Lenovo in more commercial markets but are squarely going after consumer markets in China, India, Indonesia, and others where we see some signs of life for PC growth. Whether successful or not, they are clearly going after PC hardware designs and I bet it doesn’t stop there. What about large panel TVs (after all, a tablet is a small panel TV)? I’ve seen some pretty amazing TVs from China OEMs and it seems just a matter of time before they expand globally and take out Sony and Samsung.

Add all this together and I can make a strong case that Chinese brands will gain significant market share in smartphones, PCs/tablets, and TVs. All devices people spend a great deal of time with. While they likely won’t own the software, they will make a run at the services layer. To penetrate global markets, these brands may also integrate tightly with local players. For example, TCL has partnered with Roku as a part of their US strategy. Expect to see more of this when the Chinese manufacturers make a push in TVs.

China is good at putting together quality components, they are getting better at design and, while marketing is still a challenge, I bet they get better at that as well. The US may be a tougher time for many of them but it’s a big world out there and globally they can own significant share in all these categories. Given their ability of massive scale, quality goods, and low-price, you can argue they are as well positioned as anyone to compete for the 3-4 billion consumers who will purchase these products and for whom price is a factor due to their lower annual income.

One question I’ll also throw in (if I don’t, it will come up in the comments) is, where does Apple fit in this? I personally don’t see the Chinese OEMs impacting Apple in any real way due to the emotional element of the Apple brand and products. In markets where that doesn’t exist, like India, or in categories with less emotional attachment because they are appliances, like large glass TV screens, are where I expect the Chinese to succeed. Specifically in markets where price is an issue due to lower-income customers. In fact, I can build a strong argument that, once Apple takes the #1 spot in annual smartphones sales from Samsung, they hold on to that crown for quite some time. There may not be one Chinese OEM who sells 200-300m smartphones each year but instead many smaller ones doing anywhere from 50-150 per year. Similarly in other categories, there may not be just a few dominant OEMs but market share divided up among many.

I’d love to see more companies compete in consumer hardware but, as I pointed out here, it is tough, risky, and most VCs I work with aren’t much interested in hardware companies. China OEMs have a lot of advantages, ones I’m convinced set them up for scale, quality, and low prices in nearly every category they decide to go after. Essentially, I’m laying out a future where it’s pretty much just Apple and Chinese manufacturers in consumer hardware. I’m becoming more convinced that it’s likely this is how the consumer tech hardware market plays out.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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