Apple (AAPL, Financial) has had a good gig so far, but the situation may not be the same in the future. With each passing quarter, more and more players are eating into Apple’s market share. This doesn’t necessarily mean Apple’s shipments are falling. Rather, with the addition of new players, the total shipments of the market are increasing and as a result Apple’s share is getting diluted. The gradual decrease in the company’s hold over the market is being seen as a warning and industry experts and analysts are concerned about this trend.
The Problem of Declining Market Share
According to the data provided by International Data Corporation (IDC), the Cupertino giant shipped 43.7 million smartphones during the first quarter of 2014 (1Q2014), resulting in a year on year 16.8% jump in shipments. At the end of the quarter, Apple had a market share of 15.5%. So, this is good right? Well, if you look at the prior year period’s market share, then no. Though Apple shipped more smartphones during 1Q2014, its market share dropped from 17.1% to 15.5% and this happened mainly because the smartphone universe grew by 28.6%. Since Apple was not able maintain the market’s growth rate, it fell short.
| Top Five Smartphone Vendors, Worldwide Shipments, and Market Share, Q1 2014 (Preliminary Results, Units in Millions) - Year on Year Figures | |||||
| Vendor | 1Q14 Shipment Volumes | 1Q14 Market Share | 1Q13 Shipment Volumes | 1Q13 Market Share | Year-Over-Year Change |
| Samsung | 85.0 | 30.2% | 69.7 | 31.9% | 22.0% |
| Apple | 43.7 | 15.5% | 37.4 | 17.1% | 16.8% |
| Huawei | 13.7 | 4.9% | 9.3 | 4.3% | 47.3% |
| Lenovo | 12.9 | 4.6% | 7.9 | 3.6% | 63.3% |
| LG | 12.3 | 4.4% | 10.3 | 4.7% | 19.4% |
| Others | 113.9 | 40.5% | 84.2 | 38.5% | 35.2% |
| Total | 281.5 | 100.0% | 218.8 | 100.0% | 28.6% |
| Source: IDC Worldwide Mobile Phone Tracker, April 30, 2014 | |||||
Now, let’s look at the situation using sequential data. Unlike YoY, QoQ Apple’s shipments dropped by 14.3% and market share dropped 240 bps. The primary reason for the drop in shipments can be traced back to the holiday season. The demand during 4Q2013 was exceptionally strong thanks to Thanksgiving, Christmas and New Year.
| Top Five Smartphone Vendors, Worldwide Shipments, and Market Share, Q1 2014 (Preliminary Results, Units in Millions) - Quarter on Quarter Figures | |||||
| Vendor | 1Q14 Shipment Volumes | 1Q14 Market Share | 4Q13 Shipment Volumes | 4Q13 Market Share | Sequential Change |
| Samsung | 85.0 | 30.2% | 82.0 | 28.8% | 3.7% |
| Apple | 43.7 | 15.5% | 51.0 | 17.9% | -14.3% |
| Huawei | 13.7 | 4.9% | 16.4 | 5.8% | -16.5% |
| Lenovo | 12.9 | 4.6% | 13.9 | 4.9% | -7.2% |
| LG | 12.3 | 4.4% | 13.2 | 4.6% | -6.8% |
| Others | 113.9 | 40.5% | 107.9 | 37.9% | 5.6% |
| Total | 281.5 | 100.0% | 284.4 | 100.0% | -1.0% |
| Source 1: IDC Worldwide Mobile Phone Tracker, April 30, 2014 | |||||
| Source 2: IDC Worldwide Mobile Phone Tracker, January 27, 2014 | |||||
From the above figures it’s pretty clear that Apple is going through a rough patch even if its shipments are decent. For some time now Samsung (SSNLF, Financial) has been the market leader and with each quarter even its market share is dropping. But, at least for the Korean giant, shipments have witnessed growth each time.
The Upcoming Chinese Players
While Samsung has been a threat for the company for years now, Apple is not losing its market share to Samsung only. A huge chunk of its market is being eaten up by the upcoming Chinese phone makers such as Huawei and Lenovo (LNVGY, Financial). Apart from the two, Xiaomi, another China based phone maker, is eating into the iPhone maker’s profits.
Huawei is a player that has displayed substantial improvement in its offerings and thanks to that it has been able to make it among the top smartphone makers in China, the world’s largest smartphone market. During 1Q2014, Huawei shipped 13.7 million smartphones, up 47.3% over prior year period and during the same time its market share surged by 60 bps to 4.9%. Looking forward, the company expects to sell as many as 100 million smartphones during 2014, and plans to shift its focus to the high-end phone market. With this move the company will be in direct line of competition with Apple and Samsung.
Xiaomi is another player which is attracting huge consumer attention with its low-cost yet high spec smartphones that is giving Apple a run for its money. So far Xiaomi was only confined to Mainland China, Hong Kong, Taiwan and Singapore, but recently the company announced plans of going global. In China, Xiaomi ranks among the top phone makers and above Apple. Its flagship offering Mi3 Phone is among the best selling devices in the country and is preferred over the iPhone because of its pricing and features.
Last year, during the fourth quarter, the company shipped as many as 7.3 million smarphones in China, as against Apple’s 7 million, and during the first quarter of this year the company sold 11 million phones. After this, the company also stretched its sales estimates to 60 million for the year, and 100 million by 2015. This upcoming Chinese player makes phones powered by Google (GOOG, Financial) Android, but uses a more customized version of the OS which it calls MiUi. By the end of the year, Xiaomi plans to sell its devices across 10 geographies that include India, Brazil, Russia, Indonesia, Malaysia, Mexico, Philippines, Thailand, Turkey and Vietnam.
Lenovo displayed the highest year on year jump as its shipments surged by 63.3% and market share shot up 100 bps to 4.6%. The company is also looking to buy Motorola from Google and strengthen its product offerings. Lenovo has also made its mark in the tablet market thanks to its cheaper and resourceful offerings.
Departing Thoughts
As these Chinese phone makers work to move up the ladder they will continue to eat into Apple’s share of the market. Each of these players is good at what they do and in their domestic market they have beaten Apple outright, and once these players go global, Apple might be pushed out of the top 5 spots. However, this doesn’t necessarily mean Apple will sell fewer phones. These new players will only push up the overall shipments causing the universe to expand and thus just dilute Apple’s share.
In simple words, looking at market share, unless Apple is able to expand its market or display growth in parity of the overall market, it will continue to lose market share and thus should worry. But if Apple is looking at sales, it probably shouldn’t worry much about these new entrants since the demand for its products is brand driven and focuses on a particular class of buyers. These buyers will continue to buy Apple devices because of the brand value they get.
