Are Chinese Smartphone Makers the Real Winners of Apple v. Samsung?

Source: mi.com

The worldwide smartphone market has often been described as a two-horse race between Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK), and for good reasons. According to the latest data from market research firm IDC, the two rivals accounted for a combined 45.7 percent share of the global smartphone market. The two smartphone giants’ battle for market share is mirrored in an ongoing battle over smartphone patents in the courts. The latest major patent-infringement trial in California ostensibly ended with an Apple victory as the Cupertino-based company was awarded $119.6 million in damages, while Samsung only managed to take home $158,400 in damages. However, with monetary awards that scarcely cover the costs of litigation and a verdict that doesn’t appear to affect the sales of either company’s products, it doesn’t appear that either side emerged as a clear victor.

Meanwhile, as Apple and Samsung remain myopically focused on defeating each other, the two rivals may be allowing the smaller competitors in the smartphone market an opportunity to overtake them. Although Apple and Samsung are still clearly the biggest players in the market, both companies saw their market share shrink in the first quarter of 2014 compared to the year-ago quarter, according to IDC data. Samsung’s market share slipped to 30.2 percent from 31.9 percent, while Apple’s dropped to 15.5 percent from 17.1 percent.

During the same time period, smaller up-and-coming Chinese smartphone makers actually gained market share. Third-ranked Huawei boosted its worldwide market share to 4.9 percent from 4.3 percent, while fourth-ranked Lenovo jumped to 4.6 percent from 3.6 percent. Although Korea-based LG managed to hang on to fifth place with a 4.4 percent market share, this was a decrease from the 4.7 percent share it held last year and it may not be long before smaller Chinese competitors such as  Coolpad, Xiaomi, and ZTE overtake LG.

It should be noted that vendors in IDC’s “Others” category — which consists primarily of white box smartphone makers based in China — accounted for 40.5 percent of the total smartphone market in the March quarter, a share of the market that is almost as large as the combined share held by Apple and Samsung. Not surprisingly, the Chinese smartphone makers owe much of their success to domestic smartphone sales. However, China’s smartphone market may hold the key to Apple’s and Samsung’s continued dominance, since much of the future growth in the smartphone business is expected to come from emerging markets.

Low-cost Chinese smartphone maker Xiaomi epitomizes the threat that smaller Chinese smartphone makers present to Apple and Samsung. According to data from market research firm Canalys, Xiaomi advanced to the third place spot in China’s smartphone market for the first time in the March quarter, beating Apple with a 10 percent market share. Despite selling 97 percent of its devices in China, Xiaomi also became the sixth largest global smart phone vendor last quarter, reports Canalys. As noted by TechinAsia, the company also recently announced that it was pushing into ten other emerging markets this year as it seeks to expand beyond China.

Like many other Chinese smartphone makers, Xiaomi isn’t afraid to operate on a slender profit margin in order to secure a larger slice of the worldwide smartphone market. For these reasons, it might be wiser for Apple and Samsung to focus their resources on remaining competitive against low-cost Chinese smartphone makers, rather than battling each other over fruitless patent-infringement issues.

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