The ranking of the world’s top five smartphone manufacturers underwent a rapid shift this quarter as Lenovo’s (LNVGY) purchase of Motorola Mobility from Google (GOOG) became official.
In its Q3 sales report, IDC had Lenovo in fourth place based on smartphone market share, as another Chinese vendor — Xiaomi — broke into the top five for the first time on the strength of impressive performance in its rapidly growing home market.
Just one day later and the Motorola deal adds that company’s sales numbers to Lenovo’s. This means Lenovo’s market share for Q3 jumps from 5.2% to 7.4%, leapfrogging it past Xiaomi (5.3%) after just one day at number three.
While Apple (AAPL) and Samsung (SSNLF) remain at the top of the smartphone food chain, competition below them is intense and their overall piece of the pie continues to shrink. With Lenovo and Xiaomi in the top five (with a third Chinese company — Huawei — just nudged out by LG), it’s becoming clear that China and emerging markets are becoming the driving force in smartphone sales. And Chinese companies are clearly in a position to take advantage of the situation.
Here’s an overview of the current top five smartphone vendors, along with their prospects for remaining among the top dogs in the coming year.
Smartphone Market Share Leaders: LG (No. 5)
LG has been one of the most consistent players in the smartphone market.
The South Korean company has always kept a balanced portfolio of low-cost smartphones for emerging markets, and flagship models for the U.S., like the new LG G3.
LG’s smartphone sales grew 39.8% compared to Q3 2013 — within a few hundred thousand units of of the No. 4 company. And at 5.1% smartphone market share, LG is within spitting distance of where it stood in 2011.
In other words, LG has found a formula that works and it’s maintaining its position as a top-five vendor while seeing impressive sales growth. I wouldn’t expect to see it stumble (or surge) in 2015.
Smartphone Market Share Leaders: Xiaomi (No. 4)
Xiaomi only released its first smartphone in late 2011, but has already broken into the top five vendors after growing its sales 211.3% compared to Q3 2013.
The company has managed such rapid success by targeting its home market of China, offering high-quality devices (its Mi4 flagship is a 5-inch model with a stainless steel frame and specs that rival premium smartphones sold in the U.S.) and selling them near cost.
Because Xiaomi plans to sell models for longer than the 6-12 month cycle competitors typically use, its margins improve over the lifespan of a phone (as component costs fall). It also sells online exclusively (no retail overhead) and offers its own line of accessories to increase the profitability of its mobile devices.
It’s doubtful Xiaomi can keep up this pace of growth for much longer, but it is on track to remain a dominant player in China and emerging markets.
If Xiaomi can get models like the $399 Mi4 picked up by U.S. carriers, it could challenge Lenovo to regain third place in smartphone market share.
Smartphone Market Share Leaders: Lenovo (No. 3)
A Chinese PC maker bought IBM’s (IBM) PC business in 2004, leveraging that company’s popular ThinkPad notebook line — along with its own PCs that were popular in China — to power its way into becoming the world’s No. 1 PC vendor.
That Chinese PC maker was Lenovo, and it’s repeating that same strategy with smartphones.
Already a top seller in China and emerging markets, its purchase of Motorola Mobility from Google gives Lenovo a brand name known in the U.S. for producing successful premium smartphones like the flagship Moto X.
Quoted by Bloomberg News, Lenovo’s CEO said, “We want to become the leader in the smartphone and mobile devices area.”
The company is now well positioned to do just that and begin to take a serious run at the top two companies by smartphone market share.
Smartphone Market Share Leaders: Apple (No. 2)
Apple has seen a steady erosion of its smartphone market share in the face of relentless competition from smartphones running Google’s Android operating system.
After hitting 20% in 2011 (the same year Samsung zoomed past Apple to take top spot), the iPhone has continued to set sales records, but Apple has been outpaced by overall growth in the smartphone market.
The Q3 2014 numbers show exactly how that effect is watering down Apple’s smartphone market share. Despite selling 16.1% more iPhones this quarter than it did in Q3 2013, overall growth of the smartphone market meant Apple slipped further in the standings, from 12.9% the previous year to 12% this year.
Unlike Samsung, Apple’s iPhone profits aren’t under siege — at least not yet. But Apple’s margins are under pressure, and despite booking a ton of iPhone 6 orders in China, Apple lacks a budget phone to capture mass market sales in China and India.
Look for its smartphone market share to continue a slow slide in 2015, probably shedding another percentage point or two.
Smartphone Market Share Leaders: Samsung (No. 1)
Samsung took control of the top spot from Apple in 2011, peaking at 32.2% in Q2 2013 on sales of the Galaxy S4 and Galaxy Note 3.
However, Samsung has struggled since then. Galaxy S5 sales were disappointing, other smartphone manufacturers ( including Apple) came after the phablet market Samsung once had largely to itself, and its bottom tier devices have performed poorly in China.
As a result, Samsung mobile profits were off 74% in the last quarter, its smartphone market share is down to 23.8%, and the company is vowing to revamp its entry level and middle-range smartphones in an attempt to fight off Chinese competitors.
Unless the Galaxy S5 successor steps up the design effort to better compete against flagship smartphones in the U.S. market, and the company is able to seriously cut costs on phones destined for China and emerging markets, Samsung is likely to continue sliding in 2015.
SSNLF may not lose its crown next year (it does still hold a double-digit lead over second place), but it needs to turn things around if it wants to be on top for more than a few years.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
