The analyst Steve Milunovich from UBS said in a short note for the clients, the two events that happened recently in Chinese market showed that high-end brands of smartphones would suffer from price pressure in China.
In the first, competition from low-end mobile phone markets is becoming more intense, second, the SASAC has already asked the three major operators to reduce more than CNY 40 billion in marketing expenses in the next 3 years, including reduction in subsidies for the devices and the shutting down of VIP halls in the airport, as a reaction to cope with the adverse effects from the "replacement of business tax with value-added tax", and the requirements from "reduce the cost and improve work efficiency". Some media reported that, one of the reasons leading to the reduction in marketing expenses of the three major operators was due to their over-marketing, because the gifts-sending, fees-sending marketing strategy was getting more and more intense, especially for devices like iPhone, the subsidy for each sold iPhone reached thousands of yuan.
Nicolas Gaudois, the analyst for Asian technology industry at UBS Securities, he believes that these two factors will result in the share decline of Apple and Samsung in Chinese market. Samsung has cut down prices of some Android smartphones, hoping to win back the market share. However, he also added that 50% or even 60% of the smartphones sold through the operator channels are subsidized, now the reduction of subsidies will slow down the sales of the entire high-end market.
"Reactions from the high-end customers remain to be verified, but the reduction of subsidies would slow down the sales momentum."
According to the estimation from UBS, high-end smartphones makes up 20% of the whole smartphone sales in China, and Apple alone accounts for 33% of the sales.
By the end of the first quarter of this year, Apple sold 12 million iPhones in China, a rise of 25% compared with the same period of last year.
Samsung suffers more pressure in China, the recently released earnings preannouncement of the second quarter indicates that competition of smartphone market in China becomes more intensified, Apple takes more market share in the high-end market, while local mobile phone vendors in China attract more customers in the low-end.
However, Milunovich believes Apple's situation will be slightly better, because the launch of iPhone 6 will offset the adverse effects from slowdown of the market.