The Creeping Threat That Should Worry Apple

The Creeping Threat That Should Worry Apple
A customer examines a new iPhone 5s at the Nebraska Furniture Mart in Omaha, Neb., on Friday, Sept. 20, 2013, the day the new iPhone 5c and 5s models go on sale. (AP Photo/Nati Harnik)
A customer examines a new iPhone 5s at the Nebraska Furniture Mart in Omaha, Neb., on Friday, Sept. 20, 2013, the day the new iPhone 5c and 5s models go on sale. (AP Photo/Nati Harnik)

Apple needs to watch its back.

Smartphones from lower-cost manufacturers are eating into the company's worldwide market share, according to newly released figures from two market research firms.

Apple's market share in the last quarter of 2013 dropped to about 18 percent, down from about 21 percent in the same period the year before, according to IDC. Strategy Analytics also saw the Cupertino-based company lose share last year, down to 15.5 percent from 19.4 percent in 2012.

On the other hand, the three companies that trail giants Apple and Samsung -- Huawei, LG and Lenovo -- all increased their share of the worldwide smartphone market last year. While Samsung and then Apple still lead the global market, the combined market share of Huawei, LG and Lenovo last year was just about a point behind Apple's, according to IDC.

A big reason: cost. In developed countries, a lot of the people who can afford smartphones already have them -- as QZ's Leo Mirani pointed out Tuesday. But much of the growth is now coming from -- and will continue to come from -- emerging markets like India and China, said Ryan Reith, the program director of IDC's worldwide quarterly mobile phone tracker. Apple is certainly making aggressive moves in these countries, but lower cost alternatives to the iPhone are already abundant.

"There is clearly now more competition coming from the second-tier smartphone brands," Linda Sui, an analyst at Strategy Analytics, told Reuters. "Huawei, LG Electronics and Lenovo each grew their smartphone shipments around two times faster than the global industry average. Samsung and Apple will need to fight hard to hold off these and other hungry challengers during 2014."

Of course, the iPhone is an expensive, premium product that has high profit margins, and Apple has shown that its goal isn't to create a phone that everyone in the world can afford. Still, investors are pressuring the company to continue to show growth, and emerging markets are a natural target.

Forty-six percent of smartphones shipped worldwide in the third quarter of 2013 -- the latest period for which figures are available -- had an average selling price of $200 or less, said IDC's Reith. That's way cheaper than an iPhone, which according to IDC had a whopping $635 average selling price during that period.

The iPhone 5C, the colorful, lower-cost iPhone that was released in September, isn't actually that cheap, and reports indicate that it has not sold as well as Apple had hoped.

"Apple doesn't have a portfolio that plays toward that low-cost market," Reith said.

The latest market share figures come on the heels of earnings from Apple that disappointed investors. Even though Apple set a record by selling 51 million iPhones last quarter, that number fell short of analyst expectations. Growth of iPhone sales is flattening, leading some observers to wonder if the days of the product's explosive growth are coming to an end. Apple's stock was down 8 percent the day following the earnings call.

Samsung, according to Reith, has a better chance of grabbing some of that low-cost market. Even though the average selling price of a Samsung phone in the third quarter of last year was $373, the company also makes a number of less expensive smartphones.

"They've leveraging their brand awareness at the top to sell phones at the bottom," Reith said of Samsung.

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