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Introduction Introduction China's smartphone market saw strong growth throughout 2008. Shipments rose to 23.6 million units, a 30% increase over the previous year. Smartphones accounted for 15.3% of total mobile phone shipments, up from 12% in 2007. Mobile Internet applications, GPS, and multimedia functionality were the most important drivers. In the smartphone OS marketplace, Symbian retained its leading position and saw a small share increase in 2008 due to steady growth of Nokia smartphone sales and a drop in Linux smartphone sales. The failure of Motorola, the most important supporter of Mobile Linux, is the main reason for the drop in Linux sales. However, Symbian is about to face severe competition from Android and its derivative open mobile phone operating system (OMS). Android is free, while the OMS is available for a small license fee and provides a complete smartphone software solution. A large number of mobile phone manufacturers, even some from the Symbian camp, are developing and producing Android-based smartphones. As a result, Symbian is now providing its OS and related software stack as open-source. Symbian and Android are taking different approaches to reallocating software stacks and opening source code, but the net result is that the barriers to market entry will be significantly lowered. In the past, Symbian set high barriers for would-be smartphone manufacturers, requiring them to use its OS and license the UI/middleware layer (for example, Nokia's S60) from other vendors, a rather long and difficult process. As for the other market players, Microsoft Windows Mobile has a high per-license cost and Linux, while free, requires significant upfront investment to adapt it to a smartphone platform. Symbian's and Android's strategy will drastically reduce barriers to entry by providing a complete and royalty-free smartphone software platform. The smartphone market will become more competitive, prices will fall, and innovation will lead to improvements in business models, industry chain innovation, services and device convergence, and the creation of consumer need. Lower barriers will strongly fuel FOR INTERNAL REVIEW ONLY C hina's smartphone market overall, and the effects will be visible by the end of 2009. The turnkey chipset platform solutions from HuaWei and MediaTek are another important factor in lowering market entry. They will shorten product time-to-market and reduce the risk of "grey" or local smartphone manufacturers being drawn into the market. Add to this higher mobile bandwidth from 3G services and thriving mobile applications, and In-Stat predicts that the compound annual growth rate of China's smartphone market will be 25% through the period 2009 to 2013. Figure 1. China's Smartphone Market Shipment Forecasts, 2009–2013 In This Update Introduction 1 Definitions 5 Overview 6 Market Shares 6 Design Trends 8 Smartphone Value Chain Analysis 10 Smartphone OS Market Trend Analysis 10 Smartphone Chipset Platform Market Trend Analysis 17 Drivers and Barriers 19 Lower Entry Will Fuel Market 19 3G Brings Higher Bandwidth 21 Thriving Mobile Applications a Significant Driver 24 Battery Life Lags 25 Market Forecasts 26 Methodology 27 List of Tables Table 1. Operator 3G Network Deployment and Devices Strategy 22 Table 2. China's Smartphone Market Shipment Forecasts, 2009–2013 (in Millions) 26 List of Figures Figure 1. China's Smartphone Market Shipment Forecasts, 2009–2013 2 Figure 2. China's Smartphone Market Shares, by Vendor (2008) 7 Figure 3. Key Nokia Smartphone Launches (2009) 7 Figure 4. Key Dopod Smartphone Launches (2009) 8 Figure 5. Smartphone Design Trends 9 Figure 6. China's Smartphone Market Shares, by OS (2008) 10 Figure 7. Smartphone OS and Manufacturer Matrix 11 Figure 8. Symbian Foundation Offering 12 Figure 9. Android Platform Architecture 13 Figure 10. Microsoft Windows Mobile 6.5 User Interface 16 Figure 11. Free Symbian Software Platform 20 Figure 12. Android and Traditional Linux Comparison 20 Figure 13. MTK and HuaWei Turnkey Smartphone Solution 21 Figure 14. China's 3G Subscriber Forecasts, by Operator (2009–2011) 23 Figure 15. Main Problems Using Phone-Based Mobile Internet Applications 23 Figure 16. Most Commonly Used Phone-Based Mobile Applications 24 Figure 17. China's Smartphone Market Shipment Forecasts, 2009–2013 26 Definitions A smartphone is a mobile phone that uses a recognized operating system (OS). These include Mac OS, Microsoft Windows Mobile, Symbian, Mobile Linux (including Google Android), RIM OS, and Palm OS. The Open Handset Alliance (OHA) is led by Google and is an alliance of dozens of companies focused on developing open software platforms for mobile devices. Members include HTC, Intel, Motorola, Qualcomm, Texas Instruments, Samsung, LG, T-Mobile, Nvidia, and Wind River Systems. Android is a free mobile software platform that includes the Linux kernel, an application development framework, and various core applications. It was initially developed by Google and later by the OHA. The open mobile phone operating system (OMS) is a version of Android developed by Borqs Inc. for use with mobile devices in China. Smartphones that run OMS and are customized by the China Mobile Corp. are called Ophones. A user interface (UI) is the means by which users interact with a device, including input and output. Middleware is a software bundle that connects software components or applications; it is usually located between the operating system and the application software. Overview Mobile Internet applications, GPS, and multimedia functionality drove the development of China's smartphone market throughout 2008. Of the thirteen smartphone models Nokia launched in 2008, ten had integrated GPS-enabled chips. Also, In-Stat estimates that 14% of all smartphones shipped in China in 2008 were equipped with GPS, and the percentage continues to rise. Mobile Internet applications for web surfing, location-based services, instant messaging, and mobile online gaming are another crucial market driver, as is the commercial launch of 3G networks in China, which will greatly improve the user experience for mobile Internet applications and further boost the smartphone market over the next two years. Functionality has become the most important consideration for China's 130 million mobile Internet users in buying a new mobile phone. Features such as GPS, high-resolution cameras, display size and resolution, and video codec have become more important than price. Smartphones with rich and advanced functions are the first choice for this consumer segment. Market Shares Nokia continued its dominance of China's smartphone market in 2008 and currently enjoys a 68.7% share. The company has been broadening the smartphone concept by adapting the powerful Symbian OS to different mobile phone series for specific consumer segments. Its top-selling N series features advanced and powerful functionality, its 5 series is designed for music lovers, and its 6 series and E series are for business users. This strategy has led to significant increases in sales. Nokia has also been concentrating on the communication functions of its mobile phones. In response to stiffer market competition and the emergence of connected services promoted by Apple and Google, the company launched its first touchscreen smartphone (the 5800XM) and an application store (the Ovi Store) in 2008. Nokia will certainly lose market share due to its increasing number of competitors, but its sales growth should remain steady. Figure 2. China's Smartphone Market Shares, by Vendor (2008) Nokia's plans call for the release of about 15 smartphone models between now and the end of the year, including new phones in the 5, 6, N, and E series. Figure 3 shows some key products. Figure 3. Key Nokia Smartphone Launches (2009) Dopod's share of China's smartphone market grew markedly in 2008, to 5.5% from 2.8% the previous year. The company's corporate parent, HTC (based in Taiwan), is a leader in the design of high-end smartphones and has designed a successful range of customized smartphones for European and U.S. operators. In China, Dopod is focused on the high-end market and has produced numerous phones with appealing features such as TouchFlo technology and innovative design. The company's selection of Windows Mobile as its main smartphone OS has also contributed to its success because Chinese consumers are familiar with Windows operating systems from their personal computers. Since the middle of 2007, HTC has also been China's most enthusiastic supporter of Google's Android OS and released its first Android-based model -- the T-Mobile G1 -- in September 2008. Supporting Android is a solid strategy and will certainly drive further sales growth in China. Dopod also does handset customization for China Mobile, which is helpful in improving its shipment volume. Figure 4 shows the key smartphone models Dopod will launch in 2009. Figure 4. Key Dopod Smartphone Launches (2009) Motorola's worldwide mobile phone market share has been declining since 2006 because of internal problems and a failure to follow developing industry trends. As of the end of 2008 its market share had slipped to a fourth-place 8.5%, below Nokia, Samsung, and LG. Motorola has not produced any compelling products since its RAZR and Ming series and has been slow to adapt to the popularity of GPS, music, and cameras in mobile phones. It has also abandoned Linux and reduced its software platforms to three, namely Windows Mobile, Google Android, and low-end real-time OS. However, the company has a new smartphone series coming soon and In-Stat believes Motorola will see the bottom in Q4 2009 and begin to regain market share in 2010. By focusing on fashion and special texture ID design, Samsung and LG have seen strong market share growth in China's smartphone market. Moreover, both are working hard on producing Android-based models and customized phones for Chinese operators.
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