Apple losing ground in China

As we predicted, Apple is losing ground in the Chinese market.

According to Gartner analyst CK Lu, Apple’s slice of China’s booming smartphone market slipped for a second straight quarter in October-December.

The problem is that Apple is refusing to change its business model in the highly competitive Chinese market and is losing its ground to cheaper local brands.

Behind the bamboo curtain, Cupertino is facing cut-throat competition from South Korea’s Samsung, Nokia, and local firms Huawei and ZTE.

Apple has slipped to a dismal fifth place in China, overtaken by ZTE, and its share of the China smartphone market share slid to 7.5 percent from 10.4 percent in July – September.

Samsung is winning in China, which knocked Nokia from the top spot, taking 24.3 percent of the market, more than three times Apple’s share.

Nokia is suffering a bit having lost half of its market share above 40 percent in the first quarter to below one fifth by the fourth quarter.

CZ Lu said that Chinese handset makers have been actively promoting their smartphones with China’s three telecoms operators, and ZTE and Huawei gained significant market share.

Gartner expects things to get worse for Apple for at least the next couple of quarters. The company was only able to make a limited impact in this quarter because of the release of the iPhone 4S which just made it to China. The novelty of the new phone is dropping quickly, he noted.

Since the beginning of the year, ZTE had a market share of just three percent, but ended 2011 ranked 4th with over 11 percent market share. It looks like this company is replacing Nokia in the “cheap and cheerful” market while Samsung is killing Apple at the higher end.

Jayesh Easwaramony, an analyst with Frost & Sullivan in Singapore, told Reuters that Apple had ignored the rule of thumb which worked in China. That is that a handset price has to be close to 70 percent of the monthly salary. An iPhone is more than two months which effectively kills it stone dead.

Meanwhile, Huawei and ZTE have the opportunity to cater to a mass market that is captivated by the iPhone, but doesn’t have the purchasing power for it.