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Bill Bennett

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Phones – less choice than you might think

Last week LG said it will get out of the mobile phone business.

When the company’s phone business peaked in 2013 LG was the third largest player.

It’s doubtful anyone in New Zealand will miss LG. The brand had been close to invisible in this country for the last five years.

State of the mobile phone market

LG’s departure is a good time to step back and take a fresh look at the shape of the phone industry in 2021.

It may look healthy on the surface. Up-to-a-point the market appears competitive.

Yet the phone sector is less vibrant than you might think.

A two horse race

Two companies; Apple and Samsung dominate the mobile phone market. No-one else comes close.

Another two companies might like to think of themselves as challenger brands. But that’s unrealistic.

If you follow the phone market you may have heard of BBK and Xiaomi. Take it as read that more than nine out of ten potential buyers in New Zealand would not be able to name them.

Chinese phone makers

BBK and Xiaomi are Chinese phone makers.

You won’t find Xiaomi in Spark, Vodafone or 2degrees stores. The phones sell here through stores like PB Technology.

Even seasoned phone fans struggle to recognise BBK. It is the Chinese company behind the Oppo phone brand. BBK is an entire stable of brands including OnePlus, Vivo and a handful of names we don’t see in New Zealand.

A cloud over Huawei

China’s best known phone brand is Huawei.

Until 18 months ago it was the world’s third top phone maker.

At that time Huawei was almost on a par with Apple and Samsung. It sold more phones than Apple, albeit cheaper mass market models.

Huawei’s technology and phones were ahead of its other rivals.

Banned

Then the US government banned American technology companies from selling to Huawei.

Among other things, that means Huawei phones can no longer use Google services. The company’s home grown alternatives are a pale imitation of the orignal.

Now there is a cloud over Huawei. Its phones continue to sell in China, elsewhere it is out of serious contention.

There’s no hint the US government will take similar action against BBK or Xiaomi. Yet we can’t rule it out.

It’s an Apple and Samsung world

In recent years Apple and Samsung accounted for four out of five phone handsets sold in New Zealand.

Their success with premium models mean they take an even larger share of the money spent on phones.

Apple invented the modern mobile phone when it released the first iPhone in 2007. It remains the most important phone maker. That’s not about to change. We’ve seen 14 years of headlines claiming there are iPhone killers, nothing has come close.

More important, Apple has the best customers. They are loyal and prepared to pay for a quality product.

Apple may sell fewer phones than Samsung, but it is the only phone maker making healthy profits. This fuels product development. There’s a virtuous circle that means the company can stay ahead of rivals.

Samsung the scale player

Samsung may make more profit selling phone components to Apple than it makes from its own hardware.

The company survives in the phone business because it has unmatched scale. Samsung’s margins are smaller than Apple’s. To a degree that is offset by selling more units.

Samsung is a large, sprawling business with many parts. Its economics can be complex. Yet there is more going on beneath the surface than might be obvious at first sight.

Earlier this year Spark announced it would be working with Samsung to build 5G networks. Its handset business gave it a clear leg-up in telecommunications infrastructure. And the brand recognition helps.

Choice beyond the big four

Any discussion about the phone market generates questions about other brands. Where are Nokia and Google’s Pixel phones in this picture? Sony and Lenovo (Motorola) remain active. Another company, Transsion, makes less powerful phones for countries in the developing world.

The simple answer is they all have a tiny market share. Taken as a group they don’t account for more than a few percent of total sales.

Yes, they make decent hardware. Yes, Nokia offers the best Android experience. But in market terms, none of these other players are important.

Not that competitive

While the market appears competitive from a customer’s perspective, that’s not the reality.

Chances are when you next choose a phone, you’ll be looking at no more than three possible phone makers. Less if you feel locked into iOS or Android.

Any of the names mentioned above, other than Apple, may decide it can no longer thrive in this market at any point.

From a consumer point of view, Samsung looks as unassailable as Apple. Yet it may decide there are better margins to chase elsewhere. There may be better uses for its capital expenditure.

This can change overnight. Apple disrupted the phone market with the iPhone in 2007. A similar disruption could do the same. Yet, it doesn’t feel as if there is anything out there likely to have the effect.

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