China's high-end smartphone market outlook: bright prospects, promising future

In 2022, Counterpoint data shows that China's smartphone market has bottomed out again, with annual shipments falling 16% year-on-year to less than 280 million units, the lowest in nearly a decade. Even so, the Chinese market still accounts for 22.6% of total global smartphone shipments, much higher than India's 12.4%.

Looking back, benefiting from the popularity of mobile broadband networks, the vigorous development of mobile Internet content and application ecology, and the support of high-speed economic growth, after entering the 2010s, China's smartphone market entered the fast lane, showing explosive growth in both shipments and sales, and finally, shipments reached their peak in 2016, briefly exceeding 470 million units. It was also during this period that vivo, OPPO, Huawei, and Xiaomi gradually grew into the backbone of domestic brands.

However, with the end of the incremental development period, shipments began to decline year by year, and the market shifted to a more intense and differentiated stock competition stage. Especially in the past three years, the market has been repeatedly hit by the new crown epidemic on both the supply and demand sides. In this context, more and more voices have begun to sing down the Chinese smartphone market. The new crown epidemic and the resulting lack of consumer confidence and changes in consumer behavior have undoubtedly amplified this round of recession crisis in China's smartphone market to some extent, and as China fully liberalizes epidemic control and is committed to achieving a GDP growth target of 5% by 2023, market and consumer confidence are gradually recovering, and China's smartphone shipments will usher in the first positive growth since 2016.

China's smartphone shipments and wholesale average price trends from 2012 to 2022

In addition, while smartphone shipments in 2022 decreased by 41.5% compared to the peak in 2016, sales fell by only 11.7%. Since 2014, the ASP (annual average shipment price) of smartphones in China has maintained a year-on-year growth. On the one hand, support for 4G full network communication, 5G technology, and continuous upgrading of core elements such as processors, images and displays have pushed up the manufacturing cost of smartphones; On the other hand, in the face of increasing competition, the top domestic brands are swimming against the current, seeking high quality and sustainable development, paying more and more attention to product innovation and differentiation, and constantly increasing R&D investment around long-track capabilities, such as systems, AI algorithms, computational photography, self-developed chips, etc., to build and consolidate their own technical foundation. While improving technological innovation and product research and development capabilities, domestic brands are also actively practicing social responsibility, such as developing customized functions for vulnerable groups such as the visually weak and hearing impaired, so that they can also enjoy the convenience brought by science and technology; More environmentally friendly materials are used in product design and manufacturing to reduce the consumption of resources, contribute to sustainable development and enhance consumers' awareness of environmental protection. These efforts, while bringing higher quality products and higher value services to consumers, will also help domestic brands grow healthily in the mid-to-high-end market.

In 2022, smartphone sales with a shipment price of more than $500 (equivalent to a retail price of about 4,000 yuan) in the Chinese market accounted for more than 26% of total sales, while in 2016, when the market peaked, this segment accounted for only 11%.

With more than 1 billion smartphone users, China has become the world's second largest high-end smartphone market, with nearly 70 million smartphones sold over RMB 4,000 in 2022 alone. However, compared with other high-end markets with leading sales, the Chinese market has a clear gap in terms of the proportion of high-end sales and national wealth. The report of the 20th National Congress of the Government clearly stated that by 2035, the per capita disposable income of residents will reach a new level, and the proportion of middle-income groups will increase significantly, regardless of whether the average GDP of Chinese can break through the $20,000 mark in 2035, under the general trend of China's long-term improvement and steady upgrading of domestic consumption, the average price of smart phones and the proportion of high-end will continue to grow.

In 2022, the proportion of sales volume of more than 500 US dollars and per capita GDP in major high-end markets

There is still room for smartphones to evolve in the future

For a long time to come, smart phones will remain the most important carrier of personal entertainment, consumption and social networking, and their light productivity attributes are also constantly strengthening, and there is no new technology terminal that can truly replace smart phones. The smart phone itself is also constantly evolving and upgrading, for example, the application and popularization of folding screen technology, while enriching the product form, it has brought users differentiated applications, content and operation experience. The larger screen can not only further enhance the immersion of games and videos, but also cooperate with peripherals such as stylus and mouse, as well as the rapidly developing folding application ecology, folding screen mobile phones will become the best production tool in mobile office scenarios.

China's high-end smartphones will also usher in a full range of upgrades

Over time, other key elements of high-end smartphones will also improve, including processor performance, AI computing power, imaging capabilities, and mobile bandwidth.

The latest 3nm advanced process will be mass-produced in 2023, and the next generation of 2nm process is also progressing well, TSMC plans to achieve mass production in 2025, at the same time, chip designers will develop higher performance, more energy-efficient processor microarchitectures, and even new instruction sets, thereby greatly improving the comprehensive performance of flagship SoC computing platforms, and it is expected that the computing power of high-end smartphones will be infinitely close to personal computers.

With the blessing of self-developed hardware + self-developed algorithm capabilities, head Android mobile phone manufacturers will be able to add more differentiated elements to their high-end products. Taking moving images as an example, multi-lens fusion computational photography has become a trend, and the resolution of the main camera alone has reached the order of 200 million, which undoubtedly puts forward higher requirements for related AI computing power and algorithms, and manufacturers with self-developed chips can better cope with this challenge.

Mobile connection technology will continue to evolve, relying on the advantages of large bandwidth and low latency, smart phones have both content consumption and content production, with the advent of the computing power network era, smart phones will become a super entrance to cloud applications, cloud games, cloud office and other cloud services and content. In addition, smartphones are being integrated into the ecosystem of smart homes, smart travel, and smart cities, which also means that in the near future, smartphones will become more indispensable in our lives and work.

In 2023, China's high-end smartphone market will return to more than 280 million units as a whole, and the high-end segment is expected to perform better than the market average: a year-on-year increase of nearly 5%. By 2035, the proportion of sales of both ASP and high-end smartphones will rise to a higher level, of which more than $500 is expected to reach 40%.