The world’s largest smartphone market is in serious trouble. According to the research company IDC, in China in the second quarter, phone shipments fell by 14.7%. And multibillion-dollar industry pillars such as Xiaomi Corp., Vivo and Oppo are reporting steep sales declines. From the report: Many factors caused the drop, including the strict Covid Zero policy that torpedoed demand, but the bigger issue is one that smartphone makers in the country have long feared. China’s more than 10-year smartphone boom, fueled by new buyers and continuous upgrades, is likely coming to an end. China aspired to become a mobile nation a decade ago. It used public capital to build 4G base stations in almost every village, allowing brands like Oppo and Vivo to sell fancy devices to hundreds of millions of people in rural areas, most of whom have never tried a touchscreen. Apple, Samsung Electronics and Motorola have chased tech-savvy city dwellers with more expensive options. (Though the latter two quickly fell out of favor due to product flaws, marketing missteps, and geopolitical pressures.)
More recently, smartphone makers saw an opportunity as China moved toward advanced 5G networks. But few saw that trouble was already brewing. The key problem is that China’s huge smartphone market has become very saturated. At the end of last year, the country had more than 1.6 billion active mobile phone accounts, compared to a population of 1.4 billion. The penetration rate is well above the global average and has led to fierce competition. The need to replace phones also decreased. The life cycle of smartphones is getting longer and can be stretched if the economy is not doing well. The cost of 5G service has pushed many people in China to simply keep their proper 4G subscriptions.