From: http://www.nytimes.com/2010/06/15/technology/15iht-rtechmobile.html?scp=9&sq=smartphone&st=Search
By WAYNE ARNOLD
PHUKET, THAILAND — Judging from the hullabaloo this month over the latest iPhone, one might think the center of the world for so-called smartphones is at Apple’s headquarters in Cupertino, California. In fact, it may be somewhere closer to Beijing.
China is already the world’s largest market for cellular phones, with an estimated 700 million people using them, more than double the population of the United States. Now Asia, and China in particular, is poised to transform the market for smartphones, those devices that combine cellular phones with e-mail, Web surfing, and myriad other applications that rely on high-speed wireless connections to the Internet.
China and its neighbors have been slower in rolling out the networks necessary to make smartphones, well, smart. Now that those systems are up and running, though, smartphones are taking off, and manufacturers are jumping in to cater to what analysts and industry executives predict will rapidly become the biggest market for the devices.
“We’re convinced we have to be a leader in China,” said Bin Shen, head of mobile devices and device product management in China and South Korea at Motorola. “China is going to lead global growth in smartphone adoption.”
That has heavy implications for an industry whose product design cycle has traditionally moved in a westerly direction from the affluent United States to emerging Asia. Smartphones are still new enough that Asia’s dominance as a marketplace could reverse that, with phones designed for Asian consumers finding their way eventually to the West.
Even sooner, the battle for market share in Asia could trim the profit margins that have made smartphones such a feast for the likes of Apple, Nokia and Research In Motion, or RIM, maker of the BlackBerry.
Sales of smartphones globally grew almost 50 percent in the first three months of this year, according to the research firm Gartner. Profit margins at Apple and RIM, meanwhile, are still more than 40 percent.
Asia already accounts for as much as one-third of the global smartphone market, and analysts estimate that smartphone sales in Asia will expand fourfold by 2015.
With lower incomes, Asians adopted inexpensive text messaging earlier than most U.S. cellular users, so many are already accustomed to reading on their phones more than talking. That makes them natural adopters of smartphones as incomes rise and prices fall.
And while the smartphone competes with the PC in the West, in Asia the smartphone offers personal Internet access to a population for whom surfing the Web often still means traipsing down to the local Internet cafe. As a result, Asian consumers appear to be willing to pay greater portions of their disposable incomes for smartphones.
That also means they expect more for their money.
The Asian market for devices has long been more competitive than those in the United States and Europe. Handsets are generally not locked to one operator, meaning that a consumer can buy a handset and use it with whatever operator gives the best deal.
For manufacturers, that requires offering different phones for different budgets, a requirement that makes Apple’s iPhone a luxury only the wealthiest can afford.
“People buy the iPhone because of the image it projects,” said Aloysius Choong, an analyst at the market research firm IDC. “Ultimately, mobile phones are aspirational. As you move up in society you’ll be looking for a phone that matches your status.”
The iPhone’s sex appeal has translated well in Asia. Outside Japan, where domestic manufacturers remain strong, its market share in smartphones is second only to that of Nokia across the region, according to Gartner. Globally, the BlackBerry remains No. 2.
The iPhone’s Asian success has come despite unusual challenges in China. When the cellular industry was vying to set standards for high-speed, cellular Internet connections, China elected to back its own standard so it would not rely on a foreign technology.
Now, the largest operator in China, the government-controlled China Mobile, offers cellular Internet access over a standard on which the iPhone does not work.
Apple has been able to sell the iPhone only through the second-largest China operator, China Unicom, which is also controlled by the government.
Failure to build an iPhone for China Mobile’s network has separated Apple from that company’s 544 million customers.
Other manufacturers have been more accommodating, though. To head off Apple’s tie-up with China Unicom, China Mobile last year introduced the OPhone, a breed of smartphones based on Google’s Android operating system. No fewer than seven manufacturers agreed to make OPhones. Now China Mobile offers at least 200 different models of smartphones.
Three of the OPhone makers are personal-computer companies — Acer, Dell and Lenovo. Together with Hewlett-Packard, PC makers have identified smartphones as a threat to PCs — so much so that last November Lenovo repurchased a handset unit it had spun off less than two years earlier. In April, H.P. bought the smartphone maker Palm to vault into a market where its own offering — the iPaq — had foundered. Dell introduced its first OPhone this year.
Chinese companies are also joining the fray. Huawei, a networking equipment maker; ZTE; and lesser known companies like G’Five and K-Touch are using smartphones as a way to break into the market.
For established manufacturers, this proliferation of new competitors presents a conundrum: Either they keep selling more profitable high-end phones in the hope that snob appeal lures upwardly mobile customers, or they offer smartphones to both rich and poor and trust that loyal customers will upgrade with their products.
HTC of Taiwan appears to be adopting the former strategy. Eager to shed its past as a contract manufacturer, it offers a wide selection of phones but is branding them as high-end pocket candy — an iPhone for the Android world. “We don’t want to make cheap products,” said John Wang, chief marketing officer at HTC. “That’s just not what HTC does.”
Motorola, on the other hand, has cast its net from the boardroom to the classroom. It has introduced several smartphones designed specifically for Chinese customers, including phones whose touch screens recognize handwritten Chinese characters. Motorola’s selection ranges from a top-of-the-line phone for 5,680 renminbi, or about $830, to an entry-level smartphone that sells for less than 1,000 renminbi.
“If you want to be a major player in China, you cannot be just in the high end,” said Mr. Shen at Motorola. “You have to get into a core set of customers and make sure you offer innovation for the high end quickly.”
