China's Golden Era of Smartphones Is Ending

The world's largest smartphone market is in deep trouble. China saw a 14.7% decline in phone shipments in the second quarter, according to research firm IDC. And multibillion-dollar pillars of the industry like Xiaomi Corp., Vivo and Oppo all reported steep sales declines. From a report: Many factors drove the fall, including a strict Covid Zero policy that torpedoed demand, but the bigger issue is one that's long been feared by the country's smartphone makers. China's 10-year-plus smartphone boom, fueled by new buyers and ceaseless upgrades, is likely coming to an end. China was eager to become a mobile nation a decade ago. It used state capital to build 4G base stations in almost every village, enabling brands like Oppo and Vivo to sell chic-looking devices to hundreds of millions of people in rural areas, most of whom had never tried a touchscreen. Apple, Samsung Electronics and Motorola pursued tech-savvy city dwellers with more expensive options. (Although the latter two quickly fell out of the game due to product flaws, marketing missteps and geopolitical pressures.)

More recently, smartphone makers saw an opportunity as China pushed toward advanced 5G networks. But few saw the trouble already brewing. A key problem is that China's massive smartphone market has become highly saturated. The country has more than 1.6 billion active mobile phone accounts by the end of last year compared to its 1.4 billion population. The penetration rate is well above the global average and has led to fierce competition. The need to replace phones has also dwindled. The life cycles of smartphones are getting longer, and can be stretched when the economy isn't doing well. The price of 5G service has prompted many people in China to simply keep their adequate 4G subscriptions.

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