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The growth of the global smartphone market is slowing down, the competition is fierce, and the price of spare parts is rising sharply. Chinese brands are raising their prices under the pressure of profit. Wu Yating, a smartphone analyst at Global Market Research Institute Jibang consulting, said that the average sales unit price of Chinese brand smartphones in 2016 was about 1700 yuan, and it is estimated that it will rise to 2000 yuan by the end of 2017. In order to ensure sufficient profits, the pricing strategy of "high regulation and low sale" of Chinese brands in the past may become increasingly popular.
Since the second half of last year, China’s mobile phone brands, which have always focused on cost performance, have increased the price of mobile phones, especially in flagship models, such as Huawei P9 and Jinli M6, and even Xiaomi and Meizu are no exception. Wu Yating pointed out that even if the price increase may cause the demand of the consumer end to decline, but in the increasingly fierce market competition, raising the terminal price to maintain the profit space is probably the last fight for the survival of the brand, which also means that a new round of elimination competition for Chinese smart phone brands has quietly begun.
Price rise of key parts, especially Android mobile phone brand
Since the second half of 2016, the rise of key components of mobile phones has not stopped, which has become a direct factor in the price rise of mobile terminals. According to trendforce, the price of smart phone panel has risen for more than three consecutive quarters, while the price rise of mobile memory solution from the fourth quarter of 2016 will continue to this day, and the shortage of NAND flash has not been eased due to the off-season of the first quarter, which makes the cost structure of mobile phone continue to increase.
According to Wu Yating’s analysis, the phenomenon of price increase of parts brings the biggest crisis to Chinese smartphone manufacturers equipped with Android system. The reason is that there are more than 30 Chinese smartphone brands, and the degree of product differentiation is small, which makes it difficult to avoid the dilemma of price reduction, and the price increase of parts will further compress the already meager profit space.
Devaluation of RMB will do little to China’s mobile phone export
Since the second quarter of 2016, the exchange rate of RMB against US dollar has continued to rise, which has also impacted mobile phone manufacturers. Wu Yating said that most of China’s semiconductor products and panel related parts rely on imports, and the depreciation of the RMB keeps the purchasing cost of mobile phone manufacturers rising. On the other hand, in addition to a few leading brands, China’s smart phones are often limited by IP shortage, which hinders the pace of sales in overseas markets, which also offsets the export advantage of the devaluation of the RMB on mobile phones.
Human cost keeps increasing, which makes brand profit more difficult
In terms of the cost structure of smart phones, the continuous rise of human salaries at the manufacturing end or the R & D end has also resulted in considerable cost increases. Looking forward to the future, China’s domestic inflation situation will still be very obvious, the rising trend of salary level is hard to reverse, and at the same time, it will aggravate the profit predicament of smartphone manufacturers.
Chinese smart phone brands are afraid to enter a new round of integration
To sum up, in addition to trying to improve the profitability of each brand manufacturer, I’m afraid that there are no other survival strategies that can be implemented in the short term. Wu Yating further pointed out that China’s smart phone brands, while striving to raise the sales price, are also committed to increasing the overall sales proportion of flagship models with a premium nature, in order to increase the average sales unit price. In the future, low-end mobile phones with sales price lower than RMB 1000 may reduce production due to strong cost structure pressure, so that Chinese smart phone brand shipments will no longer show a high-speed growth trend, and manufacturers unable to effectively maintain profits will eventually be merged or forced out of the market by large manufacturers.