While veterans Nokia and BlackBerry struggle for survival, the power in the surging smartphone industry has started to move to China where agile manufacturers are coming out with models comparable to their Western rivals, but at cheaper prices.
In 2012, Chinese vendors Huawei Technologies Co Ltd and ZTE Corp are set to grab more market share globally, analysts say, as they shift away from making basic feature phones to churn out more smartphones, a sector where growth is strong and profit margins are bigger.
The two vendors combined sold 35 million smartphones last year, around 7 percent of the global market, and see 2012 sales rising to 90 million, doubling their market share to 14 percent.
Huawei and ZTE, among the world's largest makers of telecom network equipment, have expanded into handsets and the tablet PC business and are now selling smartphones running on Google's Android operating system, taking on the lucrative market dominated by Apple Inc and Samsung Electronics Co Ltd.
At the Mobile World Congress in Barcelona this week, Huawei and ZTE unveiled their top-of-the-range models Ascend and Era, with technologies comparable to any of the top Android models.
EYEWATERING
Huawei said it aims to sell more than 60 million smartphones this year, a three-fold increase from 2011, while it is ready to sell products at prices 15-20 percent lower than the market.
"Huawei has firmly laid down the gauntlet to established rivals and its sales goal is an eyewatering target that will send a shiver down rivals' spines," said Ben Wood, head of research at CCS Insight.
Chinese smartphones, such as Huawei's IDEOS and ZTE's Blade, are gaining popularity worldwide, especially in emerging markets from Africa to India, mainly due to aggressive pricing and helped by selling network equipment to telecom carriers.
"Having the infrastructure business is a great benefit for us," He Shiyou, chief of ZTE's phone business, told Reuters, adding the company was packaging phones together with network gear when approaching carriers.
ZTE expects operator-partnerships to help it to double its smartphone sales to 30 million handsets this year.
Even at retailers, some of lower end models of Huawei and ZTE can be bought for around $100, the level where the demand is the highest, and there is no end in sight for falling prices.
Chipset vendor Spreadtrum, smaller rival to Qualcomm and Mediatek, has rolled out a platform for $40 smartphones for the Chinese market. Late last year, Qualcomm launched a new set of its flagship Snapdragon chipsets targeted at low-cost Android smartphone makers.
"Mass market smartphones represent an important opportunity," said Steve Mollenkopf, Qualcomm's president and chief operating officer. "The mass market smartphone segment is very competitive and device manufacturers need to launch products faster at lower engineering costs."
Growth in the global smartphone market is expected to slow in 2012 from around 60 percent growth seen in 2011, but it will still expand around 40 percent this year, helped by falling prices, research firm Gartner said.
SALES JUMP
ZTE and Huawei roughly doubled their global cellphone sales last quarter, outselling BlackBerry's RIM and HTC . In the smartphone sector, they continued to gain market share as they expand their reach in markets such as North America and through improved Android models, Gartner said.
"Chinese vendors are on the roll. China's smartphone market is surging and they use this momentum as a springboard to grow abroad as well," said Neil Mawston, analyst at research firm Strategy Analytics.
Nokia has seen its global market share in smartphones falling to 12 percent in the last quarter from 30 percent a year earlier and has suffered also from ageing smartphone offering as it revamps to use Microsoft software.
Nokia warned last month sales of its Symbian smartphone platform would not reach its expectations of more than 150 million units, while LG has struggled with shrinking market share for several quarters. Analysts said the success of the Chinese firms was starting to hit Sony and HTC as well.
BRAND BUILDING
Consumers like 15-year old Lin Jingfeng, a student in the southern boomtown of Shenzhen in China, bought a smartphone from ZTE last year at a fraction of the cost of an iPhone.
"I bought ZTE because it's much cheaper than the other phones that I saw and it's good enough for my purposes," he said. "I don't play much games and I usually just use it to call my friends, surf the Internet or update my weibo (microblogging site)."
Analysts said Chinese firms needed to invest more into building their brand in developed markets, and could take a page from Taiwan's HTC, which has made a splash in mature markets.
"I believe we will become world's top class brand in devices," Shao Yang, marketing chief of Huawei's devices unit, said in an interview.
Huawei and ZTE said the key for kick-starting smartphone sales was close co-operation with operators.
"The device is a big pain-point of an operator and we have a good channel to discuss with their technology and marketing departments. In Huawei we solve a lot of problems for them," Yang said. "We care for our customers like no-one else."
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