On November 26, 2018, Microsoft saw its market value of US$807 billion surpass Apple's NT$805 billion, officially making the software giant the most valuable IT player worldwide. But just three months earlier, Apple had been crowned the king of all IT companies with a market value of more than US$1 trillion.

Weak iPhone sales were the main factor for Apple's fast decline from the top, but Digitimes believes Microsoft's aggressive investment in cloud computing services is a business model that Apple would have difficulties catch up with. In addition, there have been other signs showing why Apple was dethroned, such as its failure to achieve significant results in areas including artificial intelligence (AI) and consumer end-devices like smart speakers.

According to research firm IDC's figures, worldwide smartphone sales were 355 million units in the third quarter of 2018 and Samsung Electronics was the leading vendor with a volume of 72.2 million. However, Huawei, which had sales of 52 million units, enjoyed impressive on-year growth of 32.9%, far better than Apple's flat growth and Samsung's 13.4% decline.

In 2018, China's share of worldwide smartphone shipments continues rising. But it remains to be seen whether the momentum will continue into 2019, amid uncertainties stemming from China's trade tensions with the US.

The weak sales of the iPhone XR initially after the release promoted the supply chain to expect its supply of LCD panels for the handset for 2019 to be cut by at least 20% from the original forecast. To stimulate demand, Apple launched a new promotion in the US in late-November encouraging users to trade in their old iPhones for discounts on new ones, but the strategy is unlikely to bail Apple out.

The iPhone slip may not be convincing fans to stop believing Apple is untouchable, but it certainly is driving home the message that the worldwide IT industry's growth driver has moved elsewhere from the mobile device space. The IT industry's attention is now on Internet of Things (IoT) and its related innovative applications including Internet of Vehicles (IoV), smart city and platforms that integrate big data, AI and cloud computing services.

China and India

India's smartphone market recorded strong results in the third quarter of 2018, selling 42.6 million units with a 24% growth and surpassing the US to become the second-largest market worldwide second only China. With 355 million smartphones shipped worldwide - according to IDC figures - India alone accounted for 12% of the volume.

The US smartphone market dropped to third place as a result of China brands' weak sales in the US market, plus iPhones' weaker-than-expected demand there.

China remained the biggest smartphone market, but smartphone sales there had a growth rate of negative 8% in the third quarter, down for the sixth consecutive quarter, according to IDC. Smartphone penetration in China is already as high as 95% and replacement cycle is getting much longer.

Individual brands

In terms of individual brands, Apple and Huawei both had strong results in second-quarter 2018. Apple's smartphone sales of 41.3 million units accounted for 12.1% of worldwide volumes, and it generated revenues of US$53.27 billion and profits of US$12.61 billion, up 17.3% and 17.1% on year, respectively, though the volumes were 500,000 units short of expectation.

Apple's revenue and profit growths rely heavily on the high prices of its new-generation iPhones, but as iPhones' ASP has already reached as high as US$724, the company is facing pressure to come up with even more innovative applications to justify its pricing. But it remains to be seen whether Apple can keep adding new features to its iPhone lineup to convince consumers to pay high prices and stay away from competitions that are increasingly competitive in both pricing and functions.

Huawei sold a total of 52 million smartphones in the third quarter, surpassing Apple to take second place worldwide. It recently announced it has shipped 200 million handsets globally in 2018.

Top vendor Samsung sold 72.2 million smartphones in the third quarter, but faces fierce challenges from competitors in major markets including China and India. Another Korea-based vendor LG Electronics only sold 10 million smartphones in the third quarter and the department suffered over US$150 million in losses for the quarter.

Samsung adjusts strategy

Smartphone vendors have been adjusting strategies to address the challenging market conditions. The head of Samsung's mobile division, DJ Koh, during an interview with CNBC, pointed out that Samsung will release more entry-level and mid-range smartphones which will also feature the company's latest fingerprint recognition and AI technologies.

This indicated that Samsung is shifting more attention from the high-end S and Note series to entry-level and mid-range A and J series devices. The change is meant to counter China-based smartphone brands' strategy of releasing models with high price-performance ratio. Another reason for the change is because emerging markets and the millennial generation have gradually become the main force of smartphone consumption.

Samsung's latest technologies such as the fingerprint recognition and triple cameras, expected to feature in its upcoming Galaxy S10, are also expected to appear on its A series that target entry-level and mid-range sectors, a move that the Korea-based vendor hopes to help it maintain a high market share and strong brand recognition within the millennial generation.

However, the strategy change is not just about specifications, but also about new functionalities, with which Samsung can defend its market against China-based vendors. Take Xiaomi's smartphones manufactured by Foxconn for example. Xiaomi's phones are equipped with Qualcomm's Snapdragon 845 processor, 8GB of RAM, 256GB of storage ROM and a 4000mAh battery - specifications that are rather similar to those of Samsung's Galaxy Note 9. But the Xiaomi devices' price is only half of that of the Samsung one.

High-end smartphones with prices above US$500 can generate much higher profits than entry-level and mid-range ones, but cheaper phones will be the favorite among consumers in emerging markets and the millennial generation. Such a trend is shown in Samsung's financial results for its handset department, which are expected to see an on-year revenue decline in 2018 due to weaker-than-expected sales for its high-end Galaxy S9 and Note 9.

In the price-oriented India market, four of the top-5 smartphone vendors in the third quarter were from China and IDC's numbers also showed that Xiaomi (29.7%) beat Samsung (24%) in terms of shares in India's smartphone market in second-quarter 2018, take the crown as the largest vendor.

Three years ago, China vendors together only had a less than 15% share in India's smartphone market, but the percentage is now over 60%. This means that Samsung's competitors in the smartphone market are no longer HTC or Sony Mobile, but ones from China.

Samsung apparently hopes to create a unique advantage to differentiate itself from China-based vendors. Its foldable smartphone that made an appearance at Samsung Developer Conference in San Francisco on November 7 may be the new weapon that the Korea-based vendor is betting on.

Race to the top

Koh pointed out that Samsung will strengthen the competitiveness of its entry-level and mid-range smartphones to ensure its leading position in emerging markets. In India and South America, the company only sees limited shipment proportion for its top-end models. Koh also admitted that it will be a tough challenge to regain its momentum in China.

Samsung may have admitted defeat in China, but in India, the race remains open. India has placed a 15-20% tariff on imported smartphones, prompting many local consumers to pick entry-level models as their priority. Although Apple has pushed several price-competitive products including the iPhone 6s and the iPhone SE in India, the US vendor has yet to show signs of gaining major growth. But Samsung and Huawei are capable of providing various competitive phone choices.

The development in the smartphone market has shown that minor China-based brands may be driven out of business, but the big ones will be able to challenge Samsung and Apple. Except for Apple, the global top-10 smartphone brands are all either from China or Korea. And the race to the top will hinge on their success in emerging markets, such as India.