China Passes U.S. as Largest Smartphone Market

Last quarter, China passed the U.S. as the world’s largest smartphone market. That means the fortunes of companies like Apple (NASDAQ: AAPL) will be decided as much in China as in the U.S. Some smartphone firms have not been aggressive in China. That will cost them dearly in market share and profits over the next few years.

Strategy Analytics reports that:

Smartphone shipments grew 58 percent sequentially to reach a record 23.9 million units in China during Q3 2011. In contrast, smartphone shipments fell 7 percent sequentially to reach 23.3 million units in the United States. China has overtaken the United States for the first time to become the world’s largest smartphone market by volume.

The smartphone manufacturers that have seen success in China are different than those that have done well in the U.S. Strategy Analytics claims the most dominant smartphone companies in the U.S. are HTC and Apple. In China, they are Nokia (NYSE: NOK) and Samsung. Nokia is supposed to be the handset manufacturer in the most trouble in the industry. Apple is supposed to be the most successful. That is not true, if the People’s Republic is factored in.

Apple has been slow to make alliances in China. It has a deal with China Unicom (NYSE: CHU) but not one with the much larger China Mobile (NYSE: CHL). Absent an alliance with the number one carrier in the world’s most populous nation, Apple has a problem.

Nokia has ridden its success with low-priced phones in China to a strong position in the smartphone industry there. Nokia’s market share in smartphones has dropped throughout the rest of the world, though. Most analysts believe that its alliance with Microsoft (NASDAQ: MSFT) to put Windows Mobile onto its new smartphones will be the key to its eventual growth. That is not entire true. Not as long, at least, as it is a leader in the People’s Republic.

China has become a critical — if not the critical — market for the success of smartphone companies. Nokia’s lead in the People’s Republic is a sign that the company is not dead, as well as that Apple is not as dominant in the business as most believe.

Douglas A. McIntyre