Android phone pricing increasingly under pressure from Chinese makers

IDC published a new report about the smartphone market with preliminary shipment figures for 2014. The research firm estimates global sales of Android phones will amount to 1.06 billion units this year, 82.3 percent of the total smartphone market. Apple's iPhone is next with 178 million units representing a marketshare of 13.8 percent, while Microsoft's Windows Phone ranks third with 14 million units, which translates to a marketshare of just 2.7 percent. The rest of the market is split between various other operating systems, which are expected to hit sales of 14 million units this year.

The company predicts the overall smartphone market will grow from 1.29 billion units in 2014 to 1.87 billion units in 2018. In terms of marketshare, Android is expected to drop to 80.0 percent and Apple to 12.8 percent, while Microsoft is anticipated to more than double its marketshare to 5.6 percent.

One interesting aspect of the report highlights the challenges faced by traditional Android vendors by the "race to the bottom" orchestrated by Chinese smartphone makers. IDC expects the current big players in the Android market will see a drop in their profitability due to increased competition from Chinese players, who offer very decent specifications at a much lower price level than phones from well-known brands like Samsung.

"The impact of upstart Chinese players in the global market will be reflected in a race to the bottom when it comes to price. While premium phones aren't going anywhere, we are seeing increasingly better specs in more affordable smartphones. Consumers no longer have to go with a top-of-the-line handset to guarantee decent hardware quality or experience," said Melissa Chau, Senior Research Manager with IDC's Worldwide Quarterly Mobile Phone Tracker. "The biggest question now is how much lower can prices go?"

On a worldwide basis, smartphones are expected to have an average selling price (ASP) of US$297 worldwide in 2014, dropping to US$241 by 2018. Emerging markets like India will see much lower smartphone prices, as ASPs hit US$135 in 2014 and fall to US$102 by 2018. In contrast, ASPs in mature markets are not expected to change significantly and modestly higher shipment volumes will not drive up overall revenues as each generation of flagship phones shows less and less differentiation from its predecessors.