In the last eighteen months, we have witnessed a number of important changes in the smartphone industry. But to understand these, we need to put aside thoughts of Samsung's cutting edge 14nm Exynos 7420 processor and LG's brilliant 16MP main camera and instead look to the developing smartphone markets. We've seen a number of important projects start up around the world such as Android One, designed to put the Internet into the hands of consumers in the developing world. We shouldn't kid ourselves about Google's Android One project: yes it is absolutely about putting the Internet into the hands of the world, or in their words, "the next billion" but it is also about getting Google's information services into these devices. In addition to the collaborative devices with Android One, we've seen other manufacturers increase their willingness and ability to sell into the developing markets.
Developing smartphone markets are unlike the developed markets. In the developed markets, the majority of smartphone sales are upgrades – customers swapping their old device for a new device. Here, specification and better features than their previous device are important where in the developing market, the majority of smartphone sales are to first time buyers. We have seen a number of Chinese manufacturers increasing their focus into developing smartphone markets: witness Xiaomi's recent push into India as one example. The reason why the Chinese manufacturers are seeking sales outside of their domestic market is two fold: one is the potential for high sales growth and the second is because the Chinese market has around 90% smartphone penetration, according to a report by the Wall Street Journal.
The change in the Chinese market is starting to change how the established Chinese manufacturers sell their smartphones. We are and have seen more and more high-end models with comparable features to those existing and established brands in the rest of the world, such as Samsung, HTC, Sony and Motorola. It's not that the Chinese manufacturers couldn't build these devices, it was that they weren't being bought. Chinese high-end handset prices are, sadly, starting to creep up towards the levels demanding by the "mainstream" manufacturers, rather than the mainstream manufacturers having to reduce their prices. Chinese smartphone growth is starting to weaken – according to the International Data Corp., Chinese smartphone shipments declined by a little over 4% during the first quarter 2015 compared with 2014. Chinese smartphone manufacturers, used to booming sales, are scrambling to sell outside their domestic market in order to maintain their high sales volumes.
It's going to be an interesting year for the Chinese smartphone manufacturers. They're faced with the challenge of persuading domestic customers to upgrade their devices from the lower and mid range devices many are using to the more expensive, high-end models (with higher margins) as well as competing with established manufacturers from around the world and of course, the push into the developing markets.