Has OPPO really surpassed Huawei to become the number one in the Chinese mobile phone market?

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Recently, IDC data showed that OPPO surpassed Huawei and became the No. 1 in China's mobile phone market in the third quarter, stealing the show. This data has attracted attention from all parties and is considered a victory for the business model of "offline channels + TV advertising + celebrity endorsements". However, we found that data from several other well-known analysis agencies such as SA (Strategy Analytics) and Trendforce showed that although OPPO showed a very strong growth rate, Huawei was still the No. 1 in China's smartphone market in the third quarter (see the chart below).

Data from several other well-known analysis agencies

Data from several other well-known analysis agencies

As SA Research reports, Huawei shipped 18 million smartphones in the Chinese market in Q3 2016, with a market share of 15%, still the No. 1 smartphone manufacturer in China. OPPO shipped 17 million units in the Chinese market, a new record, with a year-on-year growth of 136% and a market share of 14%.

Judging from SA and other data, Huawei has not been surpassed. On the contrary, Huawei still has a great advantage in the Chinese smartphone market. So, who is the number one in the Chinese smartphone market in the third quarter? Why are these statistics "conflicting"? Where will the future market pattern go?

Huawei's difficulties in the Chinese market are a misunderstanding

In fact, this is not the first time that different companies have different statistics. The last time this happened was when Huawei and Xiaomi were arguing over who was the No. 1 in the Chinese market. In the end, we saw that Huawei's smartphone sales grew rapidly and remained the No. 1 in China.

The market statistics of different institutions at the same time are different, mainly due to different statistical calibers and sampling quantity/precision. The statistical standards for shipment volume include the number of units delivered to end users, the number of units shipped from manufacturers to distributors, and the number of units produced by manufacturers.

In fact, it doesn’t matter who is number one. Several important conclusions can be drawn from the above data: First, OPPO and vivo grew very fast in the third quarter and became new growth stars; second, Huawei also maintained a very high growth rate and has strong vitality; third, Apple, Samsung, Xiaomi and other manufacturers have been on the "slide", with shipments continuing to decline, especially Samsung and Xiaomi, with a large drop.

Of course, it is not objective to only look at market data at a certain point. If we extend the time axis, we can see that in the first three quarters of 2016, Huawei ranked first, OPPO ranked second, and vivo ranked third in China's smartphone market. Huawei's mobile phones have performed outstandingly in the Chinese market.

In addition, if we look at the global smartphone market in the third quarter, Samsung is still ranked first, Apple is second, and Huawei is third. OPPO and vivo are ranked fourth and sixth, and OPPO is still a long way from Huawei (as shown in the table below).

Production volume ranking of the world's top six smartphone brands in the second and third quarters of 2016

According to TrendForce data, the top six in the global mobile phone market are Samsung, Apple, Huawei, OPPO, LG, and vivo, with market shares of 22.3%, 12.9%, 9.1%, 6.1%, 5.7%, and 5.2%, respectively. The report shows that Huawei produced 32 million smartphones in the third quarter, a quarterly growth of about 10.3%, firmly ranking third in the world.

This is because in markets other than China, Samsung, Apple, and Huawei all have strong accumulation of technology patents, which supports their position as the top three in the market.

It is not easy for OPPO to change the market pattern

So, from a development perspective, will OPPO become the undisputed number one in China in the future and remain the number one? I don’t think so.

First of all, the reason for OPPO's growth is the arrival of the spring of offline channels. Looking back at the development of smartphones, since the start of the 3G era in China in 2009, the Chinese smartphone market has undergone three major changes, and the reason for each change is related to the channel.

The first time was during the 3G era, when operator channels were the mainstream and China Cool Alliance gradually took over the market. In the second phase, operator subsidies dropped significantly, and Internet channels represented by Xiaomi rose. At this time, Huawei was the only company in China Cool Alliance that maintained rapid growth.

By 2015, the Internet channels hit their ceiling, and Internet brands such as Xiaomi began to decline. However, companies such as OPPO, vivo, and Gionee, which had been cultivating the public market and building offline channels, stood out.

In other words, OPPO's rapid growth is due to the general trend of the spring of public channels. Therefore, the industry has always believed that OPPO's growth comes from offline channels. I don't think it will be easy to continue to lead by "rising water".

Secondly, product innovation and patents are the key to a company's longevity. The three changes in the Chinese smartphone market are all related to channels, but no matter how the channels change, Huawei has always occupied a leading position in the market. A big reason why Huawei can stand firm is that it insists on product innovation as the cornerstone, such as the Kirin 960 it released, which is a leader in mobile phone chips.

However, OPPO has product shortcomings: it has little accumulation of core patents in mobile phones and other fields, and has no core competitiveness in chips and other aspects, and has to rely on companies such as Qualcomm. Although OPPO was the first to propose the selling point of fast charging, the technical threshold of this selling point is too low. From the perspective of product technology alone, OPPO still has a long way to go to surpass Huawei.

Thirdly, offline channels are not an insurmountable wall. OPPO is proud of its deep coverage in third- and fourth-tier cities, and even in towns, achieving the trend of surrounding cities with rural areas. However, OPPO's performance in first- and second-tier cities is average. Huawei's situation is just the opposite, and it is quite popular in first- and second-tier cities.

Can Huawei catch up with OPPO in offline channels? The answer is yes. Huawei's previous success in the telecommunications equipment market was achieved by surrounding cities with rural areas. Therefore, it is not difficult for Huawei to focus on third- and fourth-tier cities, or even rural areas. At present, Huawei's "Thousand County Plan" offline channel layout has been gradually implemented, and it is very likely to catch up with OPPO in the next one or two years.

From the perspective of distributors, OPPO's products are priced at 3,000 yuan, while many other manufacturers sell them for only 1,000 yuan with the same configuration. This shows that OPPO has left enough profit for the distributors, which has boosted the enthusiasm of distributors. In addition, OPPO has established in-depth cooperative relationships with many agents. Other manufacturers can also establish such cooperative relationships through profit sharing and long-term accumulation.

Finally, the promotional strategy of TV entertainment program marketing + Korean celebrity endorsements + targeting fashion consumers is not difficult to implement; but it is more difficult to gain recognition from high-end business people.

Previously, many Huawei products such as the Mate and P series were positioned as high-end business products, and they were chosen by many consumers born in the 1960s, 1970s, and 1980s in first- and second-tier cities. It will be very difficult for OPPO to win the choice of these business and white-collar workers.

In order to target OPPO's main user group - the young, fashionable and happy post-90s generation, Huawei launched the nova brand in October this year, selected young idols such as Zhang Yixing and Guan Xiaotong as its spokespersons, and created a 5-inch nova phone with a rounded appearance, which will definitely bring an impact to OPPO's market.

Only companies that insist on product first can last long

Looking at the mobile phone market, companies that have maintained a stable leading position for a long time have all built sufficient advantages in patents, products, brands, channels, supply chains, etc., and established a solid "building". Shortcomings in any link will have a huge impact on the market.

Among them, the quality and innovation of mobile phones are the cornerstones of this "building". Good products will bring good reputation, build the core competitiveness of enterprises, and are also the key to the long-term success of enterprises. As a senior executive of a telecom operator said, good mobile phones are like water, which can flow through any channel and reach the hands of final consumers.

It is understood that the end of each year is the peak season for Huawei's mobile phone sales, and Huawei's annual product Mate9 is about to be released, which will greatly increase Huawei's product sales in November and December. OPPO's major products have been released. Therefore, it will not be easy for OPPO to surpass Huawei in the fourth quarter.

In summary, I think that in the long run, OPPO will face many challenges if it wants to quickly make up for its shortcomings and surpass Huawei. Huawei has a strong learning ability and will continue to lead the Chinese smartphone market in the future by relying on research and development to make up for its shortcomings and gaps.

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