China's big players are gearing up for a price war in the high-end smartphone sector, and the only big winner will be the consumer.
Xiaomi Corp, Huawei Technologies Co Ltd and ZTE Corp's Nubia have all rolled out new products in what has been dubbed the "Godzilla" handset business, as they battle to wrestle away more market share from South Korean-based giant Samsung.
"By introducing premium devices, the average price of high-end smartphones will be dragged down," Antonio Wang, an analyst with the United States-based market research company IDC in Beijing, said. "This will benefit consumers."
It will also create more problems for Samsung, which has already been badly mauled by the aggressive tactics of China's big three.
Earlier this month, the world's largest smartphone manufacturer reported that its second quarter operating profit would probably fall by 4 percent to 6.9 trillion won ($6 billion) because of poor sales of its new Galaxy S6, particularly in China.
As the brand loses its mass appeal here, consumers are switching to cutting-edge domestic products from Xiaomi, Huawei and Nubia.
"Chinese smartphone companies are now more willing to invest in innovation by putting state-of-the-art technology into their devices," Xiang Ligang, an independent analyst and founder of telecom website cctime.com, said.
"They know the 'low performance for low price' strategy does not work in today's market. Cheap devices will never make big profit margins," Xiang said.
The rise of China's smartphone companies from low-cost labels to upmarket brands has been meteoric.
Xiaomi shipped out 34.7 million smartphones in the first half of this year compared to 26 million during the same period in 2014 without revealing detailed financial figures.
Huawei announced shipments of 31 million units during the same period, a 40 percent increase compared to last year, without revealing detailed financial numbers. Nubia has yet to report its shipment figures in China.
For Samsung, the data are depressing. In the first quarter of this year, its shipments to the Chinese mainland were 9.6 million devices compared to 20 million during the same period in 2014, according to IDC. That left it in fourth spot behind Apple, Xiaomi, and Huawei in China's smartphone market, which is still the biggest in the world with estimated annual sales of about 400 million handsets.
"It (the fall in Samsung shipments) highlights the volatility of Chinese consumers' brand preferences," Wang, of IDC, said.
And there could be more pain on way for the South Korean company, analysts point out.
Xiaomi, Huawei and Nubia have launched models that target the 3,000-yuan ($480) price range, which used to be Samsung's territory.
The Mi Note Pro from Xiaomi retails at 2,999 yuan, with the company reporting 1 million pre-orders before it hit the stores in May.
The P8 from Huawei came out in April and costs 2,888 yuan, while the Z9 from Nubia is more expensive at $3,499 yuan.
"These new products illustrate that consumers are shifting to devices that provide better user experience," Wang Jingwen, an analyst at Canalys China in Shanghai, said. "They are going up upmarket (which is where Apple and Samsung are)."
At the top of that pyramid is Apple, the iconic iPhone brand. Despite the high cost and high rental fees charged by telecommunication providers to use their networks, the iPhone dwarfs its rivals.
At the start of the year, Apple consolidated its No 1 position in China by introducing a trade-in program, which saw a jaw-dropping 14.5 million smartphones delivered to the Chinese mainland in the first quarter. That was 1 million more units than Xiaomi in No 2 spot, according to IDC.
Since iPhone models retail at around 4,000 yuan, the gap in revenue with Xiaomi was stretched even further. To eventually challenge Apple, China's leading companies will have to come up with better products and better deals.
"Apple's trade-in initiative attracted more mid-end Chinese buyers and further increased the distance between local players," Wang, of IDC, said.
Apart from having Apple and Samsung in their sights, China's big three will have to keep a close eye on a new wave of domestic rivals. "Bringing down prices will be part of their strategy as other players enter the market," Wang said.
Weeks after LeTV Holdings Co Ltd, an online video company, unveiled a large screen Android device, known as Le Max, in April, Xiaomi cut the price of its flagship Note Pro device by 300 yuan.
Motorola Mobility, now a Lenovo subsidiary, also followed suit by announcing a 300 yuan discount on its latest high-end Motorla X series model in a move to target young buyers.
Joining them will be a new smartphone launched by Zhou Hongyi, an Internet tycoon who owns the nation's largest online security company Qihoo 360 Holdings Ltd.
Qihoo has linked up with Dongguan-based budget contract phone maker Coolpad Group to produce the Qiku range in the fall. Prices are believed to be around 3,000 yuan.
"The competition will be extremely fierce this year for Chinese vendors, especially for those who are moving up to high-end segment," Zhou said. "But there will be winners."
