TAIPEI, Taiwan (TheStreet) -- A slowdown in China's smartphone shipments is sucking some power out of Lenovo (LNVGY) , a rare fizzle for the consumer electronics giant. Despite a record of smooth expansion, the Beijing-based IT company stands to lose the most from China's slowdown in smartphone shipments because it has invested heavily in the domestic market.
Smartphone shipments in China have declined year-on-year every month since March, said an analyst after crunching government statistics. Another expert estimates growth has slowed from 91% year-on-year in the third quarter last year to 32% in the same period of 2014. High-tech market research firm IDC puts the third-quarter growth rate at 11%, down from earlier in the year. What are the causes for this slowdown, and how will it affect Lenovo?
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High penetration -- about 44% of China's mobile subscribers had smartphones as of June -- has caused shipments to taper, says Mark Natkin, managing director of Marbridge Consulting in Beijing. Consumers have also backed off as telecom providers cut subsidies, especially for 3G smartphones, in favor of the 4G business.
Lenovo is feeling the fade-out because of its heavy dependence on Chinese consumers along with pressure from domestic rivals such as Xiaomi (known for Apple (AAPL) iPhone lookalikes), Coolpad and Oppo. Foreign vendors, namely Apple and Samsung (SSNLF) , are diversified enough to hold their signals as China slows.
"Lenovo's 'golden era' of smartphone growth is coming to an end. Lenovo is facing huge competitive pressure from Xiaomi... and other local rivals," says Neil Mawston, global wireless practice executive director at Strategy Analytics in the United Kingdom. Lenovo is losing ground in high-growth 4G smartphones "due to a lack of suitable models," he adds.
Lenovo would be hit harder than competitors such as Chinese peers Huawei and ZTE, because it depends more on domestic sales, Natkin says.
Lenovo came out with a 16.9 million handsets in the third quarter of calendar 2014. Of those, 13.5 million stayed in China.
Chinese mobile carriers are also cutting smartphone subsidies across brands, with what's left favoring 4G handsets, says Tay Xiaohan, a senior market analyst with IDC in Singapore. In the third quarter, Tay says, "this has affected vendors such as ZTE, Coolpad and Lenovo and Huawei that generally sell a significant percentage of their phones through telcos."