(BLOOMBERG) After years of declining smartphone prices worldwide, it looked like the hottest technology had quickly become a commodity. A slump that took decades in computers seemed to have happened to phones in just a few years. Perhaps most troubling was China, the biggest market and traditionally one of the fastest growing. Not only were Chinese settling for cheaper phones; by the beginning of this year, they were buying fewer of them for the first time since the modern smartphone was invented.
While China is no longer the mobile industry’s unstoppable growth machine, it could become the next profit frontier. From October 2014 to March 2015, the average price of a smartphone sold in China jumped dramatically, according to data from research firm IDC. It went from $192 in the third quarter of 2014 to $239 in the fourth and then $263 in the first quarter of 2015.

 

Average price of smartphones on downward trend

Average price of smartphones on downward trend

 

The unexpected change can be attributed primarily to Apple, says Bryan Ma, an analyst at IDC. The company added more expensive models with bigger screens that were so popular, they actually moved the huge Chinese market substantially and helped Apple rocket into first place there. “The most recent increases are a reflection of the popularity of the iPhone 6 and 6 Plus,” says Ma, citing IDC data.
The results are an important validation for Tim Cook. Apple’s chief executive officer was being pressured by analysts and shareholders to lower prices and create cheaper models to adapt to what seemed like a permanent change in the industry. A less expensive plastic model, the iPhone 5C, fell flat. It didn’t take long for Cook to discover the real solution to Apple’s growth concerns: bigger screens. Shareholders saw evidence of Cook’s triumph in the company’s earnings from recent quarters.

China's Smartphone Surge

China’s Smartphone Surge

 

Beyond Apple, the numbers are important because they blow up the idea that the Chinese aren’t willing to pay a premium for what they perceive to be a superior phone. After joining in the race to the bottom on pricing, Samsung Electronics went fancy with its latest smartphones, the Galaxy S6 and S6 Edge, and that’s already starting to pay off.
The companies that don’t seem to be paying attention, it turns out, are those based in China. Lenovo, Huawei, and Xiaomi keep trying to one-down each other on price.
There are still plenty of Chinese who value a bargain above all else, and we’ll see as time goes on if the new trend holds. But foreign companies are soaking up much of the profit. Apple’s changing fortunes should force the industry to reevaluate what it thinks it knows about what Chinese consumers want.

 

Source: Bloomberg