China is close to ‘peak smartphone’. What happens next could be a huge win for Apple

More than 90 percent of China’s consumers now have smartphones, IDC said earlier this week. Smartphones are now a common tool in the country, owned by the average Zhou, just like washing machines or rice cookers. That’s why China’s smartphone shipments dropped four percent year-on-year in Q1 2015, to 98.8 million units – the first time in six years that has happened.

So China is now close to ‘peak smartphone’. What happens next? Here are a few things that might occur in the year ahead:

1. Apple booms as a status symbol

“Apple is perceived as a luxury brand in China, so its brand status is just as important as its utility in the Chinese market,” says Liz Flora, who watches the China luxury market as editor-in-chief at Jing Daily. “It can benefit even in a saturated smartphone market since rising incomes mean that many consumers will upgrade in order to benefit from the status of owning an Apple product.”

Apple is already experiencing an extraordinary boom in China with its iPhone 6 and 6 Plus, propelling the company to the top in China in terms of shipments in the first three months of this year, according to the same report from IDC. It beat out homegrown upstart Xiaomi, which is known for its powerful but very affordable phones – devices that cost about one-third the price of the newest iPhone models. That has reversed a couple of years of decline for Apple in China, when its early strong start in the country was eroded by rival brands making bigger-screen phones than Apple offered until very recently.

After the iPhone 6 duo was first revealed, Andreessen Horowitz’s Benedict Evans argued that Apple had systematically “done its best to close off all the reasons to buy high-end Android beyond simple personal preference.” He goes on: “You can get a bigger screen, you can change the keyboard, you can put widgets on the notification panel (if you insist) and so on. Pretty much all the external reasons to choose Android are addressed – what remains is personal taste.”

That apparently un-Apple nod towards greater choice – allied with the 6’s attractive form factor that bears many premium design elements – seems to have cemented Apple’s catwalk chic in China, placing it above the hoi polloi Samsungs and the Xiaomis that all the university students are fiddling with. That will only be bolstered by an even more saturated phone market. Like BMWs or Mercedes in China’s cities, the newest iPhone model is a fairly common sight, but it’s still so clearly a cut above all the Fords, Chevrolets, and BYDs out there.

The Cupertino company’s huge brand cachet is no accident. “Apple has been actively cultivating its luxury brand status in China. After hiring Angela Ahrendts from Burberry, it was able to land the Apple Watch on several prominent Chinese fashion magazines including Vogue China,” Flora tells Tech in Asia. She adds:

Thanks to its luxury status in China, Apple is in a different league from other smartphone brands in the country. People aren’t just buying Apple smartphones for themselves; the brand is also seen as a great gift option. A recent Hurun survey of Chinese high-net-worth individuals actually found that it’s now considered the best luxury gifting brand for both men and women. Luxury gifting is on the decline due to China’s anti-corruption campaign, but brand-name consumer electronics are considered a discreet alternative to traditional luxury brands such as Louis Vuitton or Hermès.

See: During pan-Asia blitz, Xiaomi sells more than 2 million smartphones in 12 hours

2. More premium competition

In China’s saturated phone market (let’s just call them phones, shall we?), other brands will realise that they not only need to make more premium phones, they need to do a much better job of them than they have in the past few years.