Only 6 companies in China's mobile phone industry are profitable. Why is the industry still flocking to this "cash cow"?

The mobile phone industry is one of the hottest markets at present, and it continues to attract new entrants. However, a speech titled "Analysis of the Operation of China's Mobile Phone Market" recently delivered by Kang Zhao, president of Carrier World Network, revealed the uncertainty of this industry. Can making mobile phones bring high profits? There should be a question mark behind this question.

Only 6 mobile phone companies achieved profitability

According to Kang Zhao, the big brands are the ones that are truly profitable among Chinese mobile phone companies. It is unclear whether small brands can make profits.

Data shows that only six Chinese mobile phone companies are currently profitable. Among them, four companies had sales exceeding 100 billion yuan in China in 2016: Apple, Huawei, OPPO, and vivo; and two companies had sales exceeding 50 billion yuan: Xiaomi and Honor.

In fact, there are far more than 6 players in the domestic mobile phone market. The major mobile phone manufacturers include Apple, Huawei, Samsung, OPPO, vivo, Honor, Xiaomi, Meizu, Gionee, ZTE, Nubia, Coolpad, LeTV, Bailifeng, TCL, 360, etc. There are also some less famous brands such as Xiaolajiao, OnePlus, Meitu, etc. There are countless other less famous brands, which can reach more than 400 in total.

Why among so many mobile phone brands, less than half are able to make a profit?

Mobile phone industry has low gross profit margin

When introducing the profitability of China's mobile phone industry, Kang Zhao mentioned a very important term, which is "gross profit margin per unit".

"The gross profit margin of a single phone is the gross profit margin ranking of each brand of mobile phones sold. I believe you have also seen relevant news a few days ago, which is about vivo's profit margin. There is an article saying that vivo's profit margin is very low, but it is actually not low.

Some also say that Huawei's profit margin is particularly low, only a few percent; however, many Chinese mobile phone companies have no gross profit and are making losses, which highlights that Huawei's gross profit margin is not low among Chinese companies.

This is the situation of our Chinese (mobile phone) companies. We make mobile phones, which is actually a completely low-profit industry.”

In fact, data has long shown that the average profit margin in the mobile phone industry is only 3.2%, and nearly 30% of companies are eliminated in a year.

Analysts say that although mobile phones are the most profitable consumer product in the world, due to the large number of market sharers, the profit margins of the entire industry are not optimistic and the industry has long been in a situation of meager profits.

So, why does this industry with such an unfavorable profit margin still attract so many entrepreneurs to set foot in it?

"Ecosystem" may be the way out for domestic mobile phones

Some time ago, someone put forward a point of view: "You don't make money from mobile phones, you make money from selling services." Today, this statement has become a systematic concept, which is to build a service "ecosystem" based on mobile phones.

According to industry insiders, today's smartphones, as an essential tool in daily life, have become the "interface" for many service industries to directly connect with consumers, the most obvious of which are games, videos, catering, travel, accommodation, finance, etc.

Taking finance as an example, smartphones can provide consumers with personal financial services and other services by carrying Internet financial applications, and value is generated in the service process. Mobile phones can even build a personal credit framework based on the user's usage habits, forming a "financial closed loop", and information also generates value.

This explains why the mobile phone industry can attract a large number of businessmen. In a sense, mobile phones are a cash cow.

In addition, Kang Zhao mentioned in his speech: "China's overall retail prices have been rising sharply, but China's thousand-yuan phones have dropped from 70% to only 43%. The proportion of thousand-yuan phones has been greatly reduced, and the proportion of our mid-to-high-end phones priced between 2,000 and 5,000 yuan has also increased significantly." It can be seen that the profitability of the domestic mobile phone industry is gradually improving with the rise of the mid-to-high-end market.

Analysts say that for domestic mobile phones, this is the best of times and the worst of times; a crucial watershed is about to come, and products and services will ultimately become the key to competition.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.