"Faced with cost pressures, domestic mobile phone brands have to increase their prices, which not only affects consumers' willingness to purchase but also exposes the lack of pricing power of domestic brands in the high-end market."

@TechNews original

Recently, domestic mobile phones have witnessed a wave of new flagship releases.

Posters for a series of domestic flagship phones, including Xiaomi 15, vivo X200, OPPO Find X8, and Honor Magic7, have adorned the transparent glass walls of mobile phone stores in major commercial centers. In terms of pricing, they are not to be outdone, with even the starting price of the lowest configuration exceeding the 4,000 yuan mark, demonstrating a clear high-end positioning.

A third-party channel provider selling communication products told TechNews, "Most people who shop for phones in stores are not as price-sensitive as online shoppers. In sales training this year, we emphasized avoiding mentioning price comparisons and instead focused on the new selling points of the new phones to make them seem worth the money."

Before the Xiaomi 15 launch event, Lei Jun specifically took to Weibo and live streams to prepare the audience, stating that the 3,999 yuan pricing was gone for good and that any price increase would be "justified." However, when the 4,399 yuan starting price was announced at the event, the live stream's chat was no longer filled with the usual "it's so good" comments.

Whether it's Xiaomi or other manufacturers, as well as major digital media influencers, have been talking about the impending "price hike wave" since the first half of this year. However, when the actual price increases of hundreds of yuan were announced, consumers were unimpressed by the psychological preparation.

TechNews learned from a college student with a year-end phone purchase need that most of his male classmates were more concerned about the latest updates from domestic brand flagships, which were more cost-effective than new Apple phones and better suited for gaming. After the price of the Xiaomi 15 was announced, he became hesitant because his preferred 16GB+512GB configuration reached nearly 5,000 yuan.

The collective price increases by upstream suppliers of smartphone components such as chips, screens, and memory have driven this wave of "forced premiumization" of domestic flagships, with consumers reluctantly footing the bill.

Mi, OV's "justified price increase" does not yet have the same confidence in standing firm in the high-end market as Apple and Huawei.

01.

Unable to secure pricing power

The domestic mobile phone market just recovered at the end of last year, and the enthusiasm of users for upgrading their phones was unexpectedly met with collective price increases, a situation that was not desired by downstream mobile phone manufacturers.

The Dimensity 9400 processors carried by the vivo and OPPO phones that were released early and the Snapdragon 8 Ultimate Edition processor launched with the Xiaomi 15 are not the result of collusion between MediaTek and Qualcomm to exert downward pressure. Instead, both are constrained by the more upstream chip foundry TSMC.

In June this year, Taiwanese media reported that AI servers, high-performance computing (HPC) applications, and the AI integration of high-end smartphones have driven a continuous increase in the silicon content of semiconductors. The four major chip manufacturers, Apple, Qualcomm, NVIDIA, and AMD, were rumored to have substantially booked TSMC's 3nm production capacity, leading to a queue of customers that extended to 2026.

Moreover, according to the latest supply chain news, TSMC will increase its pricing for advanced 5nm, 4nm, and 3nm process chip orders by 8%-10% in 2025 and by about 6% for mobile communication customers, exceeding the previously estimated 4%.

This has directly resulted in a 20% increase in the cost of MediaTek's Dimensity 9400 compared to the Dimensity 9300, while the cost of Qualcomm's Snapdragon 8 Ultimate Edition has reached $180, a 15% increase.

In addition to the high cost of the smartphone's "heart" SoC, the prices of memory and flash storage that serve as the "brain" are also soaring.

In 2023, the entire storage chip manufacturing industry was still grappling with excess inventory, which once spurred domestic mobile phone manufacturers to launch a wave of 1TB storage products. After Samsung led other leading manufacturers in setting a production reduction strategy, they unexpectedly encountered the longest strike in half a century, further exacerbating the supply-demand imbalance and leading to a 15%-20% increase in the cost of solid-state drives and DRAM in the second half of this year.

A year ago, downstream mobile phone manufacturers that were still promoting the idea of "the bigger, the better" for memory had to change their tune to "just enough is good enough."

Due to the superposition of subjective and objective factors in multiple upstream supply chains, domestic flagship phones can only swallow the bitter pill of "price increase." Apple, which is also manufactured by TSMC and Samsung, was able to maintain the original price of 5,999 yuan for the new iPhone 16 series launched in September, reflecting its control over pricing power.

Although "Mi, OV" have been "outperforming" Apple in terms of configuration and performance when launching their flagship phones in recent years, declaring the completion of their high-end layout, the starting price of around 3,999 yuan in previous years is still 2,000 yuan less than Apple's new phones.

Against the backdrop of sharing the same global supply chain, the cost of Apple's new iPhone 16 series this year will inevitably also increase. However, the reality of sufficient profit margins and sales pressure has given it the confidence and reluctance not to raise prices.

Another domestic mobile phone brand that maintains high prices, Huawei, has higher costs due to its self-built supply chain but has differentiated itself from competitors like Mi, OV, and Honor through self-developed features, effectively grasping pricing power out of necessity.

In comparison, this wave of passive collective price increases ruthlessly punctures the high-end bubble of Mi, OV, and others.

02.

The incessant price war

Prices have to increase, and new phones have to be sold. A closer look at the few hundred yuan price increases by manufacturers reveals the shadow of price wars.

The vivo X200 series, the first to hit the flagship stage this year, had a starting price 300 yuan higher than the previous year, followed by a 500 yuan increase for the OPPO Find X8 series. The newly released Xiaomi 15 standard edition is 200 yuan more expensive than last year's Xiaomi 14 with the same configuration, prompting a prominent red circle in the presentation slides during the launch event.

vivo's sub-brand iQOO also played a clever game, releasing the iQOO 13 series shortly after Xiaomi 15. While maintaining the original price of 3,999 yuan for the lowest configuration version compared to the iQOO 12 after removing some camera capabilities, it took the title of the cheapest flagship but increased the price by 400 yuan for the 16GB+512GB version preferred by gamers.

However, the Xiaomi 15, which claims to have only increased by 200 yuan, is 200 yuan and 300 yuan more expensive than the vivo X200 and OPPO Find X8 with the same memory standards, respectively. This is similar to last year's Xiaomi 14, which maintained the same 3,999 yuan starting price as its competitors but had a lower 8GB memory standard compared to their 12GB.

The Honor Magic7 series, released last, replicated Xiaomi 15's pricing strategy for the standard edition at the pixel level but had a starting price 400 yuan higher than the Xiaomi 15 Pro for the Pro version.

Lei Jun once said after the Xiaomi car launch event that the industry's price war had "confused us," and now it is consumers who are confused in the mobile phone market. The misleading branding language is actually a constant reminder for manufacturers that they are still facing a price-sensitive market.

The official prices announced at various launch events are only one dimension of the price war. Third-party stores on e-commerce platforms, as well as offline dealers, also engage in another round of price wars after discounts.

A seller who has long been selling discounted new phones on platforms such as WeChat Moments and Xianyu told TechNews, "Many e-commerce platforms now offer consumer credit functions. We borrow money to buy new phones and sell them below the official price to earn interest margins. Some small and medium-sized media bloggers also buy new phones for reviews, and we recycle the unused phones after testing, pricing them based on their condition."

In addition, the release of domestic flagship new phones usually coincides with the end-of-year e-commerce promotions like Double 11 and Double 12. Although newly launched flagship models are not included in promotional activities, the diverse subsidy activities on the platform still allow attentive buyers to find bargains.

Even high-end brands like Apple and Huawei resort to price cuts when facing sales pressure. On the eve of 618 in 2023, Apple launched its first broadcast on Tmall's official flagship store, offering a 1,500 yuan discount on the 128GB version of the iPhone 14, originally priced at 7,999 yuan. Huawei's Mate60 series, which was well-received after its return last year, maintained a firm price, but the Pure70 series launched this year performed poorly and soon underwent an official price reduction of 1,000 yuan within two months.

There are still many companies that verbally oppose price wars, but they often join them sooner or later. The price war cannot stop because it really works.

03.

More cost-effective old flagships

"You don't have to wait for this year's flagship phones. You can choose from the previous flagships with even greater subsidies during Double 11," a digital blogger with around 100,000 followers on Douyin sincerely advised his fans in a private group.

Guided by Moore's Law, the operating speed of smartphone chips continues to approach physical limits, leading to considerable performance redundancy in newly released flagship phones. Apple once demonstrated 3A-level console games on its self-developed A-series chips at a launch event, but few users would actually take out their phones and play 3A games outdoors.

Currently, the performance evaluation projects that dominate the mobile phone review scene, in addition to the usual benchmarking tools, still rely on well-known games such as "Honor of Kings," "Game for Peace," and "Genshin Impact." The first two games have low requirements for phone configuration and can be played smoothly on common mid-range models in the market. The latter, a 2D game focusing on exquisite graphics and character modeling, shows only negligible frame rate improvements and possibly even increased power consumption with the processors of recent flagship phones.

When new flagship phones lack sincerity, previous flagships with better performance and reputation have the opportunity to become cost-effective choices.

Last year's iPhone 15 series was unsatisfactory in terms of functional upgrades. Despite maintaining the same launch price as the iPhone 14, it failed to stop buyers on e-commerce platforms from voting with their feet, and the previous flagship became the top-selling smartphone during Double 11 after the new phone's release.

Market research firm TechInsights found that the global smartphone replacement cycle extended to 51 months in 2023, while Chinese consumers had a slightly shorter cycle but still exceeded 40 months. Most respondents in China who participated in the survey said they would only replace their phones when their current devices could no longer meet their needs.

One of the "culprits" behind the collective price increase of domestic flagships is precisely the rise of the global AI wave. The end-side AI large model applications vigorously promoted by mobile phone manufacturers theoretically provide a reasonable excuse for the increase in chip costs and computing power demand.

If previous flagships can no longer support the new AI mobile phone experience, many users will still pay for new phones despite the price increase. For example, Apple's AI, which was belatedly introduced at the WWDC conference in June this year, only supports iPhone 15 Pro and above models, excluding even the iPhone 15 and iPhone 15 Plus, which were released about half a year ago.

Domestic mobile phone manufacturers are not arrogant enough to backstab users to this extent. However, judging from the current AI ecosystem functions provided by various manufacturers, they have not yet stimulated users' urge to upgrade. Faced with the homogenization competition from continuously launched AI applications by internet giants, free cloud computing power is still much more cost-effective than local performance that requires spending money.

In this wave of price increases, domestic flagship phones need to compete not only with competitors but also with their previous models. To quickly escape the vicious circle of price wars, it is difficult to break through the hardware constraints, and the software experience differences do not form barriers. Perhaps a closed-loop ecosystem is a good strategy, and Xiaomi's "people-car-home" strategy may be the confidence behind its higher price of a few hundred yuan compared to OV.