Photo Source: Visual China

Blue Whale News, November 13 (Reporter: Zhai Zhichao) - In the past, Android phones have always occupied an important position in the smartphone market due to their high cost-performance ratio. However, recently released Android flagship phones have begun to collectively increase in price, a phenomenon that has attracted widespread market attention.

Since October this year, domestic phone brands have concentrated on releasing their flagship models, including vivo, OPPO, Xiaomi, Honor, OnePlus, Realme, and other brands successively unveiling new products, igniting a "war" of smartphones at the end of the year.

Blue Whale News reporters have noticed that the price increase trend for this wave of new phones is quite apparent, with most price increases ranging from 100 to 500 yuan. Some phone manufacturers have even projected the words "price increase" onto the conference screens. This straightforward approach further highlights the high-profile nature of this round of price hikes.

Compiled by Blue Whale News based on public information

When it comes to the reasons for the price increases, major phone manufacturers have pointed the finger at processors and memory. Wang Teng, Deputy General Manager of Xiaomi's China Marketing Department and General Manager of the Redmi brand, pointed out that the price increases for flagship phones this year stem primarily from two factors: First, the flagship phone processors have been upgraded to the latest 3-nanometer process, which has significantly increased production costs; second, memory prices have reached a higher level after a year of continuous increases.

In fact, the aforementioned price increases are not merely related to the costs and profits of phone manufacturers but are also closely linked to consumers' willingness and ability to spend. So, are consumers willing to pay the bill for these increases? Let's explore this by combining the latest data from Singles' Day.

Logic Behind Processor and Memory Price Increases

In recent years, due to factors such as generative AI and industry cycles, there has been a notable increase in the prices of products across the entire mobile phone supply chain. Among them, the prices of major components such as processors (system-on-chips) and memory have increased the most significantly.

In mid-October, Guo Mingqi, an analyst at TF Securities, revealed on social media that compared to the Snapdragon 8 Gen3, the unit price of the Snapdragon 8 Supreme Edition processor has increased by approximately 15% to $180 (approximately RMB 1,282).

"Since Qualcomm chip prices have risen, it is logical that the prices of phones using this chip would also increase accordingly." However, observant individuals may notice a question here: If the price increase is due to Qualcomm chips, then why have vivo's X200 series, which use MediaTek SoCs, also increased in price? This brings us to a deeper reason: the increase in chip manufacturing costs.

According to media reports, starting from January 2024, TSMC plans to increase its quotes for advanced processes by 3% to 6%. The specific magnitude of the increase will vary among different manufacturers based on the process, order size, and the tightness of cooperation. It is understood that a recent batch of flagship models released by domestic phone manufacturers have adopted the Qualcomm Snapdragon 8 Supreme Edition and MediaTek Dimensity 9400 processors, both of which use a 3-nanometer process and enhance their performance in running AI on the client side, resulting in high costs.

It can be seen that the increase in chip manufacturing costs has, to a certain extent, led to an increase in the prices of Qualcomm Snapdragon 8 Supreme Edition and Dimensity 9400 chips. To maintain similar profit margins as previous products, phone manufacturers naturally choose to increase prices. As for TSMC's confidence in raising prices, it stems from its "irreplaceability" in the market. According to TrendForce data, TSMC accounted for 62.3% of the global foundry market in the second quarter of 2024.

Additionally, the increase in memory prices is the result of multiple factors working together.

Affected by the significant drop in memory chip prices earlier, starting in 2022, the global "storage trio" of Samsung, Micron, and SK Hynix reduced production to adjust inventory. Subsequently, as supply and demand gradually balanced and consumer electronics gradually recovered, memory product prices began to stabilize and then increase continuously starting in the second half of 2023. TrendForce analyst Huang Yuxuan stated that due to memory manufacturers reducing production to adjust inventory, the combined increase in memory prices from the second quarter of 2023 to the first quarter of 2024 exceeded 50%.

"From the perspective of raw materials, memory production relies on materials such as silicon, and the global supply of silicon materials is facing challenges. Silicon mining is restricted by environmental protection policies, and the closure of some small mines has led to reduced supply. Additionally, the development of the technology industry has greatly increased the demand for silicon materials, and industries such as photovoltaics are also consuming silicon resources, leading to a rise in silicon material prices and an increase in memory production costs," said a senior industry insider to the reporter.

Furthermore, the reporter also found that in this round of flagship models, there have been changes in memory configurations. The 8GB RAM option is no longer available, and instead, there has been a comprehensive upgrade to 12GB RAM. This change will inevitably increase the cost of phone RAM.

Will Consumers Pay the Bill?

Before Singles' Day, the phenomenon of increasing Android phone prices also sparked widespread discussion among consumers. Among them, many consumers questioned whether Android phones were no longer affordable, and some even felt that the market would be unwilling to pay the higher prices. However, judging from the mobile phone sales data during Singles' Day, this was not the case.

According to StarChart data, as of October 30, the cumulative sales across the entire network had reached 845 billion yuan, of which mobile phone and digital product sales amounted to 120.1 billion yuan, accounting for 14.2% and ranking second among the top 10 sales categories during the Singles' Day sales period. This demonstrates the high demand and strong sales of mobile phone and digital products during Singles' Day.

Photo Source: StarChart Data

Additionally, statistics show that since the sales event began on October 21, transactions of domestic Android flagship phones priced above 4,000 yuan have increased by 57% compared to the same period last year. This also indicates that there is still a certain demand for high-priced Android flagship phones in the market, and consumers are still willing to pay higher prices for high-quality Android phones.

Specifically, during Singles' Day, Xiaomi's 15 series flagship new products achieved the double first place in cumulative sales volume and sales amount in the 4,000-4,999 yuan price range (4,000-5,999 yuan on Tmall) on Tmall, Pinduoduo, and Douyin, and the first place in cumulative sales volume in the 4,000-5,999 yuan price range on JD.com.

The vivo X200 series performed outstandingly during Singles' Day, elevating its position in the market to the top four, right behind Apple, Huawei, and Xiaomi. From 8 p.m. to 11:59 p.m. on November 10, the Honor Magic7 won the title of top-selling new phone on platforms such as Tmall, JD.com, Douyin, and Kuaishou. Its first-day sales broke all previous first-day sales records for new Honor phones, and offline store sales were extremely popular.

Regarding this, the reporter randomly interviewed two consumers on the street to ask for their opinions on the above-mentioned consumption phenomenon.

One consumer said, "Nowadays, the costs of key components such as chips and screens are increasing, and the price increase of Android phones is also a necessary measure. If the phone's performance and configuration are indeed greatly improved, I think a moderate price increase is acceptable." However, there were also dissatisfied consumers who said, "Previously, Android phones were known for their cost-effectiveness, but now the prices have increased so drastically, almost catching up with Apple phones. Then why not just buy an Apple phone?"

In fact, since this year, the domestic mobile phone market has already shaken off the decline that had persisted for several years. According to data from the China Academy of Information and Communications Technology, from January to September, domestic mobile phone shipments reached 220 million units, representing a year-on-year increase of 9.9%.

Communication expert He Gang told the reporter that an important reason for the market recovery is the arrival of a new round of phone replacement cycles, coupled with the launch of new products such as AI phones, foldable phones, and 5G phones, which cater to consumer demand. Generally speaking, the replacement cycle for Android phones is 3 to 5 years. Judging from the peak shipment volume in the previous cycle, the market entered a new replacement cycle at the end of 2023, and the pent-up demand for phone replacements from previous years has gradually been released.

At the same time, a series of favorable policies have also created a favorable development environment for enterprises related to the mobile phone industry chain. It is understood that during Singles' Day, many consumers pay attention to phone discounts and trade-in allowances to reduce the cost of purchasing phones.

"Inverse Growth" of Price and Sales Volume

From the mobile phone sales data during Singles' Day, we can see that a unique phenomenon is emerging in today's consumer electronics market: As phone prices continue to rise, some high-end models are still selling well. Although it seems that prices and sales volumes are moving in opposite directions, in reality, the mobile phone industry has undergone new changes, namely, the gradual advancement of premiumization in the global mobile phone market.

According to agency data, global smartphone shipments increased by 2% year-on-year in the third quarter of 2024, while revenue growth reached 10%, setting a record high for the third quarter. This is primarily due to the driving force of premiumization trends, especially in the segment of smartphones priced at ≥$400, which saw a year-on-year increase of 2% in net market share.

Photo Source: Counterpoint Research

According to a report by International Data Corporation (IDC), smartphone shipments in the Chinese market amounted to approximately 68.78 million units in the third quarter of 2024, representing a year-on-year increase of 3.2%. In this quarter, the market share of high-end phones priced above $600 (approximately RMB 4,200 and above) reached 29.3%, an increase of 3.7 percentage points compared to the same period last year, indicating an increasing demand for high-end smartphones among consumers.

In addition, although the domestic smartphone market has been sluggish in the past, the high-end market has shown a trend of countercyclical growth. According to Counterpoint Research data, sales in the Chinese high-end phone market experienced a "comeback" in 2023, with a year-on-year increase of 37%.

In fact, consumers' pursuit of high-end phones with increased prices is not a blind move.

An insider in the mobile phone industry told the reporter in an interview that as living standards improve, consumers are increasingly willing to pay higher prices for high-performance, high-quality products. For example, high-end phones typically feature better cameras, faster processors, longer battery life, and superior design, attracting users with high demands on phone performance.

"Changes in brand strategy and market positioning also play a role in boosting the popularity of high-priced phones. For example, Apple performs particularly well in the high-end market, with its iPhone series continuing to sell well globally, occupying a large share of the high-end market. Domestic phone brands such as Huawei and Xiaomi are also making efforts in the high-end market by launching high-priced flagship products. The popularity of these products further promotes the growth of the high-priced phone market," the aforementioned person added.