The Chinese want to challenge Apple on its home turf

The Chinese want to challenge Apple on its home turf

Apple (NASDAQ: AAPL) has continued to make its presence felt on the global smartphone market but there's a group of players looking to tackle the U.S. tech giant on its home turf - the Chinese.

As the smartphone market in the world's largest economy begins to slow , domestic manufacturers are looking overseas and see potential in the U.S.

A large number of companies from China have expressed an interest in entering the U.S. market, but trying to dislodge Apple from the top spot could be tricky business.

Established players such as electronics giant Lenovo (Hong Kong Stock Exchange: 992-HK) and mobile infrastructure titan Huawei are continuing to invest in expanding their products into the U.S. Meanwhile upstart handset group Xiaomi has opened an international online store to sell its low-cost accessories and said smartphones would follow in the future. In April, Chinese video streaming site LeTV - known as the "Netflix of China" - launched a smartphone that said would come to the U.S. within a year.

The success of Xiaomi in China - estimated to be worth $45 billion following a recent round of funding - was due to its tactic of selling high-spec budget devices, a strategy followed by all of the Chinese smartphone makers. Two of the top five vendors in the world are Chinese, showing the dominance they are now commanding.

"The home market is now not as good as it was, so the chance to make higher margins in other markets is attractive," Ben Wood, chief of research at CCS Insight, told CNBC by phone.

But the strategy and level of recognition the brands had in China might not mean success as they move west.

One of the biggest challenges for China's tech giants, according to analysts, is building a brand in a market where Apple has a 41 percent market share. Huawei told CNBC earlier this year that branding and marketing is a "huge priority" while ZTE announced a sponsorship deal with the New York Knicks, Houston Rockets and Golden State Warriors NBA teams last year.

"They have to spend a disproportionate amount of money to even get on the radar. That is a challenge that they face," Wood said.

On top of this, Chinese brands have an image problem in the U.S. and are widely mistrusted. For example, in February, Lenovo laptops were found to have pre-installed spying software on them.


Consumers in China and other emerging markets are also more likely to buy a handset outright, making cheap devices very attractive. But in the U.S., contracts with mobile carriers are the dominant method of buying a phone, meaning users can slowly pay for premium devices. Because this payment method is so popular, Chinese players might find it hard to generate enough interest in a cheaper handset.

And expanding to the U.S. could also lead them in a lot of legal trouble when it comes to intellectual property.

Xiaomi only has 101 U.S. patents with only 2 granted patents. Apple on the other hand has about 8,200 active patents and patent applications, according to patent and litigation consulting firm LexInnova. ZTE has 1,874 U.S. patents, while Lenovo has around 2,978 thanks to its acquisition of Motorola last year. But this is tiny when compared to the 37,151 patents owned and applied for by Samsung (: 593'A-KR), 17,502 by Sony (Tokyo Stock Exchange: 6758.T-JP) and 14,456 by LG (: 6657'A-KR).

"Both Apple and Samsung have been forthright in using their patent portfolios to protect their business interests. Leading Chinese challengers, Xiaomi and Lenovo, have very limited patent protection in the U.S. market to avoid litigation from the incumbents," Rana Pratap, principal technology consultant at LexInnova, told CNBC by email.

Despite the headwinds, China's smartphone makers cannot be counted out in the U.S. A number of companies from Sony to Samsung have been struggling in the smartphone business and this could provide an ample opportunity for China's finest to swoop in.

"There is no room for complacency among existing players because the Chinese are relentless. If you are Sony or HTC for example, the last thing you need is the Chinese coming in with an extremely low margin when you are struggling to make money," Wood said.



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