Oppo, Vivo, OnePlus, and realme owned by one Company - The Rise of China Smartphone Brands

Many people are familiar with well-known smartphone brands like Oppo, vivo, and OnePlus. However, few are aware that these brands are all affiliated with BBK Electronics, the same parent company.

Interestingly, BBK Electronics also owns two additional smartphone brands, namely IQOO and realme. Rather than being threatened by external competitors, BBK Electronics has chosen to foster internal competition within its own organization. This strategic approach ensures that if a consumer is dissatisfied with the Oppo brand, they may find solace in the vivo brand, and vice versa. In this way, BBK Electronics maximizes its sales potential regardless of individual brand preferences.

Obviously, the smartphone brands under BBK Electronics cannot directly compete with premium brands like Apple. However, what they excel at is providing comparable hardware specifications at more affordable price points. This value-for-money positioning has propelled BBK Electronics to become one of the leading smartphone manufacturers globally.

During the first quarter of 2023, if we were to combine the sales figures of Oppo, vivo, and OnePlus, it would result in a 15% market share. This achievement secures their position as the third-largest smartphone manufacturer in the world, trailing only behind Apple and Samsung. Considering their relatively recent entry into the market, this accomplishment is commendable and positions them as strong contenders for a top-three spot.

Unfortunately, investing in BBK Electronics is not an option as it is a privately-owned company. However, if you are interested in investing in a listed smartphone maker, Transsion (SSE:688036) is worth considering if you have access to Shanghai STAR market.

Transsion is the parent company of TECNO, Infinix, and itel, brands that might not be widely recognized unless you reside in Africa or the Middle East. Impressively, in 2022, these three brands collectively held a substantial 32% market share, making them the leading smartphone brands in that region.

While Transsion is indeed a listed company, it is specifically listed on the Shanghai STAR Board. Unfortunately, as of now, the Shanghai-Hong Kong Stock Connect does not provide access to this particular board. Therefore, if you are interested in gaining exposure to Transsion, the only available option is through ETFs that track the STAR Board as a foreign investor. However, it is worth noting that even through such ETFs, the allocation to Transsion would likely be relatively small.

While holding the position of a market leader may appear appealing, smartphone manufacturers that are unable to command premium prices often encounter difficulties in sustaining high-profit margins. This can be observed in the following comparison table, where Transsion demonstrates a 5% net profit margin, while Apple achieves an impressive 25% net profit margin.

Typically, these smartphone manufacturers establish their presence in the market by offering lower-priced alternatives, catering to cost-conscious consumers. However, it becomes crucial for them to transition up the value chain and develop premium smartphones, a path that Oppo and vivo are increasingly embarking upon.

This shift is reminiscent of the perception of Japanese and Korean brands in the past, which were initially seen as lower quality and more affordable products. I recall opting for Samsung cassette tapes over Sony due to their lower price point. Today, Samsung stands as a premium brand. Therefore, capturing the lower end of the market can serve as a strategy to generate revenue and establish brand trust. Over time, these brands can gradually work towards premiumization, thereby increasing profit margins.

Despite operating in saturated and fiercely competitive markets, both BBK and Transsion have successfully launched new smartphone brands, managing to secure substantial market share within a relatively short period. Their ability to thrive under such challenging circumstances is commendable, and it wouldn't be surprising to see them achieve even greater success in the future.