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Slideshow Follow Reuters Facebook Twitter RSS YouTube Read Obama campaign accuses Republicans of smear tactics over bin Laden, leaks 5:07pm EDT China demands Japan release activists over island protest | 4:13pm EDT Possible war with Iran could be month-long affair: Israel minister 9:15am EDT U.S. military tests hypersonic Waverider aircraft over Pacific 9:32am EDT Australian court approves tobacco pack logo ban | 3:47pm EDT Discussed 138 Obama’s lead over Romney grows despite voters’ pessimism 122 Romney to announce vice presidential choice Saturday 94 Analysis: Are Israelis tough enough for a long war with Iran? Sponsored Links Pictures Reuters Photojournalism Our day's top images, in-depth photo essays and offbeat slices of life. See the best of Reuters photography. See more | Photo caption Thanks for not smoking Government cigarette pack warnings from around the world. Slideshow Syria: Goran Tomasevic Photographer Goran Tomasevic documents the war being waged on Syrian streets. Slideshow Cheap and cheerful, Chinese phones outsmart Apple Tweet Share this Email Print Related News Google to cut 4,000 Motorola Mobility jobs, shares rise Mon, Aug 13 2012 Samsung takes on Apple at trial over value of phone features Fri, Aug 10 2012 China data signals economy may need urgent policy action Fri, Aug 10 2012 Former Apple designer says Samsung phones looked similar Tue, Aug 7 2012 Apple's Jobs was open to making smaller iPad: executive Fri, Aug 3 2012 Analysis & Opinion Counterparties: Green shoots in the housing market Knight Capital crisis brings new push for rules on trading, technology, structure Related Topics Tech » Media » 1 of 2. A woman uses an iPhone as she and other pedestrians walk past an Apple store in Beijing in this June 28, 2012 file photo. Credit: Reuters/David Gray/Files By Melanie Lee SHANGHAI | Wed Aug 15, 2012 5:17pm EDT SHANGHAI (Reuters) - In China's booming smartphone market, which is set this year to overtake the United States as the world's largest, a host of little-known local firms are primed with cheap phones to squeeze market share from U.S. giant Apple Inc's iPhone. In the latest local challenge to the iPhone, Xiaomi Technology on Thursday launches the successor to its popular MiOne smartphone, which is expected to have top-end specifications exceeding those of the iPhone 4S - at around half the price. While iPhone sales will increase in China, Apple's market share may stagnate or even dip as the market's changing demographics mean the iPhone flourishes in just a handful of wealthy Chinese cities, analysts said. "The sweet spot of affordability in China is 800-1,500 yuan ($130-$240)," said Michael Clendenin, managing director of Shanghai-based consultancy RedTech Advisors. "The 'Lao Bai Xing', or man in the street, is going to go for these mid-tier phones." Industry researcher IDC estimates that in China last year, smartphones costing less than $200 made up 40 percent of shipments, while devices costing $700 and more accounted for 11 percent of the market. Apple releases a single iPhone model a year at a price - around $800 - equivalent to about two months pay for an urban Chinese, who make up half of China's 1.3 billion population. Analysts say the real growth in China is in cheaper smartphones where a wide variety of models at different prices appeal to first-time buyers. "Apple isn't going to rule China, simply because of the limited models they have and the price points they target," said TZ Wong, an analyst with IDC. "Based on these two factors, we do not think Apple will be the No. 1 smartphone player in China." Apple ranked second in January-March smartphone shipments in China, with 17.3 percent market share, trailing Samsung Electronics' 19.2 percent, according to research firm, Gartner. Smartphones from Xiaomi - founded only two years ago but already worth more than Blackberry maker Research in Motion, according to private market valuations - have proved so popular they sell out in minutes after going on sale online. The company, founded by CEO Lei Jun, said last month its first-half revenue was close to $1 billion as it sold more than 3 million phones. Mirroring Apple's annual worldwide developers conference (WWDC), where devotees would pay to listen to Steve Jobs showcasing new products, the informally-clad Lei will charge MiOne fans 199 yuan ($31.30) to attend the Beijing launch, with the proceeds going to charity. IOS TO SLIP TO 3RD Apple's market share by volume has been on a downtrend, and the share of the market commanded by its iOS mobile operating system is expected to slip to third place by 2016 from second earlier this year, according to Gartner analyst Sandy Shen - below Google Inc's Android and Microsoft Corp's Windows. Apple's iPhone sales in China, its second-largest market, stumbled in April-June on inventory adjustments with the launch of the iPhone 4S. That extra inventory meant resellers didn't need to buy as many iPhones during the quarter, and the expected launch later this year of the iPhone 5, with enhanced Chinese language capabilities, also likely held back orders. "Apple's market share is pretty stable. It will be flat over the next five years. Although volume-wise it's increasing, that's because the total market is growing," Shen said. Research firms IDC and Gartner predict China's smartphone shipments could hit 140 million this year, topping those in the United States. HIGH-SPEC, LOW-COST Growth is driven largely by smartphones made by ZTE Corp, Lenovo Group and smaller private firms such as Xiaomi, Gionee and Meizu Technology. Meizu phones, which sell in China and Hong Kong for 1,500 yuan, are feted by Western technology blogs for offering high-end smartphones at bargain basement prices. Offering even cheaper models, Alibaba Group, Shanda Interactive and Baidu Inc have all this year launched smartphones for under 1,000 yuan. Baidu's phone, made with partners, retails at 899 yuan ($140), while Alibaba's waterproof smartphone, made with Haier Electronics Group, costs 999 yuan. "For those with an iPhone or Samsung ... it's just a replacement cycle. But for many people who haven't got their first smartphone, those are the people who will get cheap smartphones," Shen said. ($1 = 6.3586 Chinese yuan) (Editing by Kazunori Takada and Ian Geoghegan) Tech Media Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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