China smartphone market contracted in first quarter

Peter Kindersley | Getty Images

iPhones may be selling like hotcakes in China, but overall demand for smartphones in the world's biggest market is in fact slowing, according to IDC.

Smartphone shipments in China fell by 4 percent in the first quarter from a year earlier to 98.8 million units – the first contraction year-on-year contraction in six years. On a quarter-on-quarter basis, the market shrank 8 percent following a large inventory buildup at the end of last year.

"Smartphones are becoming increasingly saturated in China," said Kitty Fok, managing director at IDC China.

"China is oftentimes thought of as an emerging market but the reality is that the vast majority of phones sold in China today are smartphones, similar to other mature markets like the U.S., UK, Australia, and Japan," she added.

Xiaomi steps up action camera battle
Xiaomi steps up action camera battle

Convincing existing users as well as feature phone users to upgrade to new smartphones will now be the key to further growth in the China market, Fok said.

Apple was the top smartphone vendor in the mainland in the first quarter, snagging a 14.7 percent market share, ahead of rivals Xiaomi, Huawei and Samsung, which had a 13.7 percent, 11.4 percent and 9.7 percent share, respectively.

"Xiaomi slipped to the second position as it faced strong competition from other vendors in the low to mid-range segment of the market, while Huawei maintained third position as it saw a good uptake in the mid-range segment," IDC said.

"Samsung and Lenovo both led the market at least once last year, but rankings have since changed quickly, highlighting the volatility of consumers' brand preference in China," it said. Lenovo, in fifth place, had an 8.3 percent share of the market.

Read MoreIs this Xiaomi's newest rival in China?

With China's appetite for smartphones beginning to cool, local smartphone vendors will need to step up their presence in India as well as more Southeast Asian countries for fresh growth opportunities.

"To successfully combat local players overseas, Chinese vendors will need to focus on channel relationships and localized marketing strategies," said Tay Xiaohan, senior market analyst, client devices team at IDC Asia/Pacific.

"Most of the market's growth will come from sub-$150 phones as feature phone users switch to low-cost smartphones."

Xiaomi has been leading the way with its expansion outside China, launching in Asian markets including Singapore, India and Indonesia last year. This year, the company will begin selling headphones, smart wristbands and accessories online in the U.S., taking its first tentative step onto Apple's home turf.