Apple Inc. (NASDAQ:AAPL) has outsmarted Chinese smartphone manufacturers for the first time to become the number one brand in China. The U.S. smartphone maker acquired a 14.7% market share, followed by Xiaomi’s 13.7% and Huawei Technology Co Ltd (SHE:002502)’s 11%, according to research firm IDC.

apple china

Why is Apple going strong in China?

One of the factors fueling the growth of Apple in China is the saturation of the lower end of the smartphone market, but for the high end of the market in China is still strong. China witnessed a drop of 4% year over year compared to other regions that posted positive growth from 5% to 44%. China holds 30% of the global market share, a drop from its peak of 35%.

Morgan Stanley (NYSE:MS)’s Jasmine Lu and team said, “Apple’s share expansion and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s mild recovery from its 4Q14 trough suggest that Chinese smartphone OEMs’ share appears to be peaking.” Lu added that only selected brands such as Huawei are “positioned well” to drive the smartphone trend, whereas Xiaomi relies on low priced models to increase its volume. Major brand Lenovo Group Limited (ADR) (OTCMKTS:LNVGY) (HKG:0992) saw its market share drop from the December quarter’s 9.5% to 8.3%. Morgan Stanley has assigned a Neutral rating to the stock.

According to a report from The Wall Street Journal’s Carlos Tejada and Eva Dou, a major issue in China is that the world’s largest market is now a replacement market with a more than 90% penetration rate. Charles Lin, chief financial officer of Pegatron, said the smartphone market in China is somewhere between the very high end like Apple and the very low end.

China a “replacement market”

Xiaomi, a firm that was set up five years ago, is going strong on the back of its home market. Last week, the company came up with its Note Pro, which is similar to the Apple iPhone 6 in size, and is priced at $480, which is around half the price of the iPhone 6 Plus in China.

Tom Kang, research director with Counterpoint, said low end phone makers are now seeing a challenging time in China. These brands are dependent on sales garnered through China’s big three state-controlled telecom providers. China Mobile Ltd. (ADR) (NYSE:CHL) is the topmost company among the three carrier firms and offers 4G.