The technology analyst firm Canalys said in a blog post that the slowdown was partly due to consumers using a smartphone for longer periods than in earlier years, but was also influenced by China's economic slowdown and the drop in consumers' purchasing power.
The company said consolidation was taking place as shipments fell, with the share taken by the top five smartphone vendors - Huawei, OPPO, vivo, Xiaomi and Apple - increasing from 73% in 2017 to 88% in 2018.
Two companies — Huawei and vivo, which were first and third — bucked the trend and grew their share by 167% and 9% respectively, while OPPO dropped by 2% but held onto second place by increasing its market share.
Huawei took a record 27% market share for the year, with 105 million units shipped.
"Huawei has penetrated the high-end with technological innovations, and a strengthening brand, which has helped it markedly extend its lead in China," said Mo Jia, an analyst based in Canalys' Shanghai Office.
"Its dual-brand strategy has been a huge success, with sub-brand Honor helping it cover a broad range of price bands. China continues to be a strong foundation for Huawei, and its launchpad for overseas expansion as Huawei aims to challenge Samsung for global leadership in 2019."
"vivo's market position has changed significantly," said Yiting Guan, a research analyst at Canalys. "vivo now has a more streamlined portfolio of devices, with a diversified Y-series, the online-only Z-series and the experimental Nex. It has also benefitted from a strategy to improve the efficiency of its retail channels. The stabilising renminbi/US dollar exchange rate will help vivo, which has a greater reliance on its domestic market than its rivals in the top five."
Xiaomi has made progress in overseas markets but failed to grow in China. "Xiaomi tried to increase its average selling price in China. It has decided to make Redmi an independent sub-brand designed to directly compete with Honor," said Guan.
"Xiaomi's challenge in 2019 will be to accurately position the two brands, in terms of product, pricing and channels, so that they complement and do not cannibalise one another. If each brand can redefine its positioning well, each will achieve greater market share in 2019."
The high prices of the new iPhones affected Apple and this was compounded by models such as iPhone 7 and 8 not seeing significant uplift in China, even after prices were cut after the iPhone XS launched.
"Apple has several challenges in China, and the growing power of competitors is not actually its biggest," said Jia. "As its services division becomes more important in China, it is vital for Apple to maintain or grow its installed base of iOS users. Apple must re-examine its China strategy, and find a way to revive its high-end brand image, in order to align with the purchasing behaviour of local middle-class and upper-class demographics."
Canalys said competition was likely to intensify in 2019, with shipments forecast to fall by 3% to 385 million units.
The company said as this year would the beginning of the 5G era in China, consumption would shift toward high-end and higher quality devices. The average selling price of smartphones was expected to exceed US$400 in 2021.
Competition in the upper mid-range and high-end segments was expected to intensify, Canalys said, adding that vendors should focus on providing the latest technology to justify higher price points.
Graphics: courtesy Canalys