Price war looms as smartphone market booms

And there could be more pain on way for the South Korean company, analysts point out.

Xiaomi, Huawei and Nubia have launched models that target the 3,000-yuan ($480) price range, which used to be Samsung's territory.

The Mi Note Pro from Xiaomi retails at 2,999 yuan, with the company reporting 1 million pre-orders before it hit the stores in May.

The P8 from Huawei came out in April and costs 2,888 yuan, while the Z9 from Nubia is more expensive at $3,499 yuan.

"These new products illustrate that consumers are shifting to devices that provide better user experience," Wang Jingwen, an analyst at Canalys China in Shanghai, said. "They are going up upmarket (which is where Apple and Samsung are)."

At the top of that pyramid is Apple, the iconic iPhone brand. Despite the high cost and high rental fees charged by telecommunication providers to use their networks, the iPhone dwarfs its rivals.

At the start of the year, Apple consolidated its No 1 position in China by introducing a trade-in program, which saw a jaw-dropping 14.5 million smartphones delivered to the Chinese mainland in the first quarter. That was 1 million more units than Xiaomi in No 2 spot, according to IDC.

Since iPhone models retail at around 4,000 yuan, the gap in revenue with Xiaomi was stretched even further. To eventually challenge Apple, China's leading companies will have to come up with better products and better deals.

"Apple's trade-in initiative attracted more mid-end Chinese buyers and further increased the distance between local players," Wang, of IDC, said.

Apart from having Apple and Samsung in their sights, China's big three will have to keep a close eye on a new wave of domestic rivals. "Bringing down prices will be part of their strategy as other players enter the market," Wang said.

Weeks after LeTV Holdings Co Ltd, an online video company, unveiled a large screen Android device, known as Le Max, in April, Xiaomi cut the price of its flagship Note Pro device by 300 yuan.

Motorola Mobility, now a Lenovo subsidiary, also followed suit by announcing a 300 yuan discount on its latest high-end Motorla X series model in a move to target young buyers.

Joining them will be a new smartphone launched by Zhou Hongyi, an Internet tycoon who owns the nation's largest online security company Qihoo 360 Holdings Ltd.

Qihoo has linked up with Dongguan-based budget contract phone maker Coolpad Group to produce the Qiku range in the fall. Prices are believed to be around 3,000 yuan.

"The competition will be extremely fierce this year for Chinese vendors, especially for those who are moving up to high-end segment," Zhou said. "But there will be winners."