While Apple Inc. and Samsung Electronics Co. take each other on in the lucrative high-end smartphone market, there is another battle taking place in the less glamorous world of inexpensive smartphones in China.

With a larger portion of China's one billion mobile phone users replacing their basic cellphones, the market is exploding for smartphones that cost about 1,000 yuan (US$157) or less. Major local players like Huawei Technologies Co. and ZTE Corp. are leaders in that segment, where foreign players like Samsung and Nokia Corp. also compete.

But the low-end segment of the smartphone market is now getting even more crowded, as Chinese Internet companies such as Alibaba Group Holdings Ltd. and Baidu Inc. jump on the bandwagon by teaming up with electronics makers to launchinexpensive smartphones.

'There are too many new entrants in the low-end segment, and competition is getting more and more intense,' said Nicolas Baratte, CLSA's regional head of technology research. Margins will be very thin and it will be difficult for anyone to make money in that segment, he added.

Last month, Baidu, China's biggest Web search engine, teamed up with major Chinese TV maker Changhong to launch a smartphone priced under 1,000 yuan. Meanwhile, Alibaba, China's biggest e-commerce company, and Haier, a major Chinese home appliances maker, said this month that they are together launching a smartphone, also priced just under 1,000 yuan. With the new smartphones, which run on operating systems that steer users to the Internet companies' services, Baidu and Alibaba are trying to generate more mobile traffic for their services.

An increasing number of lesser-known Chinese brands are also selling smartphones that cost about a quarter of the local price of Apple's latest iPhone 4S, fueling further growth in a market that is already the world's largest after it surpassed the U.S. late last year.

In downtown Shanghai, smartphones on display at Suning, a popular retail electronics chain, show just how many companies are packing into the market. Beyond familiar Samsung and HTC Corp. smartphones near the entrance, there are several parallelshelves with about a dozen Chinese brands such as Coolpad, Koobee and Great.

Suning salesman Jiang Xinhua said that in his two years working at the store, he has noticed customers increasingly chasing lower prices.

When smartphones were not yet common, customers were willing to pay large sums for them, he said.

'Now many people just want (a smartphone) that gets them on the Internet, or lets them play videogames,' he said.

Apple's iPhone 4S and Samsung's high-end Galaxy models sell for roughly 4,000 yuan (US$628) in China, and they belong to the ultra-high-end category. That segment, dominated by Apple and Samsung, continues to enjoy strong sales.

But in the rest of China's gigantic smartphone market, the trend is moving toward lower prices.

Smartphones priced between 700 yuan and 1,500 yuan accounted for about 64% of the Chinese market in the first quarter of this year, compared with 45% less than a year ago, according to research firm Analysys International. Meanwhile, the percentage of smartphones priced between 1,500 yuan and 2,000 yuan has decreased to 14% from 22% over the same period.

The growth of the lower-end segment has helped Huawei to increase its market share in China's overall smartphone market to 12% from 7.4% over a year through March, while ZTE's share jumped to 11% from 3.6% over the same period, according to Analysys.

Facing a severe price war, both Huawei and ZTE are already rethinking their strategies and adding higher-priced phones to their offerings.

'Everyone seems to think they can win (in the low-end segment), but many of them will lose money,' Huawei Chief Marketing Officer Shao Yang said in an interview.

The company's Ascend P1 smartphone, launched in April, costs about 3,000 yuan.

ZTE is also making a similar transition. Its new flagship smartphone called the ZTE U970, launched in China in April, sells for up to 2,500 yuan.

Lu Qianhao, the head of ZTE's handset strategy, said in an interview that smartphones priced higher than 1,400 yuan will likely make up about 20% of the company's smartphone lineup in two to three years, compared with 5% currently. The weight of low-end models priced below 900 yuan, which currently account for about half, will likely drop to 30%, he added.

While ZTE is confident it can stay profitable in the low-end market, outselling rivals offering the cheapest phones isn't the company's goal, Mr. Lu said.

As Huawei and ZTE target higher price ranges, they are also trying to strengthen their marketing and branding.

Earlier this year, Huawei appointed London-based BBH as its global advertising agency. The Shenzhen-based company has established a new marketing hub in London to manage its global branding.

ZTE's Mr. Lu said that the company is spending 2.5 times more on its marketing and branding budget this year compared with last year, and plans to continue increasing the budget.