iPhone is one of the most popular smartphones worldwide but is not within the top five in the world's most populated country, China, in Q3 2012.

Apple dropped out of the top five list in China's smartphone market as sales of low-priced local handsets increased in the third quarter, reported research firm Canalys.

Apple held the fifth rank in Q2 2012 and second place in Q1 2012 before dropping to the sixth spot in Q3 2012.

If dropping out of top five smartphone list was not bad enough for Apple, Canalys reported that arch-rival Samsung maintained the top position in China's smartphone market with 14 percent share in shipments. Lenovo occupied the second position with a 13 percent share.

Surprisingly, Chinese smartphone maker Yulong Computer Telecommunication Scientific which sells smartphones under the brand name Coolpad took the third place. The company is barely known outside China and its shipments steadily increased with an array of low-end handsets sold for under $100.

"They are doing especially well from their partnerships with China Telecom and China Mobile this quarter," said Nicole Peng, an analyst with Canalys.

China Telecom and China Mobile are China's key telecommunication operators, which have a combined user base of 850 million mobile customers.

Yulong grabbed a spot in the top five for the first time. Chinese vendors ZTE and Huawei occupied fourth and fifth positions, respectively; however, the three companies are very close to each other and had about 10 percent share of the market.

Even though Apple's smartphone shipments in China have increased over the last few years, the company held a market share of eight percent, which is a one percent drop from Q2 2012.

"(The Chinese vendors) are selling their devices at a very low price that can attract first-time smartphone users. Apple's iPhone is still very expensive and it kind of limits their expansion in the country, when the target audience of where the growth is coming from is at the low-end," reported Peng.

Q3 2012 was a period when iFans were expecting Apple to launch the next-generation iPhone, which finally made its appearance at the end of Q3 2012, a potential reason as to why Apple dropped out of the top five in China.

With the launch of iPhone 5 and the increase in sales of the latest smartphone, time will tell if Apple can make its way back in the top five list.