With high market saturation, rising Chinese competition and less room for innovation, the smartphone industry is grappling with signs of maturity.
Smartphones were a game-changer from the time the IBM Simon was released in 1994. Their popularity with consumers has been staggering, and they have changed many facets of life. In 2007 the first iPhone was introduced, heightening already intense competition. Smartphone makers saw a sustained boom in the decade that followed. Now the market appears to have plateaued. Sales fell globally in each of the past four quarters, and analysts foresee a fairly flat 2019.
Many believe the smartphone is simply following the well-worn path of nearly all technologies. “With a car, a TV, a phone or anything, the first model you sell, in retrospect, is not very good,” says analyst Pierre Ferragu of New Street Research. “So the value you bring with the second generation is enormous, and that drives rapid replacement.” Eventually the technology works so well that repeating this process yields diminishing returns. The once-revolutionary PC offers the most obvious example: Apart from an uptick in 2014, PC sales have trended downwards since 2012.
From the consumer’s perspective, smartphones have fulfilled their promises. They are content with the devices they already have, and they are keeping them longer. Analysts at CCS Insight estimate that the length of time that consumers hang on to their phones in Western Europe has increased from 26 months in 2010 to 39 months today. Plus, consumers now have scores of other gadgets.
These factors may help explain the predicament in which Apple now finds itself. Not long after reaching a market value of $1 trillion in 2018, the company’s value declined. In January CEO Tim Cook cut revenue forecasts for the first time in over a decade, The Economist reports. Within the smartphone market, Apple is facing tough competition from Chinese firms such as Huawei and Xiaomi, whose high-quality phones have much lower price tags. Apple’s prices limit its reach, but releasing increasingly pricey new phones is part of its strategy, and it continues to work.
Elsewhere in the smartphone industry, rival operating system Android, which accounts for more than 85% of global smartphone users, has been lowering its prices. Unlike Apple, it does not have its own hardware; rather, it uses a wide range of handset suppliers. Competition among them is fierce, creating more pricing pressure. South Korea’s Samsung remains the world’s biggest smartphone maker, but it is being challenged by Chinese firms like Huawei. Smaller players such as LG, Sony and Nokia are adjusting to the commoditization of smartphone hardware.
As to how long the smartphone market slump could last, opinions vary. Smartphone makers insist that innovation will revive demand for new phones. Others say that smartphone makers have a better shot at driving sales through wider penetration, particularly in poor countries. India is especially promising. Users are more dependent on their phones, and given that the industry still ships some 355 million phones every three months, there are still fortunes to be made.
