Global smartphone sales have now been falling for 8 consecutive quarters, since Q3 2017. They are now down 9% from their peak, as the chart shows, based on Strategy Analytics data. As always in a falling market, Winners and Losers are staring to appear:
LOSERS
- Apple’s market share fell to its lowest level for 10 years at just 11%; revenue and profit are falling
- Samsung’s Q2 profits fell 56%, hit by Galaxy Fold problems plus Japan-Korea and US-China trade wars
- Smartphones themselves are losing ground to smart feature phones that retail for just $25
WINNERS
- China’s Huawei, Xiaomi and OPPO now have a combined 35% market share, double their Q2 2014 share
- Huawei’s Operating System is being readied to compete with Android, as the US-China trade war continues
- 85 million smart feature phones, developed for Reliance’s Jio telecom company will likely be sold this year
As discussed here before, the Western majors have failed to recognise this paradigm shift in the market. Cash-strapped consumers are no longer prepared to pay $1000+ for the prestige of an up-market brand, as analysts IDC note:
“A key driver in Q2 was the availability of vastly improved mid-tier devices that offer premium designs and features while significantly undercutting the ultra-high-end in price”.
President Trump’s new China tariffs will, of course, create further problems for Apple and Google as these will:
- Push up prices in the US domestic market and hit consumer demand in the critical Thanksgiving/Christmas period
- Galvanise Huawei’s development of its new Operating System – helping it to become a major competitor in the global market
COMPANIES ARE FOCUSING ON THE WRONG MARKETS
But the really critical issue for most smartphone sellers is their continued focus on the Wealth Creator 25 – 54 age group. This was a great strategy during the Boomer-led SuperCycle, as there were vast numbers of Western Boomers with money to spend and a liking for innovative products. But not today, as the chart above confirms:
- Increasing life expectancy means the Perennials 55+ generation is now the fastest growing segment
- There were 500m Perennials in the Top 10 economies in 2000, and their numbers will double by 2030
- And they represent an entirely different market opportunity
Perennials don’t need ever-more complicated “bells and whistles” on their phones. They just want the basic features, clearly laid out. And they need their phones to be affordable, as their incomes decline as they move into retirement.
Equally important is the other major untapped market for growth – the 3.4bn people in the world who currently don’t own a smartphone and can’t afford one. As the Wall Street Journal has reported:
“Smart feature phones aren’t only inexpensive, but they also have physical keypads that are less intimidating than touch screens for those new to the technology. Meanwhile, their batteries last for days, a bonus in places where electricity is unreliable”.
These phones represent a major threat to smartphone sellers, and their supply chains around the world:
- As Reliance’s Jio network found after launching in 2016, millions of Indians could afford its ultra-cheap data plan, but couldn’t afford a smartphone
- Many people in the developed world, old and young, would happily swap an over-complicated smartphone selling for an average $300+ for a more basic feature phone selling for $25
Already apps such as Facebook and WhatsApp have been modified to work on feature phones, further extending their appeal. Google has also invested in Hong Kong’s KaiOS, which makes the operating system most widely used in feature phones.
The Orange network is also starting to realise the potential. It is rolling out cheap data services on the Jio model in the Ivory Coast, and plans to extend service elsewhere in Africa and the Middle East. Meanwhile Indonesia’s WizPhone is about to offer a phone for $7, and is planning a launch in Brazil.
As the world moves into recession, losing companies will stick their heads in the sand. They will hope central banks somehow find a way out of the debt mess they have created. Winning companies, however, will go back to first base and focus on unmet market needs, such as for smart feature phones, and figure out a way to supply them profitably.