Fewer customers see the need to upgrade their smartphones, trouble ahead for Samsung and Apple

by: Gary SimsJuly 17, 2013
Image Credit: SMH

Image Credit: SMH

It seems that fewer people are upgrading their smartphones as the unquantifiable ‘wow’ factor starts to fade and consumers become less enamored with the never ending incremental improvements between one smartphone model and the next.

According to new research from UBS AG the rates at which American smartphone users have upgraded to the latest models is declining. The rate declined in 2012, when 9 percent fewer customers upgraded, and it is set to decline again this year.

This is a big problem for handset manufacturers like Samsung, Motorola and Apple. These companies have benefited hugely from the explosive sales of smartphones in the USA, but now as the market edges towards saturation (around 70% of contracts are now for smartphones) continued revenue growth will mainly come from consumers ditching their old handsets and upgrading to the latest ones.

However, the problem is that upgrading can often be costly for users and simultaneously consumers aren’t seeing the need to upgrade. Although the latest flagship models are very well built and offer a excellent range of features, the impact and “need” for those new features is less when moving from one smartphone generation to the next, as opposed to moving from a feature phone to a smartphone.

Upgrading is expensive for the carriers who generally have to subsidize the new handset based on an extended contract and maybe by adding some new options to the existing plan. If the subsidy isn’t attractive users won’t upgrade. The result is that the handset manufacturers sell less devices, profits fall as do share prices. This has already started to happen to Apple and Samsung whose stocks are down 19 percent and 15 percent this year already. Apple’s reliance on the US market and potential problems internationally are already causing concerns for investors.

To woo consumers into upgrading the US carriers are starting to re-invent the traditional two year contract.  T-Mobile has launched its JUMP upgrade plan while AT&T has its new Next program. T-Mobile’s ‘Just Upgrade My Phone’ is a new plan that allows customers to trade in their old smartphone for a new one twice a year, as long as you have been in the program for at least six months. AT&T’s Next allows consumers to buy a smartphone or tablet with no down payment but they have to pay 20 monthly installments. After a year buyers will have the option of getting a brand new smartphone but under the same conditions (i.e. with another twenty months of installments). There is also a fee for trading in after a year but before the 20 months have passed. If this fee is too large there is a worry that the Next plan is in danger of becoming the Next scam.

What do you think, can you whip up any excitement about Apple tweaking the iPhone 5 and calling it the iPhone 5S or Samsung releasing yet another Galaxy S4 variant?

  • MasterMuffin

    I’m going to get Nexus 5 and after that I won’t update unless there comes a phone with a ‘wow’ factor again (Lumia 1020 was close but damn you WP)

    • Roberto Tomás

      I still don’t have a tablet because I haven’t seen what I am looking for, from any manufacturer, yet. Its been such a long wait too!

      CPUs have now completely surpassed what I need; the snapdragon 800 is more powerful than most of AMD’s x86 home user parts (scores over 4100 on geekbench, if you want to compare). But peripherals have basically stalled out, since last year they got to USB 3 and LPDDR3 — no one actually includes USB3 even though it is free and in the designs. None of the thin film stuff (remember IGZO first came out in Japan 2 years ago) .. and no one have included a SATA 6gbps so we can have *real* tablets. Honestly, tablets are closer to complete on the Intel side of things, where basically the lack of wireless, battery weight and 1080p are the primary concerns.

      • MasterMuffin

        I think Ativ Q is starting to get closer to what you call a real tablet, we’ll get there!

      • kascollet

        What’s the point of SATA 3 in a tablet when the NAND flash is directly connected ? ARM tablets are pretty balanced and improving year after year. If you’re looking for a true PC, you can stick with it but tablets have a reason to be, beside PCs.

        • Roberto Tomás

          The point to SATA 6gbps is SSDs. I can easily buy a 1.8″ or 2.5″ SSD, and in a phone maybe even the smaller size is a tight fit, but in a tablet both are viable. A tablet with 1TB of storage would be pretty cool, no?
          I know that that next version of sata, SATA Express, will address this… but that is 2014 at the earliest. SATA 3 is here now. Qualcomm and TI both addressed it with their designs for this year (but of course TI dropped out). Building a device that actually uses it is another matter.

          • kascollet

            1tb in a tablet, user replacable….that’s a surprising use case, to say the least :-)

          • I want a detachable tablet with 2 harddisks; one 500gb 2.5″ hd at the keyboard side and an SSD at the screen side. FullHD, screen size 8″, stylus, big battery, etc…

    • bozs13

      Word bro. If it weren’t a WP phone I’d own it. NOW

    • sree

      Lumia 1020 didn’t have MicroSD card slot. I won’t buy even if it’s Android.
      But it’s just me. People opinions differ.

      • MasterMuffin

        I’m willing to let that go for the other awesome stuff. Nexus 5 won’t have an sd card slot either which makes me sad

    • districtjack

      Good choice. I too will be getting a nexus as my next phone, but that may be several years in the future because I am very satisfied with my current phone. They have been making amazing devices in the last year or two. Anyone with a current device really has no need to upgrade.

      • MasterMuffin

        I really have no need to upgrade either (I have s3), but I’ve promised myself that after N5 I won’t buy any smartphones unless my N5 gets broken, stolen or (as I already said) there comes a phone with the ‘wow’ factor

        • districtjack

          Yeah, it would have to be the” wow” factor for me too.

    • Cristi13

      Like Samsung did with the ativ q, I would like Nokia to make the 1020 dual-booting both wp and android.

      • MasterMuffin

        I bet it would be hard and pretty much a waste of time and space to try to dual boot WP8 and Android. Ativ Q has full W8 that runs Android in some kind of virtual machine, so that’s different

        • Cristi13

          Hey, a man can dream right?

    • Blowntoaster

      The Lumia is Fugly. it’s a camera with a phone attached to it. Even if it had Android 5.0, 128gb storage, enough ram to power the Millenium enterprise, and seven micro sd card slots, I just would not buy it. unless it was my second phone, solely being carried around to take good photos with. but then again, I’d just carry a proper DLSR around. or consider the Galaxy NX….hmmmm…

      • MasterMuffin

        Sorry, but I don’t listen to people that only care about looks

      • I have the same thinking – it’s a camera.

  • Roberto Tomás

    Samsung’s stock is down because of the Chinese economy, not the American market. To the notion that these companies can’t survive without their American chunk of the market; the idea that the American market is the majority of the entire global market is just silly. Now I have to wonder, what is this article doing here?? You don’t do a lot of market speculation on this site. :) This is definitely a top notch tech site.

    • MasterMuffin

      I can’t understand either how surveys or studies made in ‘murica that has only ~300 million people can tell anything, there are over 7 billion people in the world!

      Edit. I wonder how ‘murica got itself in this position that all the smartphone manufacturers have to invest there and obey the stupid carriers.

      • Of the 7 billion people, I assume 700 million at most can afford and or longing for a high end smartphone. The rest must be too poor to own one. Since 2011 to present, smartphone production level must be nearest to peak point.

  • dandroid13

    It’s trouble for HTC too, americans are the only ones who get fooled by them.

  • Mark Mann

    maybe if all the providers(vzw, att, etc.) didn’t do away with unlimited data, the general public would be more inclined to upgrade?

    • SilverStone641

      Totally agree with you. Now instead of getting excited about my impending upgrade from AT$T, I’m considering other options including pre-paid. Unlimited data would DEFINITELY make it easier to choke down AT$T’s pricing.

  • Bone

    There’s more trouble ahead for the little players who barely break even, they can’t handle any more backdrops while Apple and Samsung have the resources and (with the iPad Mini and iPhone Cheap) the mid-range market power to stay well alive while while pushing money into wearables.

  • Cristi13

    Trouble ahead of Samsung and apple? I would say the smaller players would have to suffer, because the already don’t get as impressive sales as them.

  • End in sight

    Apple is by nature, high end specs and costly. If they can’t get their user base to upgrade, I think they will likely look for new users who WILL pay the premium…and they will likely look to developing markets/nations. I doubt they will reimagine themselves and become a firm known for both low-end AND high-end items. If they provide both, they run the risk of watering down their image. I know they are reportedly poised to launch a cheaper iPhone, but in doing so, they might lose some users who like the image more than the OS/hardware. (Personally, I think Apple HAS to drop the image and start making cheaper products if they want to survive, but I don’t think they will be able to let go of their elite-ism.)

    Samsung, on the other hand, can do whatever they have to do, to sell, make profit and gain market share. Even if that means focusing more on mid- and low-end devices. But the safe part for Samsung is that they don’t really have an image they need to prop up.

    I agree that Apple is in trouble of reducing their high profits.

    • Misti curia

      Wouldn’t really call apples iOS devices as having high end specs compared to android. The screen size, screen resolution, CPU speed, GPU speed, battery and ram are all less than competing android devices.

      • End in sight

        Sorry, good point. I meant, “high end components”.

    • xoj_21

      they already know this thats why they going low end iphone

  • Grman Rodriguez

    Finally it’s time to stop giving better specs and start giving better experiences

  • kroms

    Word , me too on the NEXUS 5

  • brendan soliwoda

    I can honestly understand this. As a person who prefers hardware over software, I tend to get a new smartphone every year to keep up with the current trend of things. However, especially with this year in smartphones, I starting less to see the need of upgrading every year. Honestly, if I can have a phone with a 1080p screen, good quad-core processor (or dual-core A-15 processor, although I would prefer quad), good amount of RAM (2GB or higher), made out of good quality (I’m looking at you Samsung -_-), either an ultrapixel or 13MP camera with a decent size lens, and running Jellybean and above with upgrades to at least Key Lime Pie, I’d be good for another 2-3 years, at the least. And I’d be perfectly content.

  • Misti curia

    I can’t imagine a sanpdragon 800 powered device going outdated for at least 3-4 years

  • Honestly, I was craving the first month the s4 was on the market. Later on I realised that my s3 is still worth everything – from Evernote to videos to camera to maps except the stylus function which is below my satisfaction. But my eyes is firmly focused on the note3. That is why I was able to control my desire. Once I have my note3 in my hands my next move is a detachable windows tablet 7-8″ fullHD with stylus. Whoever manufacturer will come up to my taste gets my money and that’s it. My next visionary upgrade if budget permits will be 4-5 years later which is the year 2018.