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

There is trouble ahead for the big handset manufacturers like Samsung and Apple as fewer people are trading in their old smartphones for new ones. 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?
July 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?