We know, it’s that time of year: fourth quarter earnings are coming in, annual reports are being released and various research companies are crunching the numbers and telling us what it all means. But before you fall into a spreadsheet-induced coma, remember that the trends these reports reveal mean very big things for the mobile telecommunications market, both in terms of who’s coming up, who’s on the way out and even how much we’ll likely be paying for phones in the coming years.
So it is with the two annual smartphone industry reports released in the last couple of days by Strategy Analytics and IDC. According to both companies, 2015 witnessed the largest-ever shipments of smartphones globally: 1.4 billion units to be precise. That’s a solid 10% increase over 2014’s figures and the most number of phones sold in the market’s history.
But what about all these stories saying that the smartphone market is weakening and everyone is at risk of going under? Well, both LG and Samsung posted dismal fourth quarter reports in the last week and even Apple has predicted its first sales decline in over a decade. But if smartphone sales are increasing, what’s the problem?
The problem is that while smartphone sales are still strong, smartphone growth is diminishing at the same time as increased competition is threatening the status quo. We’ve seen the symptoms of this situation just this week as many of the traditional big players lose ground to strong Chinese competition from the likes of Xiaomi, Lenovo and Huawei. But even for the successful Chinese vendors the market’s future isn’t looking great.
According to Strategy Analytics, the fourth quarter of 2015 saw the weakest growth rate the smartphone market has ever seen. While it must be pointed out that 6% growth isn’t exactly terrible – a profit is still a profit – when the entire industry is trending downwards, it’s only a matter of time until growth becomes decline. 2016 may not be the year that smartphone sales plateau, but that turning point isn’t far away.
Expansion into emerging markets will slow the outgoing tide, perhaps for a number of years, but once everyone without a phone in those new markets gets a phone, market growth will plummet. There simply won’t be anywhere new to sustain such rapid growth. This is why new markets are so enticing: when a new market opens up the entire population is a potential customer. The trouble starts once all those potential customers have what you’re selling.
So just as we’re seeing Samsung losing ground and Apple supposedly hitting its own sales ceiling, other big names like Sony and HTC are already on the way out. Apple and Samsung will be able to stick it out through their sheer size alone, but there’s only so long Chinese vendors can grow when the market itself begins shrinking, even if they do continue to nibble at the bigger players.
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Of course, the numbers don’t agree entirely either, as you can see if you look at QoQ and YoY fluctuations in market share according to the two research firms data, but the wider trend is clear: smartphone penetration globally is slowly reaching saturation point. The good side of all this is that as competition increases and the market weakens, lower prices will become the next competitive advantage.
When do you think smartphones sales will begin to decline? What do you see happening to the market in the years to come?
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