After years of rampant growth, the global smartphone market is slowing down as consumers wait for the next game-changing feature. That is bad news for the giants of the technology industry, including Apple Inc. and Samsung Electronics Co., as well as the crop of Chinese challengers that includes Xiaomi Corp., Oppo, Vivo and Huawei Technologies Co. While the industry has stopped growing, it still remains a vital part of the global economy with smartphone sales reaching $458 billion in 2017.
1. How has the smartphone industry evolved?
While Apple Inc. didn’t invent the smartphone, it certainly sparked the modern era of web-connected devices with the very first iPhone in 2007. The next year, the first device powered by Android made its debut and the era of rapid growth was ushered in. In 2013, the number of smartphones shipped surged 40 percent, in 2014 that growth slowed to 28 percent, according to IDC data. Last year showed the first contraction on record, with the market shrinking by 2.5 percent, in large part because of reduced shipments in China.
2. What drove this growth?
A mixture of technology and demographics. When the first iPhone hit the market, it used existing wireless networks, most of which were still on second-generation standards, the ones that power old-style feature phones. As wireless networks moved to third- and fourth-generation networks, typically offering much faster speeds for downloading videos, apps and other content, there was a natural inclination for consumers to upgrade. Vendors also innovated in more dramatic style, such as adding fingerprint technology, improved cameras, high-definition screens, digital assistants and bigger displays to lure consumers into forking out for the latest model. Another key factor was demographics, as countries including China and India became industrialized. That boosted incomes and hundreds of millions of consumers quickly found themselves able to afford a smartphone, and able to get their very first connection to the internet.
3. So why is growth slowing down?
There are few major technology innovations coming through, the sort of must-haves that lead people to trade in a 1-year-old device that costs $800 for another that costs even more. Phones are also getting better -- screens and cases are sturdier, vendors are offering more processing power and smartphones are coming with bigger memory capacity. All that means that phones are useful longer, before they become little more than a paperweight.
4. So it’s just about the features?
It’s also about maturing markets. After years of breakneck growth, most Chinese have a smartphone now, which means there isn’t a vast pool of untapped demand. Same in western countries, where smartphones have reached saturation levels. While there are still a core of users who will line up every September for the newest iPhone, many more are happy to stick with their handset until it stops working.
5. What about the future?
IDC expects the market to go backward again in 2018, although by just 0.2 percent, which would mark two straight years of declines. This will be driven by China, where demand is falling on signs of saturation and people sticking with their devices for longer. From 2019, growth is likely to resume but at the subdued annual pace of about 3 percent, which will continue through 2022, according to IDC.
6. What will it take to turn things around?
The rollout of 5G should help provide a boost as consumers seek to get hold of devices that can download a feature length movie within seconds. IDC expects commercial 5G devices to appear in the second half of 2019 with a more substantial ramp-up in 2020. While China has certainly matured, there are still low smartphone penetration rates in India, the Middle East, Africa and Latin America, home to more than half the Earth’s population. New innovations could also provide a catalyst. While Samsung has been working toward making foldable screens a reality, turning a handset into a tablet, such a radical design hasn’t been released yet. A leap forward in battery technology is another change that could attract users tired of the never-ending search for a power outlet. Augmented and virtual reality have made only limited appearances on smartphones so far, but as processors get more powerful the opportunities for new content and features could spark demand.
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