The Bifurcated Future of Smartphones

smart phone

Though it may sometimes seem in the developed world as though everyone has an advanced case of smartphone addiction, the size of the market for the trendy gadgets may be larger than most industry observers think. And as the sector matures, products at the highest and lowest ends of the price spread are likely to fare the best.

 

Kulbinder Garcha, a Credit Suisse IT hardware analyst, said in a report recently that only about 24 percent of the people in the world who could potentially afford a smartphone have one. Current estimates of the size of the smartphone market fail to properly account for so-called white-label phones that don’t carry big brand names, he said. By analyzing the total cost of owning a smartphone, including a data plan, Garcha estimates the number of people potentially in the market for a device could rise to just shy of 5 billion by 2017. Right now, only 1.2 billion people worldwide have one.

 

“You’ve got to have a $6,000 income level,” Garcha said. “There are about 4.95 billion people in the world that have that income level, and so we think that’s the addressable market for smartphones long term.”

 

Garcha said he expected growth to closely track the early days of the cellphone market. Typically, he said, once market penetration hits 20 percent, it can leap to 80 percent within five years. In 2017, therefore, he expects 3.9 billion people may be smartphone subscribers.

 

A sharp decline in the total cost of owning a smartphone should help the trend along. Garcha predicts smartphone costs could nearly halve from $194 to a global average of $103 by 2017. In China and India, the price is set to dip to just $46 from the current $70.

 

That means low-end smartphones costing less than $200 are poised for enormous growth, according to Garcha.

 

“Clearly, you’ve got much lower penetration in emerging markets, and we would see a significant portion of the smartphone market long term being driven by emerging market adoption,” Garcha said, ticking off China, India, Indonesia and Brazil as countries with big growth opportunities.

 

Consumers seem willing to spend more on a smartphone than they did in the past – a development that isn’t exactly welcome in the consumer electronics market.

 

“People would rather buy this than a camera, an MP3 player or maybe even a TV because it’s such a powerful device, and you can do so much with it,” Garcha said.  “As a percentage of consumer electronics spend (smartphones are) now 35 percent of all spend in the world. A few years ago, it was 10 percent.”

 

That trend was reflected in Credit Suisse’s latest Emerging Market Consumer Survey, where consumers from 14 developing economies reported that smartphones were near the top of their shopping lists, seemingly at the expense of computers and basic mobile phones. Smartphones were particularly sought-after in China, Saudi Arabia and Indonesia, the survey showed.

 

“The momentum in smartphone expenditure has been particularly strong for the last couple of years, but planned expenditure over the next year, if anything, looks set to be even stronger, supported by increased Internet access,” the survey said.

 

Though high-end phones, such as Apple’s iPhone, may have already seen growth rates peak in the developed world, annual sales volumes at the high end of the price spread are still expected to rise to around 400 million within the next few years, from 300 million last year, and then plateau.

 

Garcha noted in a recent research report that Apple was opening a new retail store in Turkey, and planned to zero in on growing its presence in Brazil, Russia and India. The company’s 11 stores in China have brought in $23 billion in sales.

 

But mid-priced phones that cost between $200 and $400 are likely to see their market share decline from 40 percent to just 25 percent over the next two years.

 

“It’s always been the case that the top two players basically take all the value,” he said, referring to Apple and Samsung in the current market. “What you’re going to have in the handset industry for some time is a significant degree of concentration of value share in those two vendors.”

 

But there’s a difference from the days when Motorola or Nokia were the top dogs in the mobile game: Apple and its ilk have made it much more difficult to transfer your information to another carrier. That means customers stay loyal for longer, and companies are signing up new consumers when they buy their very first phone.

 

“Try to pull all of your music, video, pictures and content from one phone to another seamlessly, without dropping any of it, and see if it’s easy – not to mention you have apps where you put all of your details,” Garcha said. “This is what everyone in the industry understands. Once you’re within an ecosystem, it has to be really pretty bad to get out of it.”

 

Photo courtesy of DaveLawler via Compfight cc

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