Stagnation of The Mobile Phone Industry

The world smartphone market has gone flat. Although the smartphone segment is expected to grow its proportion of sales over the period of 5 years, the total number of mobile phone shipments will remain consistent at two billion. This forecast has been favorite topic of analysts for quite some time now, so this prediction shouldn’t come as a shock and not many tears are likely to be shed in the broader industry if the multi-billion dollar profit margins of the likes of Apple are degraded slightly. Worldwide, smartphone manufactures made 334.9 million handsets in the first quarter of 2016, according to market research firm IDC. That marks a measly 0.2 percent increase over the same period last year, the smallest year-over-year growth ever recorded.

This clearly implies that the era of insane smartphone growth is over. Now, Apple, which always seemed unstoppable, saw iPhone sales drop 16 percent year over year last quarter. That’s the first time since the iPhone’s debut in 2007 that’s happened. Taking, the iPhone did account for $32 billion in revenue last quarter, but even Apple is feeling the new normal.

Reasons are many, but the biggest is this: Everyone who wants a smartphone has one, and the phones they’re buying are so good that they don’t need to upgrade as often. Vendors now have a better sense of where they stand, and fighting for market share will become tougher. Samsung, which moved 81.9 million smartphones last to last quarter, more than the next two companies (Apple and Huawei) combined, according to an IDC report.

Alongside the stagnated sales, rising component prices may also add up to the misery of smartphone manufacturers, though this is more likely to impact the smaller players. CCS expected the component prices to be hiked in the second half of the last year due to shortages of screens, camera modules and memory. The blame here lies with larger players greedily gobbling up available output, while recent earthquakes in Taiwan that have disrupted production.

“This is the first time we have seen component price rises for years,” said Marina Koytcheva, Director of Forecasting at CCS Insight. “Phone makers with low volumes will find it almost impossible to turn a profit in these conditions without raising the prices of their products”.

Samsung continues leading the market just because the South Korean company offers wide-range of choices—essentially, a phone for everyone, from entry level to super-premium. This lets it target both emerging and established markets. Like the case: The high-end Galaxy S7 and S7 Edge “sold vigorously” in March, IDC reports, while the company’s J-series attracted budget-conscious and first-time buyers. Apple is tried similar strategy by introducing the smaller, relatively cheaper iPhone SE, which is basically an iPhone 6S in an iPhone 5s body which could have expanded its product line to attract those on a budget and could have help Apple boost profits in mature markets—though this plan didn’t work well.

This isn’t surprising at all that China is the world’s largest smartphone market. Still, growth has stagnated there, too. According to IDC’s report, year-over-year shipments in China grew 2.5 percent in 2016, a stunning decline from the 62.5 percent growth recorded in 2013.

In the beginning, everyone perceived that Chinese consumers wanted cheap, local Android phones, and pointed to the fact Xiaomi was, at one time, the largest smartphone vendor in China. Seeing that, Apple thought its budget-minded iPhone 5c might grab a piece of that market, but the Chinese had other ideas. The iPhone 5c consistently lagged behind Apple’s more premium offerings which it is known for.