Smartphone sales growth continues, but revenues struggle amid price war

2 Dec 20142 Shares

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IDC’s latest worldwide quarterly mobile phone tracker predicts continuing growth in smartphone sales, but reducing prices means profit is harder to come by.

Worldwide smartphone shipments will reach a total of nearly 1.3 billion units in 2014, representing an increase of 26.3pc over 2013 – that will rise 12.2pc in 2015, 9.8pc in 2018. Smartphone revenues reflect a starker picture, as they will be hard hit by the increasingly cutthroat nature of pricing, resulting in a 4.2pc CAGR over the same forecast period.

"The impact of upstart Chinese players in the global market will be reflected in a race to the bottom when it comes to price," says Melissa Chau, senior research manager at IDC.

"While premium phones aren't going anywhere, we are seeing increasingly better specs in more affordable smartphones. Consumers no longer have to go with a top-of-the-line handset to guarantee decent hardware quality or experience. The biggest question now is how much lower can prices go?"

What’s interesting is the revenue models undertaken by Apple (iOS) and its more numerous competitors (Android), with the former yielding greater profit from its units sold. By 2018, Android will control 80pc of global smartphones shipped and 61pc of revenues, while iOS will control only 13pc of volumes and 34pc of revenues.

Business models need fine-tuning

With Android volumes so dominant, it is no longer a possibility for new operating systems like Tizen and Firefox to compete on price alone – any underdog OS must bring a radically different appeal to gain any significant traction.

"As shipment volume slows, we expect greater attention to shift toward value trends," said Ramon Llamas, research manager at IDC. "Apple's approach with premium pricing ensures a growing portion of overall revenues despite its declining market share. Meanwhile, Android's multi-faceted approach – with forked versions and low-cost Android One strategy – will produce mixed results, yet it allows deeper penetration into emerging markets.

"That can lead to additional pressure on its vendor partners, who will need to seek greater differentiation in terms of devices and experiences in the hyper-competitive smartphone market."

Elsewhere Gartner’s recent report into smartphone usage shows that video calling is finally on the rise, sharply increasing in popularity. "Based on these survey findings, we believe one of the use cases that has seemed marginal for some time now warrants much greater attention — and that is video calling," said Atsuro Sato, senior research analyst at Gartner.

"Person-to-person video calling, especially using smartphones, has reached very high numbers in the US, particularly among the younger demographics. Although the US results were ahead of Germany, we believe they show the direction that other markets will follow, with important implications for product managers and marketers of smartphones."

Collection of smartphones image, via Shutterstock

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Gordon Hunt is a journalist at Siliconrepublic.com

editorial@siliconrepublic.com