Jan 22 2014, 3:48am CST | by Forbes
Yes, we’ve seen this before with a number of other consumer electronic devices from the TV to VCRs and DVD players to mobile phones and PCs. Now it’s the smartphones turn. Over the last few years, smartphones from the likes of Apple (AAPL), Samsung, LG, Huawei and even the once mobile phone stalwarts of Nokia (NOK), Blackberry (BBRY) and Sony (SNY) have been the hottest devices on the plant. Thanks to the intersection of computing power, connectivity and the Internet, the mobile Swiss Army knife known as the smartphone has grown by leads and bounds, overtaking it predecessor the mobile phone.
As we all know however, that growth can only last so long before the smartphone install base reaches a certain point. Back in October Nielsen (NLSN) reported US smartphone penetration stood at 64.7% of the US population and it is important to note those findings predated the release of Apple’s 5c and 5s iPhones as well as several other high profile models. While we wait for the smartphone penetration level exiting 2013 from Nielsen, Comscore (SCOR) or several other industry research firms, odds are it was higher than in October when Nielsen reported its findings. Given that higher level of smartphone penetration across the US population and likely others in Western Europe, the smartphone market is increasingly subject to replacement demand as the key driver for unit volume.
Is this shocking news? Of course it isn’t.
As mentioned at the start, we’ve seen this before across a number of markets and devices over the last few decades. Quite simply, this movie that we have seen time and time again usually starts with go-go growth and ends with a seasonal pattern. The seasonal pattern for smartphones will likely mimic that for the device they replaced — the mobile phone. Typically, the mobile phone seasonal pattern peaked during the year-end holiday season, which includes Chinese New Year, and dropped during the first quarter. Demand improved during the second quarter and even more so in the third quarter, which started to benefit from new model shipments ahead of the holiday season.
With that perspective in place, it isn’t a blow my hair back kind of shocker that research firm TrendForce is projecting a quarterly decline of 5.1% for smartphone shipments during the first three months of 2014. Should such a decline emerge, it could mean even more pressure for those smartphone companies, such as Blackberry and HTC, that are already having a difficult time wooing customers. It also means, investors will have to recalibrate their shipment expectations when Apple, Samsung, Microsoft (the new owners of the Nokia handset business) and others report their December quarter results in the coming months.
This natural maturing of the smartphone market likely means greater pricing competition is ahead as manufacturers battle to pick up incremental share. Coupled with the growing presence of Chinese smartphone vendors, particularly Huawei and ZTE, the smartphone blood bath is only going to heat up in 2014. As this tipping point is increasingly realized, I would expect smartphone vendors to talk more and more about wearables, The Connected Car, The Connected Home and other potential opportunities for them to expand their footprint and compensate for slowing smartphone growth expectations. Confirmation of this Trendforce forecast may be had when Texas Instruments and Microsoft report their quarterly earnings this week, and Google, Apple and Qualcomm do the same the following week.
Source: The Edge Singapore
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