Smartphone makers brace for bumpy 2016

Deutsche Welle
5 Min Read

As Apple looks set to unveil new iPhones at its annual spring product debut at the company’s campus in Silicon Valley, leading smartphone makers are already grappling with market saturation.
It’s all eyes on Cupertino, Calif., once again as US tech giant Apple gets ready to introduce the latest versions of its ubiquitous smartphones and tablets at a special media event in Silicon Valley.

Any new products will remain tightly under wraps until Apple’s chief executive, Tim Cook, takes the stage, but the rumor mill has been spinning for weeks. Word is that Apple could unveil a small-screen iPhone, much like the 5S, but with substantial improvements under the hood.

But while the Cupertino event may help to encourage even more people to buy iPhones, smartphone makers in general are getting increasingly worried about lower sales prospects this year and beyond.

Market saturation is a real problem

The scope of the problem was highlighted recently at the World Mobile Congress in Barcelona where Kantar Worldpanel, a leading global expert on shoppers’ behavior, provided the latest figures for smartphone market saturation.

It said mobile penetration in the US as well as in Europe’s five biggest economies – Germany, France, UK, Spain and Italy – had reached 91 percent, adding that for urban China it was no less than 97 percent.

“With this kind of market penetration already in place, some in the industry are wondering where future sales will come from,” Kantar Worldpanel ComTech’s Carolina Milanesi warned.

Admittedly, mobile penetration doesn’t only include smartphone owners. But researchers have frequently pointed out that owners of feature phones tend to cling to their devices and cannot easily be convinced of the need to buy smartphones.

Thinking twice

Another worrying signal for the industry is that smartphone owners themselves have come to think longer in recent years before shelling out more for an upgraded model.

Kantar Worldpanel agrees replacement cycles have become a lot longer in industrialized nations. In China as one of the world’s leading emerging markets, though, that very cycle “shrank to 19.5 months from 21.8 months in 2014.”

It’s been over 10 years now since smartphones were introduced, and the market has seen impressive growth ever since. But the industry may well have arrived at a turning point. While there will still be a lot of money to be earned for producers, double-digit growth in the sector may be a thing of the past.

Market research group Gartner expects 2016 smartphone shipments to increase by only 2.6 percent throughout 2016, adding that this development will be accompanied by more and more people opting for lower-cost handsets, presenting a huge business opportunity for Chinese manufacturers such as Xiaomi, ZTE and Huawei. They offer a lot of the features that were once unique selling points for Apple and Samsung.

Fierce inter-brand competition

What we’re bound to see is an increased effort by both established smartphone makers and newcomers to try and attract existing owners away from respective rival brands to push their own sales. At the same time, a continued gradual shift away from hardware sales to creating more bottom-line profit from services and content seems inevitable.

Apple’s iPhone growth seems to be peaking, with researchers from Strategy Analytics suggesting the company “will have to expand into new markets like India or Nigeria” to reignite growth.

Apple CEO Tim Cook has already warned of a difficult start to 2016, seeing a year-on-year dip in Q1 iPhone shipments.

Could a new iPhone make a difference? Mark Gurman, a leading mobile technology and Apple expert who works for, told DW the new phone will come in the old 4-inch size, but with pretty much the same functionality of Apple’s larger iPhones.

“There are many people who use iPhones with small jeans pockets or small purses, making the smaller form factor and opportunity for Apple to increase sales,” Gurman said.

“The iPhone 5s has remained popular since it was succeeded, and the SE will certainly keep those sales numbers up.”

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