Q3 smartphone sales data show the global market in recession, as Strategy Analytics confirmed:
“The global smartphone market has now declined for four consecutive quarters and is effectively in a recession.”
The warning signs began in Q1, when the market plateaued for the first time, as discussed here in May:
“The global smartphone market has finally gone ex-growth as China’s slowdown continues. In turn, the market is starting to polarise – with Apple pushing further up-market whilst Chinese brands such as Xiaomi focus on volume. Samsung’s middle market positioning looks increasingly under threat.”
The chart highlights the key issues:
- Samsung’s market share has declined from a third in 2013 to a fifth today, as its mid-market positioning leaves it without a clear value proposition for consumers
- China’s Top 3 players have meanwhile soared from just a 12% market share to 29% today, powered by their low-cost positioning
- Apple’s market share has remained very stable, as it has focused on the top end of the market, prioritising price over volume
- “Others”, also usually without a clear value proposition, have seen their share drop to just 36% from a peak of 46% in Q3 2016
China remains the world’s largest smartphone market, with 103 million phones sold in Q3. But its volume was down 8% compared to Q3 2017, as the stimulus programmes continue to slow. As the Counterpoint chart shows, the market is now consolidating around a few winners:
- Huawei are emerging as the market leader with a 23% share
- Vivo and Oppo remain key challengers at 21%
- But “Others” have dropped to 13%, and Samsung has almost disappeared at just 1%
As Counterpoint note, the top 5 brands now hold 86% of the market:
“The Chinese smartphone market is saturated with accelerated market consolidation. The competition in 2018 is almost a zero-sum game for the top five players. It is challenging however, even for the leading brands to create clear product differentiation. In Q3, only Huawei and vivo managed to achieve positive YoY growth among the top 5 brands.”
Meanwhile, of course, Apple continue to dominate the premium segment after the launch of the new iPhones in September.
This divergence between low-cost and premium will no doubt spread across the rest of the global market as the downturn continues. And the main growth is likely to be in the low-cost area.
India, for example, saw volume grew 5% versus Q3 2017. But with average per capita income less than $2000, price is all-important. Reliance Jio’s ultra-low pricing strategy has been critical in making bandwidth affordable, and there are now over 400 million smartphone users in the country.
But iPhone sales are actually falling, and will be down by a third to just 2 million this year. Functional phones in the $150-$250 price segment are driving sales growth, via online sales. Q4 is expected to see these grow 65% to reach 50 million, due to their 50%-60% discounts.
The smartphone market thus continues to confirm that the BabyBoomer-led SuperCycle is over. As the chart shows, this created a new and highly profitable mid-market from the mid-1980s:
- Before then, companies had competed on the basis of price or perceived value
- But from the mid-1980s onwards, the mid-market became the most profitable sector
- Now, with the Boomers retiring and stimulus programmes ended, we are going back to basics again
Instead, the market is segmenting again on the basis of price or perceived value. Chinese players compete on price, while Apple focuses on profit and is moving up-market. this means that previously profitable market leaders such as Samsung are slowly disappearing along with the mid-market segment that they supplied.
These very different strategies highlight the new world ahead for consumer markets and those who supply them.