The trend is your friend in the smartphone market

Two charts tell us almost all we really need to know about the global smartphone market. The first confirms that sales peaked 4 years ago in 2017 at 1.5bn – and were down 10% at 1.35bn last year. And the second highlights the major changes now underway in most major consumer markets today.

The key issue is simply that the market has now gone ex-growth:

  • 174m smartphones were sold in 2009, and sales then accelerated up the usual S-curve
  • They grew 4-fold in the next 3 years to reach 725m in 2012
  • 3 years later, they had doubled to reach 1.4bn in 2015
  • But the peak came 2 years later in 2017, with 1.5bn sold.

Since then, the market has seen a slow but steady decline – despite analysts’ confident predictions that a return to growth was just ‘around the corner’.  2021 did indeed see a minor improvement versus 2020, but that was to be expected after the initial lockdowns ended.

The chart also highlights the turmoil in the Chinese producers. Lenovo and Huawei have both more or less disappeared, whilst Xiaomi, OPPO and Vivo have replaced them as the Top 3 Chinese players.

Equally important is that prices have come under pressure. They averaged $282 in 2016, and were $317 last year – 4% less than the $330 inflation-adjusted price would have been. And this fact highlights the second trend.

As the chart shows, the slowdown in sales has led to Winners and Losers emerging:

  • The middle market where Samsung used to dominate continues under major pressure. Samsung is a clear Loser with its market share down to just 19% in Q4 last year versus its 35% share in Q3 2013
  • The main Winners in terms of market share have been the aggressive Top 3 Chinese players. They held just 8.6% of the market in Q1 2013, and now average over 30%
  • The smaller unbranded players have also been Losers, with their share collapsing from almost half of the market in 2016 to less than a third today
  • The great Winner in terms of revenue, of course, has been Apple. Its market share has been relatively stable around 18%, but it continues to take around 80% of global smartphone profits

In addition, it has built major new businesses in services and in the cloud, which are racing up their own S-curves in terms of revenue and profit.

One key move was the decision to broaden its range, and no longer just focus on the top end of the market. I argued for this to happen for some years, whilst Apple’s share dipped to 12% in some quarters in 2016-17, before Tim Cook finally took the hint. His concern, which I understood, was that he might end up cannibalising his own premium market.

His solution was very elegant. He simply kept older iPhone models in the market when he launched new models each year. So less-design centred buyers (like myself) finally found an iPhone to buy at a reasonable price.  Today, the iPhone range runs from $399 for the iPhoneSE to $1099 for the iPhone Pro Max. And he finally offered a range of screen sizes.

By comparison, Samsung are really caught in the middle. They have just launched their new Galaxy S22 range – but have been unable to increase their prices, despite the major cost increases seen over the last year. So their volume and margins will likely continue to suffer.

The smartphone market therefore continues to highlight the way forward in the New Normal world. Selling “stuff” on its own used to be a great way of earning profits. But its not enough today. Companies who don’t follow Apple’s lead and focus on designing a new ecosystem aligned to consumer needs risk slowly, but surely, going out of business.