Smartphone Market Finally Hits Wall

For financial analysts, the recent announcement that Apple's smartphone business had failed to grow for the first time in over a decade was not a huge surprise. In fact, many analysts said that it helped to underline the distinct possibility that the smartphone had finally peaked.

Apple’s second quarter financial results pointed out that smartphone makers had become, in part, victims of their own success. In the United States and China, where most of the world’s smartphones have been sold, manufacturers have flooded the market, leaving fewer first-time buyers. On top of that, the technology inside smartphones has advanced to the point where newer models are not a big leap from older phones, which has discouraged people from upgrading more often.

Several recent studies have suggested that the market for smartphones has finally reached critical mass after more than a decade of growth. The research firm Strategy Analytics, for instance, is reporting that in the first quarter consumers purchased 10 million fewer smartphones than the first quarter last year, marking the first time in history that the market has shrunk annually.

Linda Sui, director of wireless smartphone strategies at Strategy Analytics, said that companies sold 334.6 million devices in the first quarter of 2016, down 3% from the 345 million shipped in the first quarter of 2015. The market has plummeted over the last year, she said, noting that the market had grown 21.2% between the first quarter of 2014 and 2015.

Other research from International Data Corporation yields a more conservative assessment. IDC analysts said that the smartphone market has flattened out over the last year: smartphone makers sold 334.9 million devices in the first quarter, according to their statistics, up slightly from the 334.3 million shipped a year ago. The firm says that the 0.2% increase was the smallest annual growth rate for smartphones in history.

Despite slightly different numbers, the studies point to identical reasons for the overall slowdown. Larger companies have been struggling to sell devices in the United States, where nine out of 10 people own smartphones, and in China, where the market has cooled down over the last two years. Even the most fastidious buyers, who have traditionally purchased new phones every year, have started taking more time between upgrades.

Lifted by the sales of its new Galaxy S7 flagship, Samsung remained the largest smartphone producer in the first quarter, selling 81.9 million devices, according to IDC statistics. Even though it holds nearly one-fourth of the entire market, Samsung’s smartphone business has slowly declined over the last few years, forcing the South Korean company to pursue more software products and artificial intelligence.

Apple held its position as the second largest smartphone maker in the world, with 18.3 percent of the entire market, despite the fact that its shipments fell from 61.2 million to 51.2 million. Analysts have said that owners of the regular iPhone 6 and 6Plus are not feeling the need to upgrade to new models, like the iPhone 6S and SE.

“Apple is facing iPhone fatigue and pressure is mounting for Apple to innovate a new ‘wow’ design beyond its standard rectangular form factor,” said Sui. The company's smartphones, which have long been a status symbol in China, have begun losing their luster in the country. Apple’s revenues fell 11% in mainland China over the last quarter, the company said in a recent earnings call.

Apple and Samsung, the traditional heavyweights, are fighting harder against local manufacturers in China and Southeast Asia. Huawei grew around 58% over the last year, selling 27.5 million smartphones in the first quarter. Other companies in the region have emerged out of relative obscurity: Tailand's OPPO grew a staggering 153% and shipped 18.5 million devices, while India's VIVO more than doubled its sales to 14.3 million, according to IDC figures.

“Outside of China, many of these brands are virtually unknown,” said Anthony Scarsella, research manager with IDC’s Mobile Phone division. “While Huawei is the furthest along in terms of international recognition, selling equally impressive volumes outside of China remains a challenge for many of these brands.”

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