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Will smartphones follow PC's footsteps?

Posted: 01 Jul 2015 ?? ?Print Version ?Bookmark and Share

Keywords:smartphone? iPhone? Samsung Galaxy?

We can all agree that phones have become an indispensable part of our life. It is now almost impossible to work or study without this device. But times are changing and we might soon reach the saturation point for phones.

Did you camp out overnight to buy the new iPhone? Did you rush to upgrade your Samsung Galaxy? The chances are that this year you didn't. Phone sales are slowing and it's worth exploring why this might be a long-term trend. It's possible we are at "peak-phone."

Phones are generally part of our way of life now. No self-respecting teenager is without one, and they are the businessman's (and soccer mum's) most valuable tool. Most of us can't remember life before the cell phone.

Our somewhat irrational desire for more and better led us to replacing the phone every two years. Telco contracts even encouraged that, with no replacement fee for a two-year old phone. All the hype and fireworks around Apple's biennial release of a new model drove the market. The phone makers loved it, especially Apple, who had translated their brand name into a substantially higher price.

Smartphone

(Source: Samsung)

Sadly, the days of massive improvements in features in a new release are behind us. Just think about some of the recently boasted new features on phones: rounded corners on screen icons, a phone that is 1/2mm thinner or a gold-coloured case.

The reality is that phone features are about capped out. There isn't a whole lot more they can do. Moreover, everything Apple can do, Android does too! (A secret here: It was never the hardware that mattered. It was always software, and the only reason for a hardware upgrade was to get the new software features and perhaps to have enough memory to run them.)

Meanwhile, phones have been getting tougher. Gorilla glass or a layer of sapphire protects the screen, and today's phones can take a lot more abuse than early flip-phones and smartphones (no more thumb-balls to jam up!) Even their greatest vulnerability, immersion has been addressed by Samsung in the Galaxy 6. Add this to the slowdown in delivery of meaningful features and the picture becomes one of longer useful life and replacement only when it breaks.

Add to this lost excitement in buying new phones is a sea change, in the United States and Europe, towards directly purchased phones and unlocked units. A separate purchase contract brings home the cost of the phone to the user, making one think carefully about the need to replacing something that is usually working well, while unlocking from telcos means the freedom to get the lowest cost service without buying a new phone.

The numbers tell the story. China, with 800 million users, is seeing a 4 per cent drop in smartphone sales with the market looking saturated. India, which was the fastest growing market a year ago, is down 14 per cent in Q1 2015. Europe is down, too. The United States saw modest growth, mainly in iPhone sales. The bottom line is that sales are starting to come under pressure and the question of peaking is being asked more frequently.

If these factors are enough to top out phone sales, what happens in the supply chain? At the user end, we'll start to see supply chase dropping demand. As in the PC industry, pipelines will be slow to adjust and excess inventory will pile up. Given the long lengths of the pipeline from China, we'll see the same pattern as in the PC industry last year, with fire sales for older models and reduced prices for the rest.


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