Smartphone Market Is Already Slowing Down

Smartphone Market Is Already Slowing Down

Emerging markets are the new growth area

After a rapid explosion in smartphone sales over the past few years, growth will slow dramatically this year and beyond, the market researchers at IDC claim. More problematic for device makers, the average selling price of these devices is nose-diving as mature markets are saturated and they must turn to emerging markets to drive unit growth.

"Not only will growth decline more than ever before, but the driving forces behind smartphone adoption are changing," IDC research manager Ramon Llamas says. "New markets for growth bring different rules to play by and 'premium' will not be a major factor in the regions driving overall market growth."

According to the firm, smartphone growth hit an incredible 39.2 percent in 2013, as device makers for the first time sold over 1 billion units. But smart phone sales growth will slow to an estimated 19.3 percent, with 1.2 billion units shipped. By 2017, growth will hit single digits—8.3 percent—the firm says, and then just 6.2 percent in 2018.

But that's worldwide. In established markets like the United States, Western Europe, and Japan, smartphone growth will dip into the single digits this year, in 2014.

Slow growth is still growth, of course. But with prices falling dramatically as rich, first-world countries become saturated with high-end smartphones, device makers are going to have to start pushing a volume strategy. And their new customers in emerging markets simply don't have as much money to spend on a phone, let alone an expensive contract with a wireless carrier.

So, although the worldwide average selling price of a smartphone was $335 in 2013, that price is expected to drop to $260 by 2018. And the percentage of phones that sell for a low price point will rise dramatically and become the volume part of the market.

Oddly enough, we've already seen this trend establish itself with Windows Phone, which has proven more successful in cost-conscious emerging markets than it has in places like the United States, which favors high-end phones from Apple and Samsung. As I've noting a lot in my monthly Windows Phone usage trends articles—the most recent being "Windows Phone Device Stats: February 2014"—low-end handsets dominate and have for some time.

To capitalize on these trends, phone makers—except for Apple, notably—are deemphasizing the expensive "hero" phones and are seeing how low they can go. Nokia just introduced a lineup of AOSP-powered Nokia X handsets that will retail for $125 to $150 without a contract, and the firm has indicated it has lower-cost models coming. And web browser maker Firefox said this week that smartphones based on Firefox OS will cost as little as $25.

As for today's leading platforms, there will be little change through at least 2018. Android will continue to dominate the market, IDC says, and Apple will remain number two. But Windows Phone, in third place, will continue to grow the fastest of the major platforms and should almost double its market share to 7 percent by 2018. Apple's market share will decline slightly during this time frame, as will Android's.

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