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September 30, 2013

Ultra-Low Cost Smartphone Sales Will Grow an Order of Magnitude in Next 4 Years

“Ultra-low-cost” smartphone sales are expected to grow to 200 million in 2018, compared to 10 million in sales in 2014.

Ultra-low cost devices are defined as having a cost of $74 or less. At the same time, the number of consumers everywhere in the world able to buy a higher end device is growing dramatically.

In 2009 the middle class included 1.8 billion people, with Europe (664 million), Asia (525 million) North America (338 million) accounting for the highest number of people belonging to this group, according to Organization for Economic Cooperation and Development.

Even in Africa, where the middle class’s growth has not been very robust, sales of refrigerators, television sets, mobile phones, motors and automobiles have surged in virtually every African country in recent years. Possession of cars and motor cycles in Ghana, for example, has increased by 81 percent since 2006, according to OECD.

The size of the “global middle class” will increase from 1.8 billion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030. The bulk of this growth will come from Asia: by 2030 Asia will represent 66 percent of the global middle-class population and 59 percent of middle-class consumption, compared to 28 percent and 23 percent, respectively in 2009, according to OECD.

Shipments of low-end smartphones are expected to rise to 422 million units in 2015, expanding at a compound annual growth rate of 115.4 percent from just nine million in 2010. In contrast, the overall smartphone business will rise at a CAGR of only 28.5 percent between 2010 and 2015, according to IHS iSuppli.

And that is the strategic gamble Apple is making, namely that it can maintain growth and profit margins by selling to higher-end segments of the smartphone market globally, without launching a product line aimed at the broad middle or lower end of the market.

That is one of two key “risks” Apple is deemed to be taking. The other risk is the “just one device” approach, though the launch of the iPhone 5C is a bit of a deviation. Still, compared to most other suppliers, Apple tends to introduce one new model a year, though in 2013 it has released two at one time.

And Apple claims it already has a “low cost phone” strategy. When each new generation is introduced, prices on the previous models get lowered by about $100.

The downside is that Apple has to guess right about what features “most consumers” will want. To be sure, the strategy has worked, so far. The issue is whether Apple can succeed using that same approach in developing markets where the high end segment is much smaller than in the U.S. market.




Edited by Alisen Downey


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