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May 03, 2016

Maturing Smartphone Market Shrinks, Fewer Units Shipped

Does it seem like everybody these days has a smartphone? Or, at least, almost everyone? There's likely a good reason: most people do. That level of saturation in the market is starting to have an impact on shipments, and a new report from Juniper Research shows us just where the numbers are going.

The total number of smartphone shipments in the first quarter of 2016 was 320 million, which represented a six percent decline against the same time the previous year. More specific details painted a picture even more potentially worse: Apple reported the first-ever year-on-year decline in iPhone sales. While it cited the impressive success of the iPhone 6 as the main reason, it was also worth noting that the iPhone 6S series represented only “incremental improvement,” making some users wonder if an upgrade was really worthwhile.

Worse, the worldwide picture wasn't looking much brighter, particularly for Apple. Ongoing economic issues plaguing China—not to mention direct opposition to many Apple services from Chinese legislative bodies—mean that one of the biggest new markets may be increasingly closed to Apple. However, life isn't necessarily rosy for smartphone developers within China; Xiaomi, for example, lost one percent on shipments from the first quarter of 2015, and Lenovo took a similar drop. Makers like Microsoft and Sony, which didn't already have a strong Chinese user base, are likewise taking hits as the Lumia had its worst ever quarter, and Sony is down 57 percent against last year.

Android devices have seen some hope emerge, as Samsung changed its revenue mix and stabilized its shipments. Huawei is seeing increases in shipments as well, though BlackBerry, despite a move to Android, is at risk of losing the smartphone market altogether. With developing markets like Africa largely unable to get involved in the smartphone market without a huge drop in average selling price (ASP), the drop in overall shipments is likely to continue.

A mature market means the only sales left are for those who want to upgrade or change a smartphone to a different brand, which means much fewer units need to be produced and shipped. The only way to keep buyers interested at this point is to bring out units with substantial improvement over previous generations, sufficiently so that the new units don't even look much like smartphones anymore. With such a development, buyers' interest can be sparked again. Even this can only go so far, as economic issues continue to weigh on the system overall throughout much of the world.

Smartphone makers who want to get users interested will need to make a clear value proposition -- one sufficiently powerful enough to overcome growing cost objections and a vastly reduced need to replace a device. Without such a move, smartphone sales will likely continue to stagnate.

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