Is Smartphone Market Maturing?

Yes and No, in my view. Yes to a certain extent, considering that most of the people in developed world have more than one (may be with dual sim card) phone; and No, considering the vast untapped market in the third world countries of Asia and Africa. In India, although much of the population (who can afford a phone) has phone, but not smartphone; and similar can be the case in many other countries. So, what is required for these countries is an affordable smartphone, and that need has been well recognized by Chinese companies (a few companies in India as well but much of those components are sourced from China).

What will be the net effect? In one way or the other, the smartphone companies across the world will be eyeing towards this untapped primary market. Of course, there will be secondary market in the developed world, but that may not fuel growth, instead it will increase risk factors. Smartphone in that market will serve as a messenger to the IoT (Internet of Things) devices and will have to serve those needs. And in such scenario, a slight notch lower in features, performance or price/performance ratio of a smartphone brand will see a large hit on its market share. What will be the real growth drivers in near future are wearables and IoT devices (as has been witnessed in CES 2014) which can multiply in numbers per person, per personal belongings (like car, bike…), per house and so on, i.e. many folds more than smartphone.

Coming back to the question, is smartphone market maturing? We talked about global macros; let’s now consider couple of smartphone industry level factors. If we consider total number of mobile phone sales, in 2013 it was ~1.82 billion units, just ~4.8% increase from that in 2012 (at 1.74 billion). However, share of smartphone sale in 2013 was ~55% with Samsungleading the pack with ~31%, followed by Appleat ~15% and then rising Chinese and Korean companies at low cost smartphones. What does that mean? Majority of people prefer smartphone at lower cost, some may be switching from other mobile to smartphone (I’m one of them :p). Let’s consider some other market dynamics; we have started seeing mergers; some already in place (Microsoft<-Nokia, Lenovo<-Motorola), some more to go (BB, HTC….will Lenovo buy BB too? And will Microsoft buy HTC?). Water is turning red. Who will survive? Or should I rather ask who will lead? The companies with stronger hands, deep pockets, strategic focus and resource capability (core competence) to be in this market will rule.

Let’s look at some of the acquisitions and other factors at micro level. Microsoft acquired Nokia, the initial innovator of cell phone; can we say that a resource rich company is building core competence from external acquisition (of course that serves a strategic perspective too for Microsoft business)? Similarly, Lenovo, a smart Chinese company acquired Motorola, another initial pioneer of mobile phone business. Lenovo knows how to nurture an acquired leader and re-establish that legacy. And ~4.8% growth in LGsmartphone (powered by Googlesoftware) sales says something about Google. Google is very smart in driving its strategies. So what?

I’m sorry for coming back to the same original unanswered question, is smartphone market maturing? Considering several of the factors discussed above, I can comfortably say, “yes, it will mature in next few years, but that maturation curve will remain wide for a long time.” Fall of established empires, mergers and acquisitions and at the same time emergence of new leaders is a sign of maturing market with mixed growth opportunities. In a global context growth can be led by third world emerging countries, provided the prices are affordable, and we are seeing market dynamics turning towards that with the exception of Apple. Who knows, in a few years Apple may serve only niche market (unless they change their outlook on price front)? However, the overall mobile phone market will turn mature; smartphones will see stray innovations and differentiations to serve emerging needs. The maturation curve will remain long drawn because always there will be a replacement market.

My personal opinion is that there will be major consolidation is smartphone providers with probably Apple, Samsung, Google, Microsoft and Lenovo leading the pack. Any more guesses?

Comments welcome, market saturation, consolidation, …whatever?

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