Global smartphone brands face mass extinction

December 23, 2015

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Smartphone brands are heading for extinction in 2016. The industry’s growth rate dipped below 10 percent this year. Apple and Samsung’s high-end phones are taking most of the spoils, while upstarts like China’s Xiaomi are picking up first-time buyers. Loss-making brands from HTC to Sony may be forced to conclude the game is over.

The smartphone industry grew at a single-digit rate this year for the first time, according to data from IDC. Just two years ago, the industry was expanding at a breakneck 40 percent. Demand from China – the world’s largest handset market and once the driver of growth – will be flat this year.

The slowdown suggests two things. First, the market is saturated: existing smartphone owners outnumber first-time buyers. The People’s Republic, which accounts for 30 percent of global shipments, has joined North America and Western Europe to become a replacement market where sales are driven by upgrades.

That’s good news for premium handset makers like Apple and Samsung. The $600 billion iPhone maker grabbed a staggering 94 percent of the industry’s profits in the three months to September, analysts at Canaccord Genuity reckon. Samsung remains the only big Android phone maker that is profitable.

Second, first-time buyers in emerging markets will power growth. Handset shipments in the Middle East and Africa rose 50 percent year on year in 2015, IDC estimates. Chinese groups Xiaomi and Huawei – which catapulted to third place in shipments this year – have just entered those markets selling budget phones. Fierce battles are also playing out in India, where locals Micromax and Intex are fighting Samsung.

Those without Apple-level margins or Huawei’s scale may not survive. The loss-making HTC is already on life support as its $1.3 billion cash pile dwindles. The launch of the group’s $500 iPhone rival is unlikely to be a turning point: analysts expect HTC’s market share for next year to stay flat at around 1 percent. Ailing Japanese conglomerates, from Sony to Kyocera, will be under pressure to shut down unprofitable mobile units. Even smartphone pioneer BlackBerry may be forced to give up on hardware if sales of its latest model disappoint. 2016 may be the beginning of the end for many.

2 comments

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This may be the dumbest article ever written. Congrats Reuters!

Posted by Ugetsu | Report as abusive

So, who is stopping them from re-defining themselves as Service Companies, similar to the razor blades of the 1970’s: sell the razor cheaply; sell the razors for life at a profit?

Posted by hometown | Report as abusive