THE smartphone has crossed the line from shiny new technology to ubiquitous commodity.
App-laden, Web-surfing phones have surged in popularity over the past half-decade and generated $293.9 billion in sales last year alone. They are now used by more than 1 billion people around the world. With more than half of mobile users in the US and developed countries owning a smartphone, and consumers in emerging markets, including China and India, gravitating toward cheaper models, demand is slowing for high-end devices.
That drop has already threatened revenue growth and profit margins at Apple Inc. and Samsung Electronics Co., and could further squeeze companies like Nokia Oyj and BlackBerry that were counting on new products to revive sales. Beneficiaries include up-and-comers, such as Huawei Technologies Co. and Lenovo Group Ltd., which specialize in low-priced gear.
"The days of great growth in the high end of the market are gone," said Michael Morgan, an analyst at ABI Research. "It's the Chinese companies who know how to survive on tiny margins that are ready for the fight that's about to ensue."
The decline in average smartphone prices is akin to what happened in the personal-computer industry in the late 1990s, according to former EMachines Inc. Chief Executive Officer Stephen Dukker. Back then, millions of people who wanted to get online for the first time snapped up cheap new PCs from EMachines and other low-cost providers, dragging down once-stable PC prices to $1,026 in 2002 from $1,898 in 1996, according to IDC.
Apple, Samsung and other companies relying on sales of expensive phones are already feeling the pinch. In June Samsung lost more than $25 billion in market capitalization, greater than the value of Sony Corp., as analysts trimmed projections for Samsung's high-end Galaxy S4 smartphone, which costs $200 when sold as part of a two-year wireless package, or about $630 without a carrier subsidy.
"The market is becoming less about speeds and feeds, and more about price," said Kevin Restivo, an analyst at IDC in Toronto. "More people don't need to be overwhelmed by a phone, so long as it's good enough."
HTC Corp., Taiwan's largest smartphone maker, missed analysts' sales and profit estimates for its second quarter amid disappointing sales of its HTC One handset, which costs $200 with a package, or $600 to $700 without one. On July 12, carriers cut the price of BlackBerry's poor-selling Z10 to $50 from $200— just six months after it was introduced.
Apple, based in Cupertino, California, is predicted to report on July 23 that fiscal third-quarter revenue was little changed from a year earlier, based on the average of analysts' estimates compiled by Bloomberg, mainly because of slowing iPhone sales. That would be the worst sales performance since 2003's second quarter, when revenue declined 1.3 percent.