This Year's Most Boring Product Is in Your Pocket

(Bloomberg Opinion) -- Get comfy, this year’s smartphone market is about to get quite yawn-worthy.

Over the past decade we’ve seen phones get larger, faster, sharper, crisper and curved. They even put cameras on the front! 

Consumers have been blessed by the array of choices available in the market. But now the pace of innovation is slowing, and that could hurt investors.

In China alone, an average of two new models were released each day last year for a total of 764. In 2017, that figure hit 1,054, according to the China Academy of Information and Communications Technology. 

The saving grace for smartphone makers these past few years has been the addition of new functions, which allowed them to reverse a previous slide in average prices and actually sell devices for more money.

Apple Inc. thinks that average sales price is more important than shipment numbers, which is why it decided to no longer tell you how many iPhones it sells but merely how much revenue it makes from them. 

That didn’t prevent the Cupertino-based company from missing its original sales target for the December quarter. Apple blamed it on China, while my colleague Shira Ovide blames it on Apple and explains why the shoe was bound to drop. 

In fact, Apple isn’t the only one struggling in the world’s biggest smartphone market. Industry-wide shipments in China fell more than 15 percent last year, according to CAICT, even worse than the 12.3 percent drop in 2017.

Others joining the parade of pain include Samsung Electronics Co. and LG Electronics Inc. Both South Korean companies posted declines in operating profit last quarter and missed estimates. Samsung makes more than smartphones, but even its other divisions – chips and displays – depend heavily on that product category.

It’s important to note that those three companies are the largest non-Chinese names, and get only a minority of revenue from China. So if they’re hurting, then the whole world is probably hurting, too.

If there’s a silver lining to the recent slowdown in shipments it’s that the higher functionality requires more expensive components, which boosted gross margins at some suppliers. But margins only help when people are still buying those cooler, hipper, more-expensive devices.

That silver lining is also likely to darken this year because smartphone makers seem to be running out of of ideas. Instead they’re likely to resort to gimmicks like folding handsets and horrifically ugly 3D cameras, in an attempt to spur excitement. (Please, Jony, tell me this isn’t really the next iPhone).

Qualcomm Inc. is among those talking up 5G as the next big thing in phones. In reality, 5G technology will be of greater benefit to connected devices such as cars and door bells than handsets. And the real momentum won’t get going for another year or so.

So if you’re hanging out for some action in the smartphone market, go take a nap. We’ll wake you up next year.

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

©2019 Bloomberg L.P.