How Global Smartphone Sales Growth Ground to a Halt 

(Bloomberg) -- After years of rapid growth, the global smartphone market is shrinking as consumers wait for the next game-changing feature and some of the biggest markets reach saturation. That’s bad news for the technology giants. Apple Inc. cut its sales forecast for the first time in almost two decades while industry leader Samsung Electronics Co. is looking at innovations such as foldable screens to counter its own weaker sales. Meanwhile a crop of Chinese challengers that includes Xiaomi, Oppo, Vivo and Huawei are pushing overseas as the market peaks at home. The initial boom may be over, but smartphones -- one of the most popular consumer products ever introduced -- remain a vital part of the global economy. There were 1.4 billion of the devices shipped in 2018 and there are still billions of people without one.

1. How has the industry evolved?

Apple didn’t invent the smartphone but it certainly sparked the modern era of web-connected devices with the first iPhone in 2007. The next year the first device powered by Android debuted, and sales exploded. The number of smartphones shipped in 2013 surged 40 percent from the year before, according to IDC data, then growth slowed in 2014 to 28 percent. The first contraction came in 2017, a 2.5 percent decline, and was followed by a further 4.1 percent drop in 2018 as demand in China slumped.

2. What drove the early growth?

Technology and demographics. When the first iPhone hit the market, SMS text messages were about all most wireless networks could handle. As carriers moved to third- and fourth-generation technology, downloads for websites, video, apps and other content became faster and there was a natural inclination for consumers to upgrade. Vendors also innovated in more dramatic style, such as adding fingerprint technology, improved cameras, high-definition screens, digital assistants and bigger displays. Another key factor was increasing industrialization and rising incomes in such countries as China and India, meaning hundreds of millions of consumers found themselves able to afford a smartphone and to get their first connection to the internet.

3. So why is growth stalling?

Kind of the same reasons: technology and demographics. Devices aren’t making the big, innovative leaps anymore that used to prompt consumers to trade in a year-old, $800 smartphone for another that costs even more. Phones are also getting more durable, and vendors are offering more processing power and memory capacity. If a phone doesn’t come with a particular feature, users can download an app for everything from better a camera filter and augmented reality to a digital assistant. Meanwhile, markets are maturing. Most Chinese have a smartphone now; same in Western countries. While there are still hardcore users who will line up every year for the newest iPhone, many more are happy to stick with their handset until it stops working.

4. What about the future?

The roll-out of 5G, or fifth-generation, networks should provide a boost as consumers seek phones that can download a feature-length movie in seconds. IDC expects commercial 5G devices to appear in the second half of the year with a more substantial ramp-up in 2020. New innovations, such as Samsung’s yet to be released foldable screens or a leap forward in battery technology, could also provide a catalyst. Augmented and virtual reality have made only limited appearances on smartphones so far, but as processors get more powerful, opportunities increase for new content and features. In addition, there are still low smartphone penetration rates in India, the Middle East, Africa and Latin America, home to more than half the Earth’s population.

5. Is obsolescence inevitable?

Not always. Smartphone makers could take a leaf from the personal computer market, where makers started to re-think their approach when sales stalled. New laptops geared toward playing games and others with cellular functionality or mixing elements of tablet computers have helped end the PC industry’s slide. Smartphone makers might also have to think outside the box to reignite growth.

The Reference Shelf

• Bloomberg Opinion’s Shira Ovide writes about what the smartphone makers can learn from PCs.
• The Economist’s take on cracks in the smartphone industry.
• A look inside Apple’s trillion-dollar world.
• It’s a mess right now: IDC’s outlook for smartphones.
• Bloomberg Intelligence data on the smartphone market.
• The Chinese upstarts challenging Apple and Samsung.
• QuickTakes on 5G and virtual reality.

To contact the reporter on this story: Robert Fenner in Hong Kong at rfenner@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Grant Clark, Paul Geitner

©2019 Bloomberg L.P.