For years, even as the PC market has slumped, the tablet and smartphone business has roared ahead. The shift in production and demographics caught traditional OEMs flat-footed and drove tens of billions of dollars into the pockets and Samsung, Apple, and... well, pretty much just those two. Now, IDC is reporting that the years of meteoric growth could be coming to an end. The company predicts smartphone sales will increase 19% this year, down from 39% in 2013. By 2018, the increase in year-on-year sales is expected to be an anemic (or nearly mature) 6.2%.
This shift could cause a significant shakeup of the present Apple-Samsung profit duopoly. According to recent measurements from Raymond James, Apple accounts for 87.2% of the smartphone market's profits, while Samsung gathers a respectable 32.2%. The reason the figures add up to over 100% is simple -- everyone else is losing money and therefore awarded negative market value.
Both companies have made enormous profits out of positioning their respective devices as lifestyle products, but the move could cost them market share in the long term as customers turn from gawking at the products carried by the rich and famous to buying more modest devices of their own. It's no accident that the surge in low-end smartphones has been accompanied by rising interest in companies like MediaTek and RockChip. These SoC developers don't have the name-brand recognition of a Qualcomm, but they do have a keen interest in building business in the low-end smartphone market.
This chart uses a different analysis method than the Raymond James figures, but the conclusions are similar.
IDC expects low-end sales to be the principle drivers of the market, which could hurt companies like Apple, whose "low-end" iPhone 5C reportedly sold poorly as buyers opted instead for the more expensive 5S. In the short run, that's a problem businesses would love to have, but in the longer game Apple needs to build budget phone that people want to buy.
No surprises in the OS market
IDC predicts that iOS and Android will continue to dominate the phone market, with the majority of that gain going to Android, since almost all low-end smartphones use that platform. The firm does note, however, that Windows Phone could see strong adoption in emerging markets thanks to a new set of nine partners and Nokia's continued efforts. By 2018 the analyst agency believes Android will hold a 76% market share, with iOS accounting for 14.4% and Windows Phone at 7%. BlackBerry will still hang on, at 0.3%, and "Others" will account for that last 2.3%.
If the smartphone market slows as sharply as IDC predicts, it could put a serious damper on the entire tech industry. The shift to smartphones offsets the decline in PCs, ensuring that companies still have a reason to invest in the latest foundry technologies and killer next-generation products, whether that meant Gorilla Glass, sapphire screens, or multi-core processing.
If that income stream starts to falter with nothing to replace it, it could shake investor confidence in the entire system. Some of the focus on wearable technology makes more sense from this perspective -- manufacturers are desperate to find the Next Big Thing before the smartphone sales engine slows down with nothing to replace it.
