​Smartphone uptake passes its peak as industry appetite wanes

"New vendors would be well-advised not to rest on their laurels..."

Vendors shipped a total of 334.9 million smartphones worldwide in the first quarter of 2016 (1Q16), up slightly from the 334.3 million units in 1Q15, marking the smallest year-over-year growth on record.

IDC findings suggest that the minimal growth this quarter is primarily attributed to strong smartphone saturation in developed markets, as well as a year-over-year decline from both Apple and Samsung, the two market leaders.

The biggest change to the market, however, was the addition of lesser-known Chinese brands OPPO and vivo, which pushed out previous fourth and fifth place players Lenovo and Xiaomi, respectively.

As the China market matures, the appetite for smartphones has slowed dramatically as the explosion of uptake has passed its peak.

In 2013, China's year-over-year shipment growth was 62.5 percent; by 2015, it had dropped to 2.5 percent - conversely, the average selling price (ASP) for a smartphone in China rose from $US207 in 2013 to $US257 in 2015.

“Along China's maturing smartphone adoption curve, the companies most aligned with growth are those with products serving increasingly sophisticated consumers,” says Melissa Chau, senior research manager, IDC.

“Lenovo benefited with ASPs below $US150 in 2013, and Xiaomi picked up the mantle with ASPs below $US200 in 2014 and 2015.

“Now Huawei, OPPO, and vivo, which play mainly in the sub-$US250 range, are positioned for a strong 2016.

“These new vendors would be well-advised not to rest on their laurels though, as this dynamic smartphone landscape has shown to even cult brands like Xiaomi that customer loyalty is difficult to consistently maintain.”

Outside of China, IDC states that many of these brands are virtually unknown and the ability of these rapidly growing Chinese vendors to gain entry into mature markets such as the United States and Western Europe will be essential if they have aspirations of catching Apple or Samsung at the top.

“Huawei has proven that it can sell increasingly premium devices,” adds Anthony Scarsella, research manager, IDC.

“In China, Huawei is already recognised as a premium brand, but it is now going toe-to-toe on build quality with premium devices like the Nexus 6P that are available worldwide.

“While Huawei is furthest along in terms of international recognition, selling equally impressive volumes outside of China remains a challenge for many of these brands, whether it is Xiaomi, Lenovo, OPPO, or vivo. Their ability to drive local growth no longer applies when it comes to international expansion, where premium branding quickly turns to price competition.”

Samsung

Samsung remained the leader in the worldwide smartphone market despite a year-over-year decline of 0.6 percent in shipments.

Despite the slight decline, the new Galaxy S7 and S7 edge sold vigorously in the month of March and was helped by numerous enticing carrier promotions to help push volume.

The S7 also brought the reintroduction of a microSD card slot in combination with waterproofing, which looks to have paid off for the Korean giant as early sales look healthy.

Within emerging markets, Samsung has performed well with its more affordable J-series as it looks to capture both budget conscious consumers and first-time buyers.

Apple

Apple's saw its' first-ever year-over-year decline in the first quarter as volumes slipped to 51.2 million units, down 16.3 percent from last year. Despite the plethora of new features found on the newer "S" models, current iPhone 6/6 Plus owners may feel that a 6S upgrade may not be warranted at the moment.

Apple also announced the new iPhone SE, which looks to challenge similarly priced Android options in numerous emerging markets where Apple has traditionally been seen as too expensive.

The SE features all the power of the 6S in a compact form factor that looks to equally target those who desire smaller phones as well. However, at US$399, the SE still faces equally powerful lower-priced devices from competitors, particularly within India and China.

As Apple CEO Cook mentioned on the company's earnings call, the SE will begin having an impact on iPhone shipments in the second quarter of 2016.

Huawei

Huawei's continued domestic dominance, combined with a growing presence outside of China, enabled it to capture the number 3 position worldwide in 1Q16.

Shipment volume for Huawei climbed from 17.4 million units in 1Q15 to 27.5 million this quarter for year-over-year growth of 58.4 percent.

Huawei's two-pronged approach with a focus on both premium and entry-level devices proved successful in China as well as in many developed European markets.

The recent launch of the P9 smartphone featuring Leica optics provided an additional weapon with which to combat Apple and Samsung. Premium devices like the P9, Mate Series, and Nexus 6, along with entry level devices from its Honor brand, should help Huawei gain further traction worldwide.

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James Henderson

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