One in every two smartphones sold in 2017 will be priced below US$150
Major shift in market as 85% of sales in 2011 were dominated by more expensive devices
A new study from Informa Telecoms & Media predicts that the smartphone market will begin to diverge and sales will become dominated by two poles – the low-end devices (priced below US$150) and the high-end devices (priced above US$250). The expensive smartphones will find their market share shrinking from 85% of total smartphones sold in 2011 to 33% in 2017. In contrast, the low-end smartphones will gain enormous amount of market share over the years to account for just over half (52%) of the smartphones sold in 2017.
The smartphone market is undergoing dramatic changes whereby demand will be increasingly polarized between expensive and heavily-subsidized handsets on the one hand and affordable devices targeting the emerging markets and skeptical users in the developed world on the other hand. As a result, price erosion is looming as competition becomes more intense.
The average smartphone price will drop from US$188 in 2011 to US$152 in 2017 as a result of it balancing the huge demand for entry-level smartphones in emerging markets and the demand for "super-smartphones" in developed markets. The devices' average gross margin is expected to remain flat – in the range of 20 -25%. This is because vendors will increasingly be under pressure to absorb the cost of innovation while keeping up with price competition. To remain profitable, a number of vendors will have to continue to reduce their operational costs and some will struggle to maintain profitability.
"As the market develops, the supply chain will increasingly be divided between two camps – the innovators who will continue to introduce new features and high-performance components to the market place and followers who will take this innovation to the mass market in later years," comments Malik Saadi, principal analyst at Informa Telecoms & Media.
These changes will push some established manufacturers to reposition themselves in the new environment and come out with more effective handset-pricing strategies. Only a few manufacturers will have the ability to operate right across the market, the great majority will have to focus on particular segments to reduce cost and maximize margins.
A number of established vendors, including Nokia, RIM, LG, HTC, Motorola and Sony, will find it hard to adapt to the new smartphone landscape as this could take them away from their core business, servicing the core smartphone market. These players will have to make a strategic decision to either fight in the high-end segment, a market strongly monopolized by Samsung and Apple, or alternatively face stiff competition by assemblers and Chinese ODMs in the low-end segment of the market.
"In any case, these players will have to align their pricing strategy with market demand if they want to survive. The new environment will make it hard for all vendors to achieve a balance between generating scale and maintaining decent margins," concludes Saadi.
Note to the editor:
This study is compiled from Informa's newly-released Handsets Economics Tool
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