IDC: Smartphone shipments to hit 1.4B in 2015, and prices will keep falling

Research firm IDC expects total smartphone shipments of nearly 1.3 billion units in 2014, which would indicate a 26.3 percent increase over 2013. However, IDC thinks growth will slow in 2015 down to 1.4 billion units, or a 12.2 percent year-over-year growth rate.

That slower growth will likely continue for the next several years, with unit shipments approaching 1.9 billion units in 2018, resulting in a 9.8 percent compound annual growth rate for the 2014–2018 forecast period, IDC said. At the same time, smartphone revenues are expected to decline as average selling prices continue falling.

IDC said smartphone revenues will be hard hit by falling prices, resulting in a 4.2 percent CAGR during the same forecast period. Research firms have been indicating for several years now that ASPs will fall as more consumers around the world, especially in emerging markets, adopt smartphones. Prices are falling as economies of scale for components lead to lower prices for chipsets, screens and modems. More importantly, Chinese OEMs like Xiaomi, Lenovo, Huawei and ZTE are increasingly packing higher-end features into lower-end phones designed to get consumers in developing countries to move from feature phones to smartphones.

"The impact of upstart Chinese players in the global market will be reflected in a race to the bottom when it comes to price. While premium phones aren't going anywhere, we are seeing increasingly better specs in more affordable smartphones," IDC analyst Melissa Chau said in a statement. "Consumers no longer have to go with a top-of-the-line handset to guarantee decent hardware quality or experience. The biggest question now is how much lower can prices go?"

Globally, smartphones are expected to have an average selling price $297 worldwide in 2014, dropping to $241 by 2018. Emerging markets like India will see much lower smartphone prices, as ASPs hit $135 in 2014 and fall to $102 by 2018. Google's (NASDAQ: GOOG) Android One initiative is one factor that will likely drive that trend--the company has partnered with OEMs to release phones with the latest Android software costing around $105 in India.

However, ASPs in mature markets like the U.S. are not expected to change significantly and modestly higher shipment volumes will not drive up overall revenues, according to IDC.

Unsurprisingly, devices running the Android platform will continue to drive shipment volumes while Apple (NASDAQ: AAPL) iPhones will drive revenues, since iPhones tend to have higher margins than Android phones. However, IDC predicts that by 2018, Android will control 80 percent of global smartphones shipped and 61 percent of revenues, while iOS will control only 13 percent of volumes and 34 percent of revenues. "With Android volumes so dominant, it is no longer a possibility for new operating systems like Tizen and Firefox to compete on price alone--any underdog OS must bring a radically different appeal to gain any significant traction," IDC said.

IDC expects Android phone shipments to top 1 billion in 2014, compared to 178 million iPhone shipments in 2014 (which would imply iPhone shipments of a record 60 million units in the fourth quarter). IDC expects Microsoft's (NASDAQ: MSFT) Windows Phone to generate just 25 million unit shipments in 2014, for a global market share of 2.7 percent. In 2018, IDC expects Windows Phone shipments to grow to 105 million units, with market share of 5.6 percent.

"As shipment volume slows, we expect greater attention to shift toward value trends," IDC analyst Ramon Llamas said in a statement. "Apple's approach with premium pricing ensures a growing portion of overall revenues despite its declining market share. Meanwhile, Android's multi-faceted approach--with forked versions and low-cost Android One strategy--will produce mixed results, yet it allows deeper penetration into emerging markets. That can lead to additional pressure on its vendor partners, who will need to seek greater differentiation in terms of devices and experiences in the hyper-competitive smartphone market."

For more:
- see this IDC release
- see this CNET article

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