The market for cheap smartphones costing under $150 will explode over the next few years, according to a new study from Informa Telecoms & Media, with low-end smartphones making up 52 percent of all smartphones sales in 2017.
The firm's prediction represents a significant change from current smartphone prices. Informa found that high-end smartphones--those costing over $250 for consumers--will see their market share shrink from 85 percent of total smartphones sold in 2011 to 33 percent in 2017.
Other research firms have discussed the bifurcation of the market--the high and the low end, with the middle being squeezed. Informa believes that as this occurs, price erosion will loom as competition becomes more intense.
According to Informa, the average smartphone price will drop from $188 in 2011 to $152 in 2017 as entry-level smartphone sales take off in emerging markets. Handset OEMS will still need to cater to the desire for high-end "super-smartphones" in developed markets, but unfortunately for handset makers, the devices' average gross margin is expected to remain flat, in the range of 20 to 25 percent.
Informa thinks that handset vendors will increasingly be under pressure to absorb the cost of innovation while keeping up with price competition. To stay profitable, "a number of vendors will need to continue to reduce their operational costs and some will struggle to maintain profitability," Informa said. This process is already going on, as Apple (NASDAQ:AAPL) and Samsung Electronics gobble up the majority of industry profits.
The shift to low-end smartphones already going on as well, as chipset makers and handset vendors look to markets like China, India and Brazil for growth, especially amid weaker economic conditions in the United States and Europe. In the U.S. market, prepaid carrier MetroPCS (NYSE:PCS) in particular has focused on cutting the retail price of its LTE smartphones down to around $150. Informa thinks that shift will force OEMs to come out with more effective handset-pricing strategies, but that only a few manufacturers will have the ability to operate across the market, and the vast majority will have to focus on particular segments to reduce cost and maximize margins.
The likes of Nokia (NYSE:NOK), BlackBerry maker Research In Motion (NASDAQ:RIMM), HTC, LG Electronics, Motorola Mobility and Sony Mobile Communications will find this shift difficult to navigate, Informa said. HTC has already ruled out going after the low end of the market, which is dominated in many emerging markets by Huawei, ZTE and TCL.
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