Analyst: Smartphones at saturation point, profitability under threat

LONDON--The high-end smartphone market is at a peak, with traditional vendors about to come under intense competitive pressure from new entrants, according to an analyst. Growth and profitability is also going to be squeezed hard as this segment of the handset industry undergoes a radical shift.

These worrying predictions came from Richard Windsor, a senior analyst with Nomura Securities, speaking Thursday at the Open Mobile Summit in London.

"Based on the company's research, the high-end smartphone segment is fast becoming saturated, and the market for handsets costing around $500 is running out," Windsor said. "We could see Apple start to struggle."

However, this could change radically if Apple launches a mid-range iPhone, which would then take them into the volume market. "They are the company to do it, and it would make sense. But, Apple has admitted that they 'don't do cheap well.'"

Windsor dismissed Apple venturing down into the volume smartphone in the next 12 months, and said he has not heard of any leaks from Asian technology developers (with leakage being the norm) that they are working on a new Apple product.

With Apple seemingly not shifting away from its high-end focus, Windsor warned that the very considerable profits being generated by Apple and other vendors with similar strategies will experience a downturn. "Smartphones are too profitable today," he said. "They have been able to charge a premium due to limited stock brought about by a restriction in component supply. But this is about to change as new fabrication plants come online."

Staying with the high-end smartphone sector, Windsor raised concerns over Nokia's ability to fight its way forward. "The Nokia/Windows Phone 7 (WP7) combination should provide a good user experience. Will it save Nokia? I don't know. The first Nokia/WP7 device will be aimed at the premium end of the market, and WP7 has already lost out in this battle. What is key to saving Nokia is a mid-tier WP7 device, but this won't be ready until mid-2012."

In the near-term, Windsor said Nokia needs to deliver something, which might be an accelerated cost-cutting programme, as the company faces making a loss as its volume shipments decline. He also dismissed any idea of Apple or Samsung making a bid for Nokia, questioning any reasonable business fit. "However, an approach could appear if Nokia's share price continues to fall," he said. "But for a potential bidder, it would be like trying a catch a falling knife."

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