Smartphone Market Stagnates, Decline in Sales Inevitable

Research firm IDC presented the latest forecast for the smartphone market and things are looking pretty bleak. Apart from slower growth, developed markets – U.S., Europe, and Japan – are expected to see a decline in sales by unit over the next 5 years.

At the moment, Alphabet Inc (NASDAQ:GOOGL) Google’s Android OS is leading the pack with 85% market share this year while Apple Inc. (NASDAQ:AAPL) iOS trails behind at 14%. The firm predicts that the market will change dramatically within a few short years. The IDC also predicts that growth in smartphone units will rise to just 1.6% in 2016 to approximately 1.46 billion units, which is nowhere near the 10.4% growth in 2015.

On the other hand, the research firm predicts that the total worldwide shipment growth will be at 4.1% from 2015 to 2020. However, developed markets will see a 0.2% decline while emerging markets remain at 5.4%.

According to IDC analyst Jitesh Ubrani: “Growth in the smartphone market is quickly becoming reliant on replacing existing handsets rather than seeking new users. From a technological standpoint, smartphone innovation seems to be in a lull as consumers are becoming increasingly comfortable with ‘good enough’ smartphones. However, with the launch of trade-in or buy-back programs from top vendors and telcos, the industry is aiming to spur early replacements and shorten lifecycles. Upcoming innovations in augmented and virtual reality (AR/VR) should also help stimulate upgrades in the next 12 to 18 months.”

Meanwhile, research manager Anthony Scarsella noted that phablets would enjoy greater demand in the market. “As phablets gain in popularity, we expect to see a myriad of vendors further expanding their portfolio of large-screened devices but at more affordable price points compared to market leaders Samsung and Apple. Over the past two years, high-priced flagship phablets from the likes of Apple, Samsung, and LG have set the bar for power, performance, and design within the phablet category.

Looking ahead, we anticipate many new ‘flagship type’ phablets to hit the market from both aspiring and traditional vendors that deliver similar features at considerably lower prices in both developed and emerging markets. Average selling prices (ASPs) for phablets are expected to reach $304 by 2020, down 27% from $419 in 2015, while regular smartphones (5.4 inches and smaller) are expected to drop only 12% ($264 from $232) during the same time frame,” he said.

The IDC noted that the demand for Windows-powered smartphones, in particular, remains weak. According to IDC’s chart, Microsoft Corporation (NASDAQ:MSFT) is fast becoming a minor player in the smartphone segment, commanding a 0.5% market share.

Analysts noted that Microsoft’s reliance on commercial markets is the primary reason for its disappointing standing in the smartphone segment.

“IDC anticipates further decline in Windows Phone’s market share throughout the forecast. Although the platform recently saw a new device launch from one of the largest PC vendors, the device (like the OS) remains highly focused on the commercial market. Future device launches, whether from Microsoft or its partners, are expected to have a similar target market.”

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