Sales Recovery Seems Distant Hope for Saturated Smartphone Market

By Todd R. Weiss  |  Posted 2016-07-28 Print this article Print
Mobile Sales Slump

"We've also run into the limits of physics in design and innovation," he said. "The phones are already so thin you can only do so much" to improve them, while processor power and other advancements are also more difficult to bolster due to the limits of technology.

"All of the obvious improvements have mostly been done in the last five or 10 years. The things that remain take longer to accomplish," he said.

Battery improvements are not likely to be a sales motivator for buyers in the near future because they are hard to come by for manufacturers, he said. "It's just that the rate of improvements for batteries is much lower than it is for processors and other things. That said, we will get better battery life over time," but it won't be through giant steps.

An Optimistic View for 2017

At least one analyst, Linda Sui of Strategy Analytics, said that while the U.S. smartphone market certainly appears saturated in 2016, things are expected to begin looking up a bit starting next year.

"The U.S. market this year is going to be the bottom of the smartphone market lull, the worst of it," with growth of less than 1 percent, she said. "In 2017, we're going to see the smartphone market in the U.S. go up slightly" to about 3 percent, based on projections and sales forecast models.

"We believe Apple and Samsung are going to bring out really groundbreaking, innovative products next year" that will spur replacement purchases by many consumers in the United States, she said. Among the expected features that will lead sales increases are advances in device displays, she said.

Sui said her company expects Apple to launch an iPhone with a 5.8-inch display that incorporates the use of the screen's edges for information, based on information Strategy Analytics is hearing from supply chain component makers. At the same time, Samsung is working on building smartphones with flexible displays for sale in the coming year.

"These innovations can help solve the U.S. market saturation," said Sui. "These two features are going to drive people to replace their smartphones."

And while virtual reality products and features are getting attention in the consumer market today, the technology likely won't be an upcoming mass market feature in smartphones for some time because VR "still has lots of room to improve," she said.

Nostalgia for Two-Year Mobile Service Contract

One thing that could inspire a marked change in the number of smartphones sold in the United States is a possible re-emergence of two-year mobile service contracts and subsidies for handsets from some of the major mobile carriers, said Sui. And maybe the idea isn't so crazy, she said.

The ending of those subsidies from several carriers in the last couple years has been a prime driver for customers holding on to their existing devices for up to three years, which has cut big time into new phone sales.

If subsidies and contracts return, that could help encourage more frequent device upgrades, which is certainly a desire of mobile carriers and device makers, Sui said. That could happen and likely would be started by one or two carriers at first and then adopted by others.

"Subsidies are kind of a cycle," said Sui. The prior ending of subsidies "is not a trend forever; it is a cycle."

However, Jackdaw Research's Jan Dawson is unconvinced despite Sui's optimism that U.S. smartphone sales could rebound next year.

"Even if a vendor finds something big to do, they'll have to do something big again in two years," so the need to innovate and seek big sales successes never ends, he said. "There's just not an obvious feature out there to drive big sales hikes again in the near future. It's just hard to see us going back to the rapid upgrades that we've seen in the past."


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