Refurbished Smartphone Market Offers Pros and Cons for Handset Makers

Sales of refurbished phones could hurt new phone sales, but at the same time, they can add service revenues, according to ABI Research.  

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The global smartphone business, already feeling the weight of market saturation, could face new challenges from increased sales of cheaper, refurbished phones over the next five years, adding to the building pressures on device makers.

That's the conclusion of David McQueen, an analyst with ABI Research, who told eWEEK that changes in the smartphone market, including moves away from two-year contracts and customers who are keeping their smartphones longer are contributing to a reduction in the number of phones sold each year.

And as refurbished phone sales grow, that will ultimately cause some problems—as well as some potential benefits—for phone vendors, he said.

What it all ultimately depends on, said McQueen, is where those refurbished phones are sold. If they are sold in the United States, they could take away sales revenue from the flagship phones of vendors like Apple, Samsung and LG. But if these handsets are sold in developing nations such as India, where flagship phones are too costly for most residents, the refurbished phones could help those vendors still generate money from content, apps and services, which would be a positive, said McQueen.

For 2016, ABI Research estimates that global smartphone and mobile phone sales for new devices will increase by 4.9 percent. However, the research firm also expects that the influx of refurbished phones will likely push manufacturers to reconsider their branding options and portfolios in the regions where they sell their devices.

Apple is trying to sell certified, refurbished iPhones in India, he said, where most people can't afford new iPhones. But since Apple already made profits on the devices the first time they were sold, sales of the refurbished devices would add services and content revenue for music, ebooks and more in a country where it has been tough to gain revenue, said McQueen.

"They want the biggest addressable market they can get so they can sell services," he said of Apple. "So it is more important to get any phones into people's hands so they can buy services. They still make money."

Apple's new iPhone 5se, a smaller, cheaper device compared to the iPhone 6s, still isn't cheap enough to bring in big sales in developing countries, said McQueen. That's where refurbished phones, which can sell for $200 or less, can be helpful. "There are still pockets of growth where Apple is trying to fill in," he said. "They haven't been able to have the [lower prices] to hit those markets effectively."

The biggest lure of refurbished phones is their affordability, which is coming at a time of sales saturation in the new phone market around the world, he said.

The refurbished phones will likely hurt second-tier vendors, such as Lenovo, and smaller regional brands, such as Lava and Micromax in India, according to McQueen. Given a choice between a refurbished older iPhone and a new Android phone, many buyers might make the jump, he said.

For device makers around the world, the saturation in the smartphone market comes as phones all tend to have the same features, McQueen said. To again spark the market, new features that differentiate the phones are needed, just as in the past, and that could mean screens with gesture recognition, 4K displays, battery technology improvements, built-in holographic featues and even foldable screens, he said.