Smartphone Prices to Continue Falling: Informa

As the smartphone market develops, handset manufacturers will have to battle price erosion as prices continue to fall.

As a barrage of smartphones continue to find their way into consumers' hands, the smartphone market will begin to diverge and sales will become dominated by two poles; low-end devices priced below $150 and high-end handsets priced above $250, according to a study from Informa Telecoms & Media that assessed price evolution and market opportunities across different segments of the handset market.

By 2017, one in every two smartphones will be priced below $150, the report projected, as intense competition contributes to accelerated price erosion. More expensive smartphones will find their market share shrinking from 85 percent of total smartphones sold in 2011 to just 33 percent in 2017, while lower-end smartphones gobble up market share over the years to represent 52 percent of the smartphones sold in 2017.

By that time, the average smartphone price will drop from to $152 from $188 in 2011, while the average gross margin for all devices is expected to remain in the range of 20 to 25 percent, according to the study. Informa predicted a number of established vendors, including Nokia, Research In Motion, LG, HTC, Motorola and Sony, would find it difficult to adapt to this changing landscape as this could take them away from their core smartphone market.

"As the market develops, the supply chain will increasingly be divided between two camps—the innovators who will continue to introduce new features and high-performance components to the market place and followers who will take this innovation to the mass market in later years," Informa Telecoms & Media Principal Analyst Malik Saadi said in a statement.

The report noted only a select number of handset manufacturers will be able to operate clear across the market, while the majority will have to focus on particular segments to reduce cost and maximize margins. In a market dominated by Apple's iPhone and Samsung's popular smartphones, major vendors are also facing stiff competition by assemblers and Chinese original device manufacturers (ODMs) in the low-end segment of the market. The changing landscape could push some established manufacturers to reposition themselves and come out with more effective handset-pricing strategies.

"In any case, these players will have to align their pricing strategy with market demand if they want to survive. The new environment will make it hard for all vendors to achieve a balance between generating scale and maintaining decent margins," Saadi said.

Samsung and Apple are currently locked in a heated battle for supremacy in the worldwide market for mobile smart devices, including smartphones, tablets and mobile PCs, according to the fourth-quarter Worldwide Quarterly Smart Connected Device Tracker from IT research firm IDC. The market grew 27.1 percent year-over-year in the third quarter of 2012 to reach a record 303.6 million shipments valued at $140.4 billion. IDC analysts project smartphones will be the preferred product category with share growing to 66.7 percent in 2016 from 53.1 percent in 2011.