First it was Apple (AAPL). The stock kept correcting and correcting and correcting (and then corrected some more) and no one could figure out what the market was trying to tell us.
Then it was BlackBerry (BBRY). It missed revenue forecast but it also missed something even more important. It sold less BB10 devices than the market thought it would.
In the second quarter 2013, Devices & Services total smartphone volumes increased sequentially to 11.7 million units, compared to 11.1 million units in the first quarter 2013, composed of:
- 7.4 million Lumia smartphones in Smart Devices
- 4.3 million Asha full-touch smartphones in Mobile Phones
Now that's a big positive in my book. Nokia sold a record amount of Lumia devices. That means that consumers are responding to Nokia's high quality phones. But further down we read:
Average Selling Price
The year-on-year increase in our Smart Devices ASP in the second quarter 2013 was primarily due to a positive mix shift towards sales of our Lumia products which carry a higher ASP than our Symbian products, partially offset by our pricing actions. Sequentially, the decrease in our Smart Devices ASP in the second quarter 2013 was primarily due to a negative mix shift towards sales of our lower priced Windows Phone 8-based Lumia products as well as our pricing actions.
So while Nokia sold more Lumia devices q-o-q, the mix was more on the lower-end of the spectrum. In addition, by the term "pricing actions", Nokia means it reduced prices in Q2 compared to Q1. On average, ASP (average selling price) for Nokia's smart devices in Q2 was 18% lower q-o-q. So on the one hand Nokia sold more lower-end Lumia devices, but at the same time ASP was lower. Based in this evidence alone, I doubt very much if the new Lumia 1020 with the 41MP camera will do anything to spice up sales in Nokia's high-end smart device portfolio.
So what do Nokia, Apple and BlackBerry all have in common? All three reported lower than expected figures and all stumbled in the high-end smartphone spectrum.
Apple by default only makes high-end devices. Yes they also sell older cheaper iPhones, but not many people buy older iPhones anymore. They are simply older. BlackBerry by default is also a high-end device maker. If you want to buy a Z10 or Q10 for cash, you will pay about the same you would pay for an iPhone5 or a Galaxy S4. While BlackBerry has recently introduced a cheaper mid-range BB10 device called the Q5, when you live in India, paying $421 for the Q5 is not exactly a bargain with the buying power consumers have in India.
Samsung (GM:SSNLF) also missed Q2 estimates. Maybe analysts expected too much, because despite record sales of the company's flagship Galaxy S4 device, the stock has been trending lower and analysts have downgraded the stock. The reason is that everyone expects lower high-end device sales ahead.
So what does all this mean? No it does not mean people will stop buying smartphones. Just like people buy cars and many other items (that are also saturated), people will continue to buy smartphones indefinitely. Companies will continue to make faster and better devices and consumers will buy them.
However, the case for saturation simply means growth and margins will be reduced. And I think that's what the market has been telling us about Apple all along. And as far as saturation is concerned, according to MIT, smartphones are the fastest spreading technology in history. However, being the fastest also means saturation will be achieved faster than any other technology in history also.
In fact, some say that 2012 was the year of smartphone saturation. BI Intelligence says:
In the United States, however--one of the more mature smartphone markets--we're actually already entering the later innings. Specifically, smartphone penetration in the U.S. has reached the point where market growth will begin to slow rapidly. And in a few more years, the U.S. market will be almost fully penetrated. The maturing of the U.S. smartphone market, combined with the less-attractive financial demographics of future new users (most affluent Americans already have a smartphone), mean that the growth rate of the U.S. smartphone ecosystem--gadgets, apps, ads, mobile commerce, and mobile web usage--will also likely slow over the next few years.
Guess what, the above statement is almost 12 months old. I'm sure this year the smartphone market has achieved even higher penetration/saturation.
But there is also another type of saturation. That is, saturation in higher-end spectrum of the smartphone space. Either consumers are simply not buying high-end devices in bulk, or simply refuse to pay through the nose anymore. And as Nokia's Q2 report confirmed, people are buying less higher-end smartphones.
More and more evidence points to the fact that the smartphone space is becoming saturated. However even more worrisome is the fact the saturation in the higher-end smartphone spectrum has probably already happened.
That is turn might mean -- as the market is telling by the way it has market down Apple -- that growth in the high-end smartphone space will not be easy to achieve anymore. That is also a negative for margins and earnings.
So is this it, is Apple at $700 as good as it gets? Maybe or maybe not. Apple, BlackBerry and Nokia have all revolutionized the space before and maybe they will do it again.
But in the meantime, and based on Nokia's report today (that basically confirmed the trend we have seen in Apple and BlackBerry), investors in these companies will probably have to lower future expectations.