Are Global Smartphone Sales Poised For Takeoff?

Despite the hoopla about Apple's (AAPL) iPhone and the upcoming launch of Google (GOOG) Android-based devices, there seems to have been a sudden bout of queasiness among the smartphone market participants (and their investors). As a share of total phone shipments, there seems to have been a bit of a stall at around 11%.

Various commentators are scratching their heads, and blaming the economy and a range of other factors. In recent months I've noticed an almost religious fervour based on the notion that "soon, all phones will be smartphones"... and now we're seeing the first cracks emerging amongst the faithful.

Much of the recent enthusiasm has come from the US, where there has undoubtedly been a sudden leap in the sales and profile of high-end devices, driven by the iPhone and continued acceptance of Research In Motion's (RIMM) BlackBerries among a wider group of users. All operators now have 3G networks up-and-running, there are some sensible data plans, and everyone has WiFi at home and wants to "take their Internet with them". In addition, the various carriers have suddenly started stumbling over each other in an effort to be seen as the most "open".

In many ways, certain user groups in the US seem to have leapfrogged the high-end feature-phone phenomenon seen in Europe and elsewhere. There haven't been that many midrange phones with 3MP+ cameras, memory cards, full Bluetooth, decent MP3 capability (with side-loading) and so on. Devices have suddenly jumped from being locked-down, carrier-centric products to new ecosystems like Apple's.

This seems to have led some American observers (and some European smartphone enthusiasts) to assume the same trend has been mirrored elsewhere, and that consistent meteoric sales growth and penetration of smartphone OS's was inevitable globally.

In my view, the truth is rather different when taken at a global level, and explains what will probably  [not] just be a temporary plateau in smartphone penetration.

What's happened is that the growth statistics in recent years have been driven not so much by people wanting smartphones, as being given them without choice or (often) awareness. I posted in length about this last year. In recent years, Nokia (NOK), Symbian (SMBI) S60 and NTT DoCoMo (DCM) shipments have hugely inflated overall smartphone sales numbers, and Nokia and NTT have selected smart OS's largely for their own benefit, rather than because of specific demand by customers for "smartness".

The US market has long been different. Most US consumers buy smartphones because they actually want smart devices, rather than because they want a high-end Nokia, or a contract with DoCoMo. Yes, there have been plenty of "real", conscious, buyers of smartphones in Europe and Asia, but they have been swamped by a flood of other customers who haven't really cared, but have taken what they've been given.

What we're seeing now is this blip in the statistics being worked through. We're no longer seeing huge growth in high-end Nokia shipments (as last week's warning highlighted), and the Japanese market is pretty saturated too. None of the other major manufacturers has really shifted wholesale to smart OS's as a default platform, to carry on the S60-led growth in "under the hood" smartness.

There have also been some other statistical shifts, huge growth in low-end devices in emerging markets, for example. This is what's boosting the overall market to 1.2bn-odd devices, but dropping the average sales price to well below the entry point for smart OS's. And although it's changing, most phones are still not sold with data plans being available (or certainly affordable), especially on the basic prepay tariffs used by 70% of the planet.

My take is that it's going to take several more years to get smartphone penetration to above 15% of global shipments, and that for the forseeable future (lets say 2013) we should probably treat 20% as the asymptote. In developed markets, that figure will be considerably higher, perhaps 50% or above in places like the US or Scandinavia, or maybe 30-40% in markets like the UK, especially if mobile Internet access takes off further. But the notion that someone in Mozambique or Bolivia or Laos, who is buying a $20 handset with a $2 monthly spend, will be buying a 2013-equivalent of an iPhone is unrealistic.

It's very easy to plot hockey-stick charts, but observers from North America shouldn't leap to the assumption that the majority of people follow their specific local habits. Globally, more people play hockey on grass than ice. And most people who buy phones still don't actually care about smarts.

Disclosure: None

Comments

[papita:]

it's amazing how many people want to be an author. you people are coming out of the woodwork and repeating the same message day in and day out. you are all trying to dissect each and every bit of information that you can get your hands on. you are driving the people who read this stuff crazy. sales are up, sales are down, business is booming, business is slowing, prices are up, prices are down, inventory is up, inventory is down, smart phone share is up, smart phone share is down, component price is up, component price is down. and on and on. the reason it was easier to make money in the old days is because we weren't hit with this constant barrage of information on a daily basis. people don't know what to do. this is why fundamentals are pushed aside and instead, we focus on what hedge funds are buying or selling or going out of business. don't people realize that mnay of the big money in the market today is run by little boys not old enough to know better with no experience. that seems to be a big deal when we are trying to select a new president but it doesn't seem to matter when we are trying to make sound investments with our hard earned money for our all important future. no wonder america is falling on it's face. we don't know what to do, we end up following the herd and end up making very costly mistakes. I only wish sites like this one, cnbc, and the rest of the shit we hear each day would just go away.

2008 Sep 09 07:36 AM

[Ted Cranmor...:]

Many seem to missing a key point about the expense of smartphones in developing markets. Is a smartphone more expensive that a cheap handset? Yes. But, in these markets the masses don't have computers at home. So, either they forgo the internet or the spend money at internet cafes, or they finally invest a large amount to buy a computer for home. Now that smartphones have good web browsers, it's actually a cheaper alternative than visiting internet cafes or making the huge investment of a home computer with internet access. What's cheaper? An incremental enhancement to your smartphone, or continually visiting cafes or buying a home computer? Today's smartphones are actually small computers, and the most efficient way to join the wired world. So, in fact, smartphones will become the CHEAPEST way to achieve connectivity in developing countries. Check out the 5-8% numbers for home computers in India and China and it's easy to see the opportunity. It was a guy from Mexico who started helping me understand how the populace in developing countries approach this problem from a very different point of view.

So, smartphones may be more expensive than a plain old handset, but they are the cheaper alternative when all costs and alternatives are considered for being part of the wired world. The obvious advantage of 'always with you' still applies to other countries, but it's just a nice feature for them as opposed to the big feature it is for us.

2008 Sep 09 09:24 AM

[brewer:]

Exactly, MightBuyOneNow. I've seen older people lambaste the poor people for owning a cell phone. They fail to recognize that it's actually not a luxury, but cheaper than a land line, especially for someone who is not a home owner, and would otherwise have to pay a lot in connect fees alone.

2008 Sep 09 11:22 AM

[KenC:]

Honestly, the problem is the definition of "smartphone". When is a smartphone, not a smartphone? When it's not being used as a smartphone. Currently analysts define smartphone by the OS it runs, that they have deemed as smart. But is using a phone for email, make it truly smart? Or is it like Windows version 1? People considered Windows version 1 a GUI, but what could you do with it? Who really used it? I installed it back in the mid-80s after buying my copy at J&R Music World in NYC, but it did virtually nothing useful.

Right now, we have a large category of phone called smartphones, but we need to start segmenting it. Just because a phone has a smart OS, does not mean people are actually using it much for anything beyond what a feature phone offers. I would say there are at least 2 segments: email phones and internet phones in the smartphone category. Email phones are the vast majority of Nokias and Blackberries. The sales of email phones may be slowing from the fast growth in the last couple of years. The other segment are true internet phones, like the iPhone and its copies, like Android. This is the hot segment where sales are growing quickly, and why everyone is trying to offer something in this segment.

The only way to truly measure share in this internet phone segment of the smartphone category is to look at internet usage. I mean, if you have a smartphone with web access but never use it for the web because it's so horrible, is it really an internet phone, or just an email phone? If you look at mobile internet usage, then the iPhone dominates already, and the rate of growth of mobile internet use is growing rapidly.

The bottom line, is that we need to segment the smartphone category because it makes sense, as there is a difference pre and post-iPhone.

As someone mentioned above, internet phones are replacements for a computer in many developing countries. I know, as I have a home in China. Everyone seems to have a cellphone, or at least half the 1.3Billion people do. Very few people have computers. DSL connections are lousy and slow. In fact, cell connections are more reliable. EDGE is fantastic, even in the countryside. 1/4 of the cellphone sales in China cost more than 500USD. They don't subsidize cells over there. Having an internet device that you can carry in your pocket is far more appealing in developing countries like China, than the idea of a laptop or desktop.

2008 Sep 09 03:20 PM

[Dean Bubley:]

Thanks for the comments.

To the first poster Papita with the rant "you people are coming out of the woodwork" - you're talking gibberish. I've been a technology industry analyst for 17 years and advise clients (mostly non-investors like manufacturers and network operators) on trends in a variety of mobile sectors. The content here is syndicated from my own mobile-industry blog.

MightBuyOneNow & others - This is something on which I've done a lot of research. In my view, this notion that smartphones will be substitutes PCs for people in developing markets is wishful thinking by people in the mobile industry. It's not supported by observed facts, although obviously there are occasional specific exceptions.There are numerous reasons, not least the fact that PC prices are falling rapidly, and PCs have (typically) a 2x or 3x working life compared to a phone. They can also be shared more easily among families. Further, kids in education get access to PCs as governments wish to encourage future computer literacy for business, and develop local software industries. I'm not aware that anyone *writes* software on a phone, or runs their company's accounting system on one either.

Then there are hidden factors - for example, many people in developing countries use PCs to watch (often illegally copied) movies bought on video CDs or DVDs. And it's difficult for teenagers to have 15 separate IM chat windows open on a phone.

This doesn't mean that people won't want Internet access on mobile devices as well - that will certainly be a growing trend, and indeed is probably the main thing driving smartphone sales.

In China, according to official stats, about 73m people access the Internet on mobile phones... but virtually all of them also access it on PCs. The vision of "mobile-only" Internet users is a myth, with a specific exception for Japan, and to a lesser degree in India.

For more detail, please see:
disruptivewireless.blo...
disruptivewireless.blo...

Thanks

Dean Bubley

2008 Sep 10 05:05 AM

[PK de C'ville:]

I agree w/ much in the article, but really, what would you say if you analyzed the prospects of the iPhone?

My view is the iPhone is in a category of 1 today. If the other high end mobiles are 'smartphones' then I'd call the iPhone a mobile phone platform with the potential to dominate as Windows 95 did in its heyday. We'd have to call it a 'Worldphone' or some other moniker.

Seriously, with 95% of all mobile internet traffic originating from the newly introduced iPhone, what might explain that? And what explains 3500 apps in 45 days? 100,000,000 downloaded apps?

Dean, Please do an article on the differences you note between an iPhone and a smartphone. I think it would be very informative.

2008 Sep 10 07:06 AM

[icoft123:]

This company stock (ROKE) is set to take off. Worldwide client base in the mobile communications space. See the details at icoft.com/roke.html

2008 Oct 17 11:43 PM