Saying that the smartphone landscape is evolving, would be like saying water is wet. With the advent and growing popularity of Chinese players, and the involvement of bigger OEMs to up their ante and innovate more, we’re looking at smartphone launches at unprecedented rates – both in terms of frequency of launches, as well as number of products launched in a single event.
But let’s take a pause, step back, and look at the bigger picture. A rise in the number of launches would have a significant impact on the supply-demand ratio for an OEM, and this would in turn lead to changes in the smartphone upgrade cycles as far as consumers are concerned. And that shall be the crux of this article: I look at the market as a whole, what the trends point towards, and what the effects might be on supply-demand, as well as the other constraints.
EASING INTO THE BASICS: FORECASTS
Before I actually go into the nitty-gritties of the market trends, let’s take a look at the forecasts as far as the smartphone consumer base is concerned.
According to an eMarketer report published in April, the number of smartphone users worldwide is expected to be at 2.4 billion people in 2017 alone. This indicates a rise of 10.8 percent from 2016’s headcount, and is expected to grow to a third of the world’s population by 2018. Moreover, it is estimated that in 2017, 54% of mobile phone users will be smartphone users.
The numbers aren’t quite different from a Statista report published in 2015, which stated that the number of smartphone users worldwide is stated to grow to about 2.87 billion in 2020. All in all, we’re looking at a huge consumer base, that’s expected to only grow in the next few years.
Now, let’s look at the smartphone shipment forecast. According to a Statista report published in early 2017, a total of 1.51 billion smartphones will be shipped this year alone, and the number is expected to grow to about 1.74 billion in 2021.
Finally, one last statistic which I’d like to bring up before talking about supply and demand constraints, is the smartphone life cycle. According to a Kantar Worldpanel research conducted this year, people in the US waited 22.7 months on an average before upgrading their phones in 2016. Similar waiting periods – or upgrade cycles – for China and five countries of the EU (Great Britain, France, Germany, Spain and Italy) stood at 20.2 months and 21.6 months respectively.
So, we’ve got a basic idea of the number of smartphone shipments (they’re increasing), the user base (it is growing) and the upgrade cycles (the statistics for 2016 were actually more than those in 2015). What about the supply and demand ratio?
DOING IT THE CHINESE WAY
Chinese corps – mostly Xiaomi and OnePlus – have this innovative way of getting a fine balance between supply and demand, but it mostly leads to supply exceeding the demand. Not always a good idea, but the strategy is unique in itself.
While Xiaomi still follows the trend of flash sales – with a limited number of devices going up for sale on a specific day, OnePlus began with the invite system, through which it could literally have a headcount of the number of people who might be interested in buying a phone. Gradually, as the companies grew and operations expanded, more robust sales approaches were adapted which got the supply on similar lines as the demand.
But then, while we’re on Chinese corps, what about Apple?
THE IPHONE: SUPPLY CONSTRAINED AT LAUNCH?
A recent Wall Street Journal article talks about how there are never enough new iPhones, pointing out that the iPhone X can be pre-ordered only after late October, and won’t start shipping until November.
This goes hand in hand with a KGI report, which states that the iPhone X may be impacting iPhone 8 sales, since while newly launched iPhones typically ship 3-6 weeks after being ordered, most iPhone 8 models are shipping in 1-2 weeks or less.
The WSJ article goes on to ask this question:
Are these shortages some kind of Machiavellian marketing play? Calculated risk management? Or is it the case that manufacturing millions of complex electronic gadgets, and distributing them globally, is really hard? It’s likely a bit of all of these.
According to a cover piece on 9to5Mac, the iPhone’s availability during launch (and lack thereof) can be attributed to three factors: the anticipation of demand, perfectionism in terms of last minute hardware changes, and the most common factor – component shortages. The latter is actually evident when one considers that the iPhone X faces shortages of NAND memory and OLED panels.
SAMSUNG AND HUAWEI: TREND FORECAST
Samsung has had a bright streak with the S8 line, which was launched earlier this year. The latest numbers reported come from July, wherein Strategy Analytics reported that out of 93.2 million handsets shipped worldwide in Q2, 2017, 20 million handsets were comprised of the Galaxy S8 and S8 Plus. To put this in perspective, on an average, since the April launch, Samsung shipped 278,000 units of the S8 and S8 Plus daily.
Coming to the Note 8, according to a TechCrunch report a couple of weeks back, the Note 8 saw 650,000 pre-orders worldwide over five days, which was 2.5 times that of the response to the Note 7 during pre-order.
With Huawei though, the overall sales figures are impressive in their own right. Earlier this month, The Verge reported that Huawei’s global sales surpassed that of Apple for the first time in June and July. Huawei’s strongest market is in China, and it is seeing a rise in popularity in European and Latin American countries.
What does this imply? Mainly that when it comes to high end flagships, consumers are happy to shell out top money for a hassle free premium experience. With Samsung’s statistics in mind, one can actually predict that upcoming models from Huawei (such as the Mate 10) might have a chance of doing well, given that there’s a lot of innovation on the table with the AI Kirin processor.
However, there’s also the example of Andy Rubin’s Essential Phone, which has a dismal record of selling only 5,000 units in the U.S alone. Reasons for this might be lacklustre software performance and sales delays – thereby proving that innovation obviously isn’t the only factor to consider.
SO, WHAT DOES THE FUTURE LOOK LIKE?
In simple terms, lots of innovation, huge consumer base, but with a need to work on the supply to demand ratio.
Maybe it’s time that the upgrade cycles were taken into account as well, since OEMs can’t really try and force new phones down consumers’ throats. While innovation is definitely the prime reason for OEMs to stick out, the upgrade cycle is actually taking a slight upturn, and OEMs – specially the big ones like Apple – will have to keep an eye out for supply constraint as well. Just to make sure that the supply matches the demand.