Apple Inc reported less than expected quarterly results. Many people are starting to question if Apple Inc relied to heavily on their smartphone and if the global smartphone industry is becoming more vulnerable to economic shocks than it was during the 2008-2009 financial crisis.
In Developed markets such as the UK, 1 in 2 people have a smartphone. However, when you are trying to penetrate into emerging markets, such as Brazil, it become much more difficult to implement a phone, when cheaper phones that are usually under £100 are squeezing company profit margins.
During the infancy of smartphones everyone had to have one. The demand was so high that sales were not affected during the crisis as other electronics were.
Now that there is no new breaking technology, as there was in 2007 with the iPhone touchscreen, people are not in a hurry to upgrade their phone. Which is evident with the June quarterly results; it showed a bigger hit from the European debt crisis than Wall Street expected.
No one is able to escape this recession as users who cancel their subscription to upgrade to a newer model or wait to upgrade their phones every 18-24 months are now holding on to their phone three months longer than usual.
There is no breakthrough reason to upgrade as quickly as before and now with the crisis not many are willing to shell out £400 for a new phone.
Although I don’t think smartphones are declining anytime soon, I think it has just saturated the developed market and needs to put efforts implementing into emerging markets. Although this might be difficult and much slower than it was for developed markets, analysts say it will be able to support smartphone shipments even if the global economy takes a turn for the worse. However, pricing is going to be cutthroat as Apple’s iPhones and Samsung Electronics Co Ltd’s Galaxy will give other smartphone companies pressure to cut prices. This is also very evident with the recent results of Samsung’s quarterly earnings stating the best quarterly smartphone sales in history beating Apple. Because of Samsung’s size it is able to drive costs down and still make a profit where other companies like RIM will have difficulty in emerging markets.
It’s going to be a very interesting rest of the year for these smartphone companies as they fight to get their share in the emerging markets in an economy that will not provide immunity to crisis.