If there is one thing that the figures for the consumer electronics industry have shown over the past year, it’s that there’s been a sharp drop in sales of its flagship product, the smartphone.
A 9% drop in the second quarter of 2022 was followed by an 11% drop in the third quarter, and an even bigger drop of 18.3% in the fourth quarter, very unusual since, traditionally, the fourth quarter is the best one of the year. Overall, 2022 has seen a decline of 11.3%, and in some markets, it is the fifth consecutive year of decline.
The crisis, however, is not the same for everyone: Apple, despite the decline, overtook Android to regain leadership of the US market, also positioning itself as the second brand in China, where its decline, of only 3% over 2021, is much more moderate than that of its competitors.
What’s going on in the smartphone market? On the one hand, the anticipation of a strong economic downturn, which generally leads consumers to postpone significant spending decisions and cut back on high-volume purchases such as a smartphone. But on the other hand, it seems reasonable that after a few years of strong innovation, which led users to feel relatively uncomfortable when they did not keep up with the pace of updates reasonably in line with the introduction of new features on the market, relatively few innovations have been made, and that would be practically imperceptible to the user.
Between a 12Mpx and a 48 Mpx camera, although the magnitude seems very significant, the reality is that in everyday use, and without requiring enlargements of photographs, the difference is hardly noticeable. It is increasingly difficult for manufacturers to add new features that are perceived as meaningful to consumers, making it less attractive to upgrade devices.
With a saturated market in many developed countries and with growth coming almost exclusively from developing countries, the market structure changes: in developed countries, most users already own a smartphone, and the market for new users is relatively small, and this means there are fewer potential customers. In developing countries, although the potential for new users is still high, the market is shaped primarily around price as a key decision variable, and the innovation attributes required change very significantly.
In short, people are keeping their smartphones for longer, resulting in longer replacement cycles, which are significantly out of step with the pace at which brands are launching new models. As smartphones have become more advanced, they have also become significantly more expensive, leading many users to choose to keep them longer, sometimes even opting to replace some of their components such as the battery, rather than upgrading to new models.
So while smartphones are pretty much indispensable, most people only replace them when they absolutely have to, which adds up to a market that will continue to decline for the foreseeable future.
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This post was previously published on Enrique Dans’ blog.
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