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Vendors and Telcos Evolve their Strategies to Address the Mobile Handset Slowdown
Focus on META for New Growth, Accessories, Dedicated Online Stores and Open-Channel Brands.
This blog entry expands on and discusses some of the new findings from Futuresource’s most recent analysis of the mobile market.
2016 marks a significant point in terms of handsets sales, with smartphone growth expected to fall below 10% for the first time this year. This introduces new dynamics and challenges for brands, vendors and service providers. In the past, there has always been the guarantee of new markets migrating from feature phones to smartphones, or those who jumped straight in by taking advantage of increasingly low priced devices being released in the past two years. Now the market is slowing; between 2011 and 2016 mobile penetration increased from 43% to 70%, by 2020 it is only expected to increase to 75%.
The picture is not wholly pessimistic, there remain opportunities for growth; we forecast that annual sales of smartphones will grow by half a billion from the end of 2015 to 2020 as they account for an ever greater proportion of total handset sales (from 70% in 2015 to 84% in 2020). The advent of 5G will provide a bit of a boost in the most mature markets and there remains some growth in those still developing. Yet the safety net of overall market growth of 40-60% per annum has now gone. Differentiation between devices and brands is more difficult. Brands entering the market are able to take advantage of Android platforms from major chip vendors, offering low-priced smartphones with specifications and features that are attractive to large proportions of consumers. One impact of this, perhaps more significantly than for volumes, is that average trade value is expected to grow less than 3% in 2016 (it was over 10% two years ago), and then flat to declining from 2017 onwards. The margin for error in terms of brand positioning, distribution and retail strategy and device attractiveness is smaller than ever with brands finding it ever more difficult to bounce back from a bad year as competition gets ever more intense.
In the past year Asia Pacific (APAC), the previous growth engine, has started to slow with China in particular flattening off and countries like Indonesia and Pakistan becoming more settled. India has relatively low penetration and is growing, although more steadily than those other countries as it is fairly conservative. Plus, competition is intense as local vendors and tier one global brands already present have seen at least 15 Chinese vendors enter the market in the past year as they look to find new growth channels beyond their domestic market (which whilst steady for volumes is fickle in terms of brands and devices). Latin America is suffering from a mix of political uncertainty and economic downturn, whilst North America and Western Europe are already saturated. Eastern Europe has some untapped potential but the economic meltdown in the biggest market, Russia, is causing a slowdown. This leaves the Middle East and Africa (MEA).
MEA is an interesting and rapidly changing region, in a way representing the global market as some African countries are relatively untapped, with mobile and smartphone penetration as low as 20-30% and less than 10% respectively. Contrastingly, some Middle Eastern countries are amongst the most highly penetrated smartphone markets in the world (close to 90%). This has resulted in rapid growth in countries such as Egypt, Nigeria and South Africa; now the three largest smartphone markets in Africa, with both recognised and new vendors are moving quickly, building local presence and new channels to distribute their products. Companies like Tecno were among the first to recognise this, establishing a position alongside the likes of Samsung and Apple. Others are catching up quickly with Huawei and Lenovo being fast-growing brands in the region. Now we are seeing companies like Wileyfox from Europe, Micromax and Karbonn from India and Chinese vendors, such as Infinix and OPPO, looking to introduce their entry-level products to very price sensitive consumers.
This competition has already had an effect. Futuresource increased its estimates for 2015 smartphone sales in MEA due to the demand for sub-$100 smartphones, with the annual growth rate raised from 29% to 51% as adoption happens faster. There is a slight trade-off with later growth being reduced slightly (from 10% to 5% in 2020), as penetration cannot continue but this combines to highlight why companies are so keen to tap into what is effectively the only region delivering significant growth over the next five years. Such has been the growth, Futuresource’s latest analysis now shows MEA is expected to become a larger smartphone market than Western Europe next year.
Here at Futuresource Consulting we deliver specialist research and consulting services, providing market forecasts and intelligence reports. Since the 1980s we have supported a range of industry sectors, which has grown to include: CE, Broadcast, Entertainment Content, EdTech and many more.