AH Primetime: Smartphones - The Tale Of Rising Adoption & Falling Profits

Amidst mounting losses and diminishing market share, most smartphone OEMs are finding it hard to keep their noses above water, even as the industry itself continues to grow by leaps and bounds, registering strong double digit growth globally. So what gives? The answer seems fairly obvious when one looks at the changing market dynamics in key emerging markets. With local brands flourishing in most strategic markets globally, the established multinationals are feeling the pinch, and their financial results are suffering big time. With worsening financials, the latest to join the increasingly long list of companies handing out the dreaded pink slip to its employees were HTC and Lenovo, who, in separate announcements, declared a combined redundancy of 5,200 employees. While HTC cuts as much fifteen percent of its workforce, leading to 2,000 people losing their jobs, Lenovo slashed 3,200 jobs, which cut its non-manufacturing workforce by ten percent. HTC especially has been having a horror run the with its current generation flagship, the One M9, failing to gain any kind of traction in the market whatsoever, leading to plummeting market share, which resulted in its stock price falling to an all-time low since going public earlier this millennium. As for Lenovo, its problems aren't limited to just the parent company either. Sales of its subsidiary Motorola has also reportedly fallen by as much as 31 percent this year to 5.9 million units.

The sad part is, these layoffs are barely the tip of the iceberg. There's already been multiple rounds of layoffs at Sony, Nokia and Microsoft over the past several months, leading to over 15,000 redundancies in the mobile handset industry in the year 2015 overall, according to an estimate by Quartz. So negative is Microsoft about the prospect of its Windows Phone operating system, that it has already cut 7,600 jobs from its handset business. the company has also publicly announced that its going back to its roots and will make its software products and services available on dominant platforms like Android and iOS rather than continuing to push its own platform which is still languishing with low single digit market share, even after several years of putting its might to popularize Windows Phone among users and developers.

Sony Corp., one of the largest consumer electronics companies going around, is not having any better luck with its smartphone business either. With the company's mobile communication unit posting losses to the tune of $184.4 million this year, the company cut 2,100 workers from its rosters amidst softening demand for its Xperia range of mobile handsets. Of course, the story of spectacular downturns in fortune of smartphone makers in the early twentieth century will remain incomplete without the mention of BlackBerry. The company, known as Research in Motion (RIM) in its heyday, announced a fresh round of job cuts back in May, and now has a total of around 7,000 staff, an overall reduction of almost 50 percent from the 12,500 workers it used to employ during its halcyon days.

So is the smartphone gold rush really over? Seems counterintuitive to come to that conclusion, seeing as the total number of smartphone users are on the rise every given year. A report from IDC earlier this year stated that the total number of smartphone units shipped in Q1, 2015 totaled over 334 million, which is 16 percent higher than the 288 million units shipped during the first quarter of last year. So what explains the apparent dichotomy of rising adoption but falling revenues? The answer lies in products from a multitude of manufacturers in China, who've garnered enough collective muscle over the years to force out the established incumbents by offering high-specced smartphones at affordable prices; and it's not just better-known brands like Xiaomi either. The rise of local vendors is what's actually putting the squeeze on the hitherto invincible multinationals, who've simply failed to keep up with market dynamics for the most part - squeezed between Samsung and Apple at the premium end, and smaller local vendors at the mid and entry-level segments especially in key emerging markets like China and India. Oppo, Vivo, Coolpad, Meizu have all grabbed large enough chunks of the market in China and have now started expanding beyond the borders of their homeland. Cherry Mobile is doing well for itself in the Philippines and Micromax has been snipping away at Samsung's heels in India for years now. While these brands may not have the prestige associated with the big boys, most people aren't willing to pay three times the money for just brand value alone anymore.

This is where things probably have started getting even tougher for the large, traditional smartphone brands. With respected names like Asus entering the business in all seriousness and starting to undercut the large brands, they'll have to increasingly deal with not just 'cheap' products from new, unknown brands, but reliable, well-made devices from some of the most respected names in technology. While consumers rejoice at the prospect of more competition dragging down prices and bringing better products at more affordable, pocket-friendly price-tags, things may very well get worse before it gets better for large smartphone makers. Especially with more US carriers doing away with the contract system, consumers will increasingly have to pay the full price for smartphones (often around $800 - $1,000) upfront. It remains to be seen how many people will be willing to do that rather than spending $300- $400 on an unlocked OnePlus 2 or a ZenFone 2, which basically offer the same experience and functionality for a fraction of the price.

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About the Author

Kishalaya Kundu

Senior Staff Writer
I've always been a tech buff and have been building my own PCs since as far back as I can remember. My first computer was a home-built desktop running MS-DOS on which I learnt to program in GW-BASIC and my interests apart from technology include automobiles and sports.