Do you plan on buying a new smartphone this year? This is the question many companies are hoping you will answer with a firm and resounding “yes”. While it could be argued that every year, these companies are hoping you will upgrade and buy their latest evolutionary smartphone, this year things are a little bit different. The reason for this difference - reports on smartphone sales worldwide for the first quarter.
In case you haven't been following the news. Smartphones sell and they sell a lot. Each year, more and more smartphones are being sold and with the commonly referred to ‘emerging markets’ emerging more as ‘mega markets’’, the long-held assumption has been that the smartphone gravy train would continue rolling indefinitely. At the very least, for the foreseeable future. But last week, things changed when the first reports starting coming through from Strategy Analytics and essentially confirming that the first quarter of 2016 resulted in a worldwide year-on-year contraction. Correction, the first on record year-on-year contraction.
Yep, according to the data, the first quarter of 2016 is the beginning of the end for smartphones sales. Of course, this is all relative as the same report does detail that as many as 335 million units were shipped in Q1 of 2016. And by anyone’s standards, that it still a hefty number of units being shipped in three months. Maybe even a number which some would call healthy. But in this world of ever-changing tech, healthy is not really defined by how many you are selling, it is more about the longevity in your business model, its sustainability. And this is why the market did shake a little when the latest results came through. It is not that sales are bad, as 335 million units is clearly not bad, but the fact that this represented a drop of 3-percent compared to sales for the same period last year - which came in at $345 million. As Strategy Analysts put it, “It is the first time ever in history the global smartphone market has shrunk on an annualized basis.”
So no matter whether you take the end is nigh approach or the 335 million approach, it is clear that there is a problem with smartphone sales. The problem is not that people are not buying them, but more so, they are not buying them as much or as frequently as they used to. And to be clear this is not an Android problem as the same quarter saw Apple reporting a year on year decline for the first time in thirteen years. So while not as dramatic as “the first time ever in history”, the fact that Apple buyers are buying Apple products less frequently in the first quarter of 2016 than they did last year (a pattern which has now been bucked for the first time in 13 years), does further add to the industry-wide concern that this could be the start of something bigger. Of course, if we were to focus on the iOS/Android debate, then the Apple loss of market share is one of the big specific and driving losses for Q1 smartphone sales overall, but this is an aspect which affects all vendors. While some smartphone vendors (mainly Chinese OEMs) are seeing an increase and taking away from the bigger name like Samsung and Apple, smartphone sales as a whole are down.
So what is causing it? Why are you not buying smartphone products as frequently as you should be...or used to? While the industry will look to answer this, the real answer is likely to be a combination of things. Firstly, there is the two-pronged lack of innovation/smartphone greatness issue. And this is a complicated and almost contradictory one. On the one hand, smartphone makers are very often being accused of not being innovative enough. HTC for instance, released a perfectly good handset last year and one which could be easily defined as a good purchase. However, the market, be that the consumers or the media (or a combination of both) deemed the HTC One M9 as not 'evolutionary enough'. The other pronged part of this issue is that smartphones are now significantly better than they have ever been. In fact, it could be argued that any of the top-tier flagship smartphones that you purchase this year, will be one of the best smartphones that has ever been created. While the arguments will rage over which of the top-tier phones is best, the commonality is that they all represent a massive improvement over smartphones of the past. Whether the media and market deem them ‘enough of an improvement’ is irrelevant. They are still the best. You want pure design, Samsung Galaxy S7 Edge is the one. You want innovation to the point those most of us are having trouble understanding, go for the LG G5. You want a more compact, yet stylish smartphone, head for the HTC 10. You want 6GB RAM priced at under $400, you got it with the OnePlus 3.
And this is where this combined issue is now starting to take shape. On the one hand, consumers are hearing about the lack of innovation and opt not to buy this time around (meaning this year). While on the other hand, those who are buying are getting such super smartphones. Ones which mean that they are suddenly feeling less of a need to update at the time of the next product cycle. To be clear, while the innovation down and quality up cycle has been in effect for the last few years, those years have been predicting this year-on-year contraction was coming. The warning signs have been there and 2016 just marks the year in which (for Q1 at least), the barrier was broken with sales down. However, there could also be another reason as to why sales are down this quarter and even this year.
It does also have to be addressed that 2016 is the first year in which virtual reality seems to be a mainstream product. Of course, that has not happened yet, as sales of VR units are still way too low for it to be considered an actual mainstream product. But it does seem clear that virtual reality is now a mainstream thought in the back of consumer’s minds. As a result, many will be planning on buying a new virtual reality-related product this year and for the first time. With Samsung, HTC, Sony and even Google looking to really drive forward with virtual reality in 2016, it could be the case that consumers are having their heads turned a little by virtual reality. That is, turned away from smartphones. While Samsung wants you to buy the Galaxy S7 Edge and HTC wants you to buy the HTC 10, maybe the HTC Vive or the Sony PlayStation VR is what is catching your attention, dividing your interest and ultimately, going to be an example of the product which you will purchase this year. After all, if the HTC 10 (relatively) costs the same price as the HTC Vive and you are still rocking that great Nexus 6P from the end of last year, then what is the harm in forgoing the HTC 10 this year and opting for the HTC Vive instead. By the time the HTC 11 comes out, you will only be 18 months behind the smartphone market, but you will be at the forefront of the virtual reality market.
While individually we all might be thinking what is the harm? The reality is that this is the harm. Market contraction. While one person looking to postpone their latest smartphone purchase is not a big deal, when the market as a whole is shifting in a similar direction (consumers and the media), then the repercussions of all that shifting is a slowdown in sales to the point where Q1 of 2016 marks “first time ever in history the global smartphone market has shrunk on an annualized basis.” So while it is true that the market is healthy and 335 million smartphones were shipped, indicators like innovation (or lack thereof), quality (requiring less frequent product cycles) and virtual reality (stealing attention) do highlight that the smartphone market is changing. While the change has been happening for some time and is a slow change at the moment, the next quarter will be where we get to see if this is actually becoming an issue or not. If Q2 of 2016 also sees a similar level of contraction year-on-year, then that will mean the bi-yearly results are also likely to be contracting too. Which in turn will fuel the notion that 2016 as a whole will be smartphone market contracting year, overall. Takeaway - your Nexus 6P is old now, go buy a smartphone.