By: Larry Darrell
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The Smartphone Industry

Cellphones, once considered a luxury, are now a necessity for almost everyone. They have evolved from big, bulky, basic phones to highly sophisticated communication and entertainment devices. They are now capable of helping users make sophisticated decisions with the help of the cutting-edge technology embedded in them.

Apple Inc. (AAPL), more specifically the late Steve Jobs, is heralded as the pioneer of smartphones. Apple’s iPhone was introduced in 2007, and it revolutionized the cell phone industry and the world. The iPhone, with its completely touch- and gesture-based user interface, transformed the entire smartphone ecosystem.

Android, a mobile operating software developed by Google using an open source platform, was the next big thing in the industry. The introduction of Android and cheap Android powered devices led to the increasing adoption of smartphones across various categories of consumers. So much so that if the iPhone was responsible for revolutionizing the smartphone, then Android was responsible for commoditizing it.

Smartphones had an almost negligible share of 11% of the cellphone industry in 2008. Their share soared to 44% by 2012, and it is estimated that smartphones will represent virtually the entire cellphone industry by 2017.

Today, smartphones come packed with dozens of features, including high-resolution displays, cameras, high-performance processors and gaming capabilities, among many other features. The cycle of innovation continues with every new model, but room for further innovation is being squeezed since standalone devices such as cameras, GPS, organizers, camcorders, and many others, have already been assimilated into smartphones.

The latest additions in mobile technology are phablets and wearable technology, but they are still at a nascent stage. The phablet is a hybrid of a phone and a tablet, and is aimed at eliminating the need for multiple devices. What differentiates it from a smartphone is its screen size, which ranges anywhere from 5-7 inches. The Samsung Galaxy Note and the Sony Xperia Z Ultra are the latest additions to the phablet category.

Wearable technology, also in its initial stage of development, seamlessly combines technology and accessibility in the form of wearable devices. Samsung’s recent launch of Galaxy Gear (a smartwatch) was the first step towards commercializing this technology. Apple’s iWatch and Google Glass are also being touted as products that will further revolutionize the industry.

Market Size

In 2012, 1.7 billion cellphones were sold worldwide, out of which 712 million (44%) were smartphones. The global cellphone industry is valued at $339 billion, with smartphones contributing $280 billion in 2012 and feature phones contributing the rest.

Key Players

The dominant players in the industry are Samsung (SSNLF) and Apple (AAPL). Then there are well-known, but smaller players like Nokia (NOK) (recently acquired by Microsoft (MSFT)), BlackBerry (BBRY) (Fairfax Financial has offered to buy), HTC and many local vendors in their respective markets with huge growth potential.


According to International Data Corporation (IDC), the cellphone market is forecasted to grow 7.3% in 2013, driven primarily by increasing demand for smartphones. By 2017, smartphones are expected to represent the cellphone industry, making feature phones defunct.
The cellphone industry comprises feature phones, smartphones and phablets. According to Canalys, an independent analyst firm, feature phone shipments have a forecasted CAGR of -3.8% through 2016, whereas smartphones shipments will have a CAGR of 16.9% through 2016.

Key Trends & Drivers

Smartphone shipments are expected to grow 40% year-over-year (YoY). It is estimated that smartphone shipments will exceed the one billion mark by the end of 2013. Smartphone shipments had already surpassed feature phone shipments at the start of 2013.

Smartphones, like other consumer electronics, have become commoditized, causing average selling prices (ASPs) to decline and leading to growth in emerging and price-conscious markets.

Operating System Ecosystem

Operating system software played an integral role in commoditizing this market. Apple’s iPhone was a revolutionary product and its iOS played a major role in making it so. But the surge in smartphone sales is attributable to the deluge of low-cost android phones. Android is an open-source platform provided by Google, which allows vendors to adopt and modify it according to their needs and requirements. This flexibility provided by Android is a major driver behind the commoditizing of smartphones.

At the same time, the popularity of a platform and consumers’ buying preferences varies based on the user interface and the apps each platform has to offer. The Android Playstore has recently leapfrogged Apple’s Appstore to offer the most apps. Windows Phone and Blackberry are still far behind.

Currently, Android leads the market with 79% market share.

Worldwide Subscribers

According to the International Telecommunication Union (ITU), cellular subscriptions were equal to 96% of the world population at the end of 2012. As per PortioResearch, subscriptions will hit 8.5 billion by 2016, surpassing world population with growth led by emerging markets. Increase in worldwide subscriptions and estimated worldwide wireless penetration of 98.7% in 2013 will further drive growth in the smartphone industry, specifically in emerging markets.

Note: Cellular subscriptions do not refer to unique subscribers only. It includes users who own multiple subscriptions

Average Selling Prices (ASPs)

Owing to commoditization, the average selling price of smartphones has declined. As per IDC, prices of smartphones fell from $443 in 2011 to $372 in 2013, and are expected to decline to $309 by 2017. The chart below shows the inverse relationship between the number of units shipped and average selling price over the past six quarters. Historically, technologies have been through this phase where products trending towards maturity attracted new players, pushing ASPs downwards and eventually squeezing margins.

According to IDC, smartphones below the price tag of $250 have a 49% market share compared to the other two price bands of $250-$500 and more than $500. This trend is expected to further strengthen as the smartphone market continues to mature.

Emerging Markets

Emerging markets account for 65% of the total market and are expected to grow to 71% by 2017. Developed markets have already reached a saturation point with 128% cellular penetration rates, whereas developing countries have 89% penetration only. This signifies that the growth for smartphones lies in emerging markets.

The graph below demonstrates that China, India and Brazil have the highest CAGR compared to the US and UK, proving the immense potential in these markets. China is expected to grow its market share to 23%, whereas USA is expected to have a market share of 14.5%.

Latest Products

eptember has traditionally been the season for new launches owing perhaps to iPhone’s launch. Samsung launched its Galaxy S4, Galaxy Note 3 and SmartWatch in the first week of September, followed by iPhone’s launch on September 10th. Apple launched two new versions of its iPhone – iPhone 5s and iPhone 5c. Apart from hardware and software upgrades, Apple has introduced biometric functionality in iPhone 5s. iPhone 5c was the first smartphone launched by Apple that targeted emerging markets with a $100 price difference with iPhone 5s. iPhone 5c aims to capture the market in China and other countries where there is immense potential for growth. Digressing from these two dominant players, Nokia has its own version of smartphone named Lumia. Nokia’s devices and services unit was acquired by Microsoft, and BlackBerry was recently acquired by FairFax Financial, a Toronto-based financial holding company that deals in property, casualty, investment management, and life insurance.

At the moment, the dominant players are ruling the smartphones market, but many smaller players have sprouted with their own version of high-spec and low-priced android phones. The Chinese market, in particular, has a lot of small players, and they account for almost 32% of the Chinese market. The cellphone industry is flooded with such devices, bringing prices and room for innovation down with them.


The Smartphone industry, compared to other hardware industries, has paced faster onto its product life cycle. The growth trajectory in this industry is attributable to relatively faster adoption and commoditization, which made smartphones affordable for everyone. Additionally, use of smartphones in areas such as banking, retail, internet etc. has led to their widespread use. Apple’s revolutionizing the smartphone and Android’s commoditizing it has attracted many vendors to this industry, thus bringing margins down and accelerating its maturity.

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