Smartphone Sales Declining?

Two side-by-side stories in the Wall Street Journal this morning might be a straw in the wind. In one Nokia’s smartphone sales are showing a down-turn; in the other, similar results are reported for Samsung. Is this market finally maturing? I note that new technologies have their own well-known cyclicality. When they are in their growth phases, they resemble bubbles. When they mature, the media always sound as if some kind of End Time has arrived. See for instance this article in the Wall Street Journal, dated April 11, 2013, “Computer Sales in Free Fall” (link). The chart shown does have an alarming aspect—until you realize that the down-ward trend is that of growth. When a market is mature, growth will tend to match that of an economy, not that of a bubble. And then the great leaders of an industry begin gradually divesting of the product to those who will keep selling them for many, many, many years to come. At a profit—but not at the kind of profit that lifts stocks. A recent example is IBM selling its network server unit to Lenovo of China (link).

Getting Smart on Smartphones

The big news on the business page today, the New York Times, in my case, is Google’s acquisition of Motorola Mobile, the latter having a 5.9 percent share of the global smartphone market. The paper quotes Larry Page by way of showing the motivation for this acquisition. “Computing is moving onto mobile,” said Google’s chief executive. “Even if I have a computer next to me, I’ll still be on my mobile device.” Smart move that, Larry—especially having a computer next to you. In the experience of all those over 55, roughly, when you find something of interest on your mobile, you need a computer next to you properly to see what you are kind of squinting at on that tiny screen.

The huge, explosive hoopla surrounding this event has moved me to do a little quick-and-dirty analysis by way of putting smartphone on my own screen, as it were. Don’t own one. How big is this market, I wondered. The first place to look, of course, is on Market Size, a little sliver of the family business. There (link) I learned that global sales in the third quarter of 2010 came it at 80.5 million units. Multiply that by four to get a size for global annual sales: 322 million units a year—until the market is saturated, of course.

The next question I had was market size in dollars. That turned out to be a more difficult exercise. In this market number of units dominates reporting, be it of the category itself or the market shares of the participants. PCWorld (those people are always on top of things) came to my rescue in this article dated July 15, 2009. Slightly dated, but good enough for blogging work. The article has an excellent table showing both the up-front and the continuing costs of owning a smartphone. The answer is that owning a smartphone, all costs counted, will run the user about $1,900 a year. Wow! I thought. Aren’t those things, uh, something like $200 a piece?

The answer is yes, they are. If you simply average the prices of units provided by eight companies surveyed by PCWorld, the average is $198.62. To this add about a $36 activation fee. If you take this cost and spread it out over two years (the usual contract), that will run you $117.32 a year. But to this we must add monthly charges for services of $140.62 or $1687 a year. The two added together come to $1,804 a year. PCWorld’s estimate is rounded up a bit, reflecting the larger market shares of the more expensive units.

All right. If we take $1,900 a year times 322 million units a year, the global market size in dollars comes in at $612 billion—that’s a large market. If we stick to hardware sales alone ($199 per unit), we get a $64 billion market—still plenty big.

Next question? Well, what is the U.S. share of that? Using a Nielsen estimate here, namely that 60 million Americans own smartphones, we get a total market for smartphones (hardware and services) of $114 billion.

The final question I posed myself was this one: What percent of total U.S. consumption does that figure represent? It turns out to be 1.1 percent of total U.S. expenditures on durable and nondurable goods plus services. The picture of that slice is shown in the graphic above. It’s small—but visible. All that just to be connected to the mighty feed even on the move? Watching movies on a walk? Apparently so.

Footnote: Smartphone are more than cellphones and only represent 19 percent of all such devices. As Market Size defines it, quoting PC Magazine, a smartphone is “a cellular telephone with built-in applications and Internet access. Smartphones provide digital voice service as well as text messaging, e-mail, Web browsing, still and video cameras, MP3 player and video and TV viewing.”