Elikel Jemina is the smartphone industry’s new best friend.
Every morning, in the West African city of Accra, Ms. Jemina boards a minibus – known as a “tro-tro” – and heads downtown. As the urban chaos of sub-Saharan Africa grows louder, Ms. Jemina loses herself in another world entirely, staring at the chat messages popping up on her smartphone.
“This is my first” smartphone, Ms. Jemina says, holding a tiny Samsung Pocket, a device that does pretty much everything a smartphone is expected to do – Web browsing, e-mail, text, talk, social media, apps. But at a price well below $200 (with no contract), it’s a lot different than most other smartphones in the market that cost two or three times that amount, or more.
Ms. Jemina is an example of the smartphone industry’s new target market – consumers worldwide who want a gadget that does it all, but not at the high price points most devices have carried for years.
Once a status symbol, the smartphone is quickly becoming a commodity product. That means higher volumes but much lower margins – a threat to the hyper-profitability the industry’s biggest players have enjoyed in recent years. The shift is forcing global smartphone manufacturers to revamp their business models, and will have the greatest impact on those companies that until now have focused on building high-end, high-cost devices. Companies such as Apple Inc., which once essentially controlled the consumer smartphone industry, are now scrambling to react to a growing consumer base that cares less about brand and more about the bottom line.
According to data from global research firm International Data Corp. (IDC) released to The Globe and Mail, smartphones costing less than $250 made up 37 per cent of all units shipped in 2012, up from 27 per cent in 2011. An even cheaper segment – smartphones priced between $75 and $100 – grew by 750 per cent. Meanwhile, the highest-priced phones showed slowing or negative worldwide growth, the research shows.
“The world is awash in low-cost smartphones,” says Kevin Restivo, an IDC mobile device analyst.
And virtually all the industry’s major players are caught in the intensifying battle. Just a few weeks after releasing the high-end BlackBerry Q10 smartphone, Research In Motion Ltd. (which operates as BlackBerry) recently launched the Q5 – a similar, keyboard-based phone with many of the same functions as a Q10, albeit with scaled-down performance. But the new device, which is expected to sell in the $200 to $300 range, has a price tag well below the Q10, which typically costs consumers more than $600 without a contract.
The Q5 is aimed at emerging markets, but analysts expect RIM will eventually roll out the device, or one like it, in established markets as well. As RIM sells more low-cost smartphones, its selling prices are bound to remain under pressure. RIM’s average wholesale selling price for BlackBerrys was about $289 in the latest quarter, according to Strategy Analytics, about $100 less than four years ago.
Playing in the low-cost smartphone game promises to be a major challenge for RIM. For years, RIM was the smartphone king, able to command high prices for BlackBerrys. That all changed when Apple’s wildly popular iPhone, then devices powered by Google’s Android operating system, gobbled up massive market share and left RIM on its knees.
For investors, the smartphone price war is grounds for caution. RIM shares have stabilized in recent months after plunging for years, and it has slashed costs and returned to profitability. But profits are a fraction of what they used to be, and sales in the latest quarter plunged from a year earlier.
But Apple may have even more to lose.
Pressures on margins
Apple’s stellar decade-long stock run has faltered over the past year, and although the company continues to post huge profits, price battles will weigh on sales and profit margins.
“They are overexposed to the premium market and also that market is growing at a slower clip than it has historically,” said RBC Dominion Securities analyst Amit Daryanani.
Apple has done little to compete on price for years because the iPhone has been so coveted by so many consumers. For price-sensitive buyers, the company has targeted the low-end of the market by slashing prices on its older iPhones every time a new one comes out. That trickle-down strategy may prove less successful as smartphones become less of a status symbol and more of a routine product sold at increasingly lower prices.Report Typo/Error
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