The smartphone industry is growing really, really fast.
But it's also a mess.
On Tuesday, research firm IDC busted out its third-quarter industry
numbers, reporting that the smartphone industry grew by an
impressive 39.9%. Year-over-year, Android units were up 51.3%.
) dominant Android operating system crossed past 80% market share
for the first time ever, while
) 26% gain in unit sales resulted in a drop to 12.9% from 14.4% a
) underdog Windows Phone grew by 156% year-over-year, bringing its
market share to 3.6%, up from 2.0% last year, but slightly down
from 3.7% in the second quarter.
Forty Percent Growth? So Where's the Mess?
Well, let's take a look at the major smartphone makers' recent
KRX:066570): LG reported a 24% year-over-year increase in
smartphone sales, with a 31% quarter-over-quarter improvement in
LTE sales. However, profitability "declined due to increase in
marketing expense for G2 and decrease in ASP as a result of
For the fourth quarter, it said "overall market competition will be
intensified due to handset makers diversifying their portfolio in
order to gain market share."
Motorola (owned by Google): Sales fell 34% year-over-year, and the
unit posted an operating loss of $248 million.
): Revenues fell 45% last quarter, with a loss from continuing
operations of $248 million.
(TPE:2498): Posted a 33% drop in revenues and a NT$3.5 billion
(OTCMKTS:SSNLF): While not doing poorly, Samsung said that sales of
its high-end models flattened out, and that its growth is now led
by lower-priced mass-market models.
): Nokia is doing better with its Windows Phone-powered Lumia
devices than I ever imagined but, like BlackBerry, still only has a
small fraction of its former market share. I'm actually looking
forward to seeing what Microsoft does after it completes the
acquisition of Nokia's phone unit, because it is definitely putting
up a fight.
(OTCMKTS:LNVGY): Interestingly enough, Lenovo is hanging tough.
Last quarter, it reported not only outstanding growth in
smartphones, but showed "steadily improving profitability" in its
Mobile Internet and Digital Home segment, which includes
So overall, I think we can conclude the industry is in rough shape,
with a few bright spots here and there -- namely the Chinese
(SHE:000063) that are moving big units in emerging markets.
What's the Culprit?
Simple -- there are too many darn phones out there.
The IDC report included some very interesting nuggets of
information on pricing. First, average selling prices for
smartphones were down 12.5% year-over-year. That's not terribly
disturbing, as pricing on consumer electronics products goes down
However, ASPs for large-screen smartphones, a.k.a. phablets,
dropped by a whopping 22.8%, which takes the shine off the 600%
unit growth they saw in the quarter.
Where Does Apple Fit In?
If the 5C had been a super-cheap phone, maybe Apple could have
grown iPhone units by 50-60% (assuming no supply constraints), but
Apple is not playing the market-share game. If it were, there's no
way the new iPad mini with Retina display would have been priced at
$399, a $70 premium to last year's model.
It wants to protect its brand and its profit margins and will
sacrifice current growth and market share to get there.
, its iPhone ASP fell by just 6.5% -- which is incredible relative
to the 22.8% drop seen in phablets.
The moment Apple tries to compete on price and specifications is
the moment it stops being Apple and starts becoming just another
company slugging it out in the smartphone death match which, as
shown above, is getting pretty brutal.
And if it's this rough at 40% market growth, what about when it
gets to 30% or 20%?
So Is Anyone Making Money Here?
You're darn right people are making money off phablets, but it's
not the above names. The real beneficiaries are the giant mobile
advertising players like Google,
). The smartphone boom is putting more and more people on the
mobile Internet, and that means more eyeballs and clicks on mobile
Twitter is now getting
over 70% of its ad revenues from mobile
. For Facebook, that figure is 49%.
This would not be happening if the smartphone industry hadn't
advanced so far with Internet access speeds, and screen size and
Is Apple's Strategy Better?
Over the long term, who really knows? But for now, it seems like
it's the least worst way to operate, and
that makes it the best.
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