The smartphone market has been a boon for component makers and has in part offset declining demand in PCs. But according to IDC, even smartphone growth will begin to level off. Manufacturers will have to look toward emerging markets such as India and Africa for the next wave of growth.
In 2013 the worldwide smartphone market surpassed 1 billion units shipped, up from 752 million in 2012, according to IDC. This boom has been mainly powered by the China market, which has tripled in size over the last three years. China accounted for one out of every three smartphones shipped around the world in 2013, equaling 351 million units.
"The China boom is now slowing," said Melissa Chau, Senior Research Manager for mobile devices at IDC Asia/Pacific. "China is becoming like more mature markets in North America and Western Europe, where smartphone sales growth is slackening off."
India will be key to future smartphone growth as it represents more than a quarter of the global feature phone market, IDC reports. "Growth in the India market doesn't rely on high-end devices like the iPhone, but in low-cost Android phones. Nearly half of the smartphones shipped in India in 2013 cost less than US$120," said Kiranjeet Kaur, Senior Market Analyst for mobile phones at IDC Asia/Pacific.
The implication for component makers is significant as phone manufacturers strive to cut even more cost off of handsets. "The opportunity gets larger the lower the price falls," said Simon Baker, Program Manager for mobile phones at IDC CEMA. "If you take retail prices without sales tax, in 2013 nearly three quarters of the US$100-125 price tier was already accounted for by smartphones. Within US$75-100 the proportion was down to just over half, and between $50-75 it was not much more than a third."
"Converting feature phone sales to smartphone sales implies a relentless push towards low cost," added Baker. IDC research shows nearly half the mobile handsets sold across the world have retail prices of less than US$100 without sales tax. Two thirds of those have prices of less than US$50.
Many smartphone vendors have begun gearing up for this next wave of cost pressure. Samsung is increasingly switching production to Vietnam, where manufacturing costs currently undercut mainland China. Even Hon Hai, one of the largest contract manufacturers for handsets in China, has announced plans for a plant in Indonesia to furnish a lower production cost base.
Although component makers haven’t concentrated their production as much as their OEM customers, the trend toward “near-shoring” is increasing. OEMs are beginning to manufacture products closer to end-demand. Component makers may have to revisit their supply chain and logistics strategies to effectively service these OEM customers.
Emerging markets in Asia/Pacific outside of China, together with the Middle East and Africa, Central and Eastern Europe, and Latin America, account for four fifths of the global feature phone market, according to IDC data. "This is a very big market opportunity," said Baker. "Some 660 million feature phones were shipped last year, which could add two thirds to the size of the current global smartphone market."