No Time to Panic as One Quarter Shows Minor Dip in Smartphone Sales - Total Smartphone Market Will Grow This Year (and here's why)

We now have the Q1 numbers from Strategy Analytics and IDC, the two last remaining of the classic four big smartphone industry analyst houses we used on this blog to calculate the industry average of the total market size, back when the 'smartphone bloodbath' started six years ago. And both SA and IDC are in exceptional, near-perfect agreement on the exact size of the market, we get a total smartphone market for Q1 at 334.8 Million units. That is down 18% from the Christmas sales Quarter (normal that Q1 is down) but for the first time ever in this industry, the YEAR-ON-YEAR comparison of Q1, so the January-March quarter last year 2015 vs now, is down. This has not happened in the smartphone industry in any YoY period. And some are now talking about 'peak smartphone'. That number COULD be a signal that smartphone industry growth has stalled and now peaked and smartphone sales will either plateau flat, or decline into the next year(s).

That could be and the math would support such a conclusion. But it is a SUPERFICIAL view of the industry without understanding two aspects of it. The first was the pent-up demand of the 6 series of iPhone that created a one-off SURGE of phablet-screen-size iPhone sales - LAST YEAR. Because iPhone owners had seen rival smartphones issue phablets for years, they waited and finally when Apple did the iPhone 6 and 6+ that created a one-time surge in iPhone sales pushing Apple in 2014 Q4 Christmas sales - AND 2015 Q1 January-March sales of the total smartphone market to an exceptionally high level. It was a surge, a peak in iPhone sales which is not normal (there is a normal level of iPhone jump in sales any other year at that time).

That means, that last year Q1, January-March 2015, was at an artificially high level - see how much higher Apple's iPhone market share was Q1 of last year (was 16% in Q1 of 2014, surged to 18% in 2015 and returned to 15% now). That was not normal market wars where one brand gains and another loses. It was Apple loyalists buying the long-awaited phablet-screen size iPhone 6 and 6+ which created that surge. Because of Q1 of LAST YEAR being so high, thus the NORMAL decline of Q1 meant, that it now produced that one-off dip in the Year-on-Year smartphone market size. Also note, that 'loss' of 2% now is EXACTLY the RISE of 2% that Apple gained for 2015 that same quarter, when their phablet surge happened.

This quarter Q2 April-June of 2016 sees the two most popular bestselling smartphone brands with their latest phones on their first full quarters of sales - Samsung's Galaxy S7 flagship pair and Apple's entry-level iPhone 5 SE. Both companies have reported very strong early sales of these models. As these two companies hold 40% of the global smartphone market, when they both have good growth quarters, the whole industry is doing well. They are clearly signalling that Q2 will be a good quarter, we can expect a return to growth comparing both sequentially to Q1 and year-on-year compared to Q2 of 2015. Then in Q3 we will see the 7 Series of the iPhone which should have a strong Christmas sales period. All signs say that the next three quarters, Q2, Q3 and Q4 will return to solid growth in smartphone overall market. Because there is a FUNDAMENTAL reason why.

The second part those clueless analysts aren't aware of, is the fundamental issue of the smartphone market as distinct from most major tech markets that they follow. The smartphone market is not growing as an independent market like say cars, personal computers or TVs. It is a REPLACEMENT market where the smartphone is cannibalizing EXISTING market like say how DVD players replaced the VCR market or how tablet PCs are replacing desktop and laptop PCs. The total global HANDSET market is just shy of 2.0 Billion units (Gartner reported it at 1.92B mobile phones sold last year 2015 which includes both dumb and smart phones). That market will evolve to become 100% smartphones just like how black-and-white TV sets evolved to color TV sets, and CRT-based 'boxy' style old TVs evolved to flat panel TV sets. It is an unstoppable train, the dumbphone market will end, it is expected to end by 2020 (I have been saying end of 2019). So there is a MIGRATION going on, which won't be stopped. THAT IS WHY it is certain, the smartphone market will still continue to grow. We were at 1.44 Billion smartphones sold last year (75% migration rate) and we'll be at about 1.58 Billion this year (80% migration rate).

What is happening in many markets is a slowin-down of the overall economy. The Chinese economy is still growing but not at the break-neck speed it did before. The US economy is spluttering along with very modest growth rates. Europe has its problems. Those will cause some of the superhot smatphone market growth to slow down - but CONTINUE TO GROW.

The smartphone market did have yes, one Year-on-Year dip in its quarterly sales of smartphones for the first time now, of 2%. That could be a signal of the smartphone market peaking or shrinking even 2% this year. But those who say that, don't know WHY there was that mathematical dip (against a surge a year ago) and the fundamentals of this industry (migration). Separately, the CURRENT quarter already is KNOWN to have big growth with Samsung's Galaxy S7 and Apple's iPhone SE (Apple said they can't keep up with demand, SE early sales are so strong). So don't panic and keep trusting this industry. The smartphone market will continue to grow this year. I mean, who are you going to trust? I was literally the first analyst to call the iPhone peak, the Nokia collapse, the rise of Samsung rather than Blackberry or iPhone to take the top on smartphones and for example that Xiaomi was no Top 3 player. I explained why Huawei was going to be bigger than Xiaomi, but also, what of those new brands now, Oppo and Vivo? Who told you first that they were going to jump into the Top 10 as Nokia/Lumia/Microsoft was falling out with Sony following out of the Top 10. Always proven correct, each of those massive events about the smartphone industry was first called here on this blog. Ahead of all other 'experts' who write about iPhones and smartphones. I know this business. Maybe its time to trust the most accurate forecaster of the mobile industry for now over 15 years.

PS for those who want my full forecast for next years through 2018, that just came out last year, its here.

Comments

[deadonthefloor]

You remind me of a Conservative Bernie Sanders.

[Huber]

@Wayne: +1

[David]

E.Casais:

You said «There indeed is one [benefict with dumbphones]: battery duration» and you are wrong, at least for speaking time.

A dumbphone ony does calls and SMS, so talking is its most important role.

Look at the numbers a Nokia/Microsoft 130 dumphone last speaking up to 13 hours, while a Galaxy S7 last 22 hours, and a LG G5 20 hours. So dumphone has shorter speaking time.

If you use a smartphone only for speaking and SMS, like a dumbphone, they will last more hors for speaking.

Of course, if you use them for other things, that dumphone can't handle, they will consume more energy.

In any way I prefer smartphones with removable battery, like LG G5, so I can get more than one battery on the go if I will need it.

[chithanh]

@Wayne Brady
Nobody who is smart pays full price for their Office 365 subscription.
You can get 1 year of Office 365 in cheap $80 Windows tablets, redeem the subscription and then sell the device for $50+ again.

You are correct that Microsoft Office is needed if one wants to exchange documents with Microsoft-only shops. But these too are shrinking in numbers.

[Tomi T Ahonen]

Hi all in this thread

I just posted the news on Twitter so will share of course with you readers as well. I have finished the math for the 2016 edition of the TomiAhonen Almanac and am now doing the writing, editing, chart-creation, and all the mechanical parts of the new volume. Like before it will be over 200 pages and over 100 charts, best stats of the industry and at a bargain price of only 10 Euros. Obviously some of you are regular buyers, its an unrestricted pdf ebook that is formated to fit your smartphone so you can carry all mobile stats in your pocket and use everywhere. Like always when the new Almanac is coming out, for anyone buying the current (2015) edition they now get both. So if you wanted the Almanac but were waiting for the fresh edition, no sense to wait anymore. Buy the 2015 ed now today, I'll email that to you today, and you'll get the 2016 edition also the moment that is released later this week. The link for those interested is

http://www.tomiahonen.com/ebook/almanac.html

Obviously when the Almanac is out, I'll also do my related blog about random interesting stats out of the latest edition.

Tomi Ahonen :-)

[Abdul Muis]

@Tomi

Thank you for the great explanation and sharing this with us. This is the reason why you're the most accurate analyst.

Great Jobs. Thanks.

[Earendil Star]

Comment n. one: I noticed we are getting unsolicited MS ads on the comments of this blog.

Comment n. two: I noticed that when Apple's share price plummets too much (e.g. to the 95 $ level) Tim Cook releases an interview saying how good things are, and sometimes without caring about SEC rules... (but he was right as nobody complained... :)

Interesting...

[Barney]

@Earendil Star:

"I noticed we are getting unsolicited MS ads on the comments of this blog."

And what about the constant barrage of Apple ads? They've been poisoning this blog for far too long.

[Wayne Borean]

@Wayne

The OneDrive pricing is competitive with the iDrive pricing, and probably competitive with DropBox and Mega pricing.

I see no reason to use Microsoft Office, other than Access. Access is damned useful. The rest of Microsoft Office has no advantage over the competition for most users.

Yes, Word, Excel, PowerPoint, etc. have a wider range of features, but who uses them? I use Pages every day, and I don't use most of the features it has. I use Numbers (as a database for an online game I'm playing), and again, I don't use most of the features.

Hell, my mother-in-law is still using Word Perfect! She'll never switch away from it either.

And that's why Google Suite (or whatever it is called) has such a huge market share. It offers what most people need, at a price that they can afford (free).

I use Pages a lot as a writer. Compared to Office 2004 and 2007, LibreOffice, and OpenOffice, it had a simple uncluttered interface. It also had ePub export, which none of the others had at that time, which is a feature I use a lot.

[Wayne Borean]

Talking again about office suites, a very dear friend who is a writer uses Word 97. She's used to it, and refuses to switch. Another friend uses WordStar 7 for DOS. You might have heard of Robeet W. Sawyer, he's won a bunch of awards for his writing,

Most professional writers won't use online apps for writing. We tend to be a paranoid bunch - what if you don't have an Internet connection? If you've had to put up with the WiFi at SF Con hotels, you'll understand why. Most of us aren't rich either. Paying for OneDrive or iDrive is not in the cards, we use the free services exclusively.

Which is why so many of use use Mega for backups. FIFTY GIGABYTES FOR FREE!

[E.Casais]

@David

Let us see:

Model battery talk time
Nokia 130 1020 13
LG G5 2800 20
Galaxy S7 3000 22
iPhone 6S 1715 14
iPhone 5SE 1624 14

So the Samsung S7 provides not even 70% more talk time with a battery with 194% additional capacity, the LG G5 short of 54% more talk time for almost 175% more battery capacity. An iPhone requires almost 60%-70% more capacity for less than 8% longer talk time duration.

Your assertion that "if you use them for other things, that dumphone can't handle, they will consume more energy" is therefore incorrect: smartphone use _vastly_ more energy for precisely the _same_ operations that feature phones can handle.

Yes, going by the absolute duration, going with the absolute top-high-end, most expensive, physically larger devices sporting giant batteries, one can perform basic duties for significantly longer. At comparatively horrendously inefficient energy usage. It is a bit like saying that one can drive farther with a truck than with a compact car with one tank fill.

The battery remains an issue with smartphones, and an advantage of feature phones. This is also why I understand very well why you prefer mobile phones with removable batteries.

[Barney]

@Wayne Brady:

The best way to get caught up in a problem is to ignore and deny it. It may not be a problem for YOU, but it is one for many people who just can't afford that their phone may pass out at the wrong moment and don't want to keep a constant watch on their charging meter.

[chithanh]

Sorry about triggering unsolicited Office 365 advertising here.
I just wanted to point out that Google Docs is a several times bigger than Microsoft apps, even in the US with 30-40% Apple marketshare, where both are free of charge, and neither is preinstalled.

About replaceable battery: This is important to some customers, especially in emerging markets where you cannot expect to readily find power wherever you are. This is why in the value segment, replaceable batteries still abound. In developed nations, customers who care about this are becoming a small niche though and they mostly (sometimes grudgingly) accept the aforementioned power banks.

[E.Casais]

To comment briefly on the remarks by Wayne Brady on Microsoft offerings: Microsoft is in the process of altering its strategic approach to the computing market by trying to diminish its heavy reliance on its traditional products (i.e. moving to terminals and cloud services instead of PC software) in a way comparable, albeit not identical, to what IBM did in the 1990s (shifting to integration services instead of production of integrated hardware).

Not that Microsoft is becoming more agreeable or "better" (IBM did not either), but if it manages the transition this will give it another 20 years of great sales, profits, and ensuring that it remains a top major player.

[chithanh]

@Wayne Brady
> On mobile...Google which owns 85% of the smartphone market has a huge lead with its own office apps than Msft does. Film at 11.

Again, the SurveyMonkey study is only about the US mobile population. Google does not have 85% share of the US smartphone market.

[Tomi T Ahonen]

hi everybody

Ok, I did another Apple blog, this one in great detail with PICTURES. I divided it into 2 parts, part 1 is already up, am now finishing part 2... enjoy

Tomi Ahonen :-)

[Wayne Borean]

@Everyone

I'm going to refer you to a great piece of writing from 2003 about Microsoft. Read it, and look at how many things came true...

http://www.aaxnet.com/editor/edit029.html