For 13 years, smartphones have been a massive success story. Year after year, we’ve seen companies rolling out new products at a variety of price points and market positions. From 2004 to Q3 2017, smartphone sales grew year-on-year, even through the Great Recession. Q4 2017 put at least a temporary end to that trend.
Gartner reports smartphone sales fell 5.8 percent in Q4 2017 compared with Q4 2016. It’s tempting to write this off as ordinary variance, but when the market has shown no such variation in the past 51 quarters, it’s harder to hand-wave the figure. It’s especially more difficult because, in theory, we should still be seeing robust growth given that there are huge untapped markets for devices across India and China. Here’s Gartner’s explanation, per research director Anshul Gupta:
Two main factors led to the fall in the fourth quarter of 2017. First, upgrades from feature phones to smartphones have slowed down due to a lack of quality “ultra-low-cost” smartphones and users preferring to buy quality feature phones. Second, replacement smartphone users are choosing quality models and keeping them longer, lengthening the replacement cycle of smartphones. Moreover, while demand for high quality, 4G connectivity and better camera features remained strong, high expectations and few incremental benefits during replacement weakened smartphone sales.
That’s problematic for phone vendors, but not particularly surprising. Smartphone benchmark performance continues to rise year after year, but newer phones have more problems with throttling than older models did, and often can’t maintain their top frequencies for very long.
Feature introductions have slowed because it’s much harder to find improvements in a 4-5W handset that keeps getting thinner while users demand better battery life. In short, the smartphone industry may have just slammed into the same issues that have kept the PC market from growing very much. FaceTime and integrated digital assistants aren’t as universally appealing as 1.5-2x performance gains, faster storage, or a dramatic leap in screen resolution.
Apple sold 5 percent fewer smartphones in Q4 compared with the previous year. Samsung saw a smaller Q4 decline. Huawei and Xiaomi were the big winners, particularly Xiaomi, which nearly doubled its market share from the same period in 2016.
Smartphone sales still rose on the full year, up 2 percent, but that’s a tiny gain compared with what we used to see. Investors and analysts will be watching to see if the Q4 2017 drop becomes a trend or if the market stabilizes. I imagine there’s a bit of schadenfreude from the PC market, given that manufacturers in that space have been struggling with exactly the same problem — how do you build features compelling enough to drive upgrade cycles when raw performance has largely stalled out?
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