Main menu


The smartphone market is slowing down. Even Apple isn't immune.

featured image

Consumer demand for smartphones continues to decline. Global smartphone shipments were still ahead of the year-ago quarter, but fell almost to pandemic-impacted levels in early 2020 in the second quarter. Had it not been for the supply chain disruption early in the pandemic, his rising trend in sales last quarter would have fallen to levels not seen since 2014.not even venerable apple (AAPL 1.49%) The iPhone is selling well as before.

Declining demand is not an insurmountable challenge, but it is not one that investors can ignore. We’re not quite there yet, but the slowdown in sales is another sign that smartphone saturation is an increasingly real headwind. Manufacturers should be as responsive as possible.

Another smartphone slowdown next quarter

This data is provided by International Data Corporation (IDC), a technology market research firm. The organization reported that second-quarter smartphone shipments fell 8.7% year-on-year, marking his fourth consecutive quarter of decline.

The most popular brands kept their own.that is samsung And the aforementioned Apple. Apple’s iPhone sales were about the same as last year’s second quarter, but Samsung’s ability to overcome the current chip shortage allowed it to improve total shipments by 5.6%. Value brands such as Oppo, Xiaomiand Vivo saw sales declines of more than 20% each.

Commenting on the quarterly data, IDC research director Nabila Popal said: “Burning inflation and economic uncertainty have led to a significant drop in consumer spending and higher inventories in all regions,” she added.

IDC believes the slowdown in the second quarter will be offset by a resurgence in demand for the foreseeable future. And probably will. However, this optimistic outlook ignores the overall downward trend that has continued since 2017, following the peak of smartphone purchases in 2016.

The picture below tells that story. Global smartphone shipments of 286 million last quarter were about as low as 275.2 million in Q1 2020 and 278.4 million in Q2 2020. Excluding those very turbulent quarters, last quarter’s shipments were the lowest in years for any quarter. But more than that, the chart reveals years of sluggish smartphone sales, led by weak Samsung sales.

A graph showing quarterly smartphone shipments continuing to decline, continuing a trend that has continued since 2017.

Data Source: International Data Corporation (IDC). Chart by author. All data are in millions.

A closer look at the image shows that demand for Apple’s iPhones was also slowing before COVID-19 hit. Apple rallied during the pandemic because it was better prepared than its peers to deal with disruptions in his chain of supply. That said, growth from the iPhone pandemic has also clearly leveled off.

There are several plausible reasons for this slowdown in growth, each of which should be considered. Among them are the improvement in the quality of devices and the increase in prices. With ever-greater investment in smartphones, consumers may feel they need to stick with their smartphones longer before upgrading.Since the device that is However, owners can achieve higher quality without sacrificing performance.

However, deceleration most often indicates saturation. The Pew Research Center reports that 85% of U.S. residents now own a smartphone, which reflects similar ownership rates in other parts of the world.The former expresses the same idea more directly Shopify Subsidiary Oberlo says 6.6 billion people will already be smartphone users by 2022. It leaves room for further penetration. But make no mistake, the rest of the addressable market would have embraced smartphones by now if they were to do so.

too big to ignore

Luckily for investors, most publicly traded smartphone makers make a lot of other products, so there’s plenty of buffer against this slowdown. For example, Samsung also makes TVs, appliances, and computers. Xiaomi also makes products like TVs and smartwatches, but is more involved in the smartphone space than Samsung. Clearly, these and others will have to adapt their long-term product strategies as needed, even if the slowdown doesn’t completely destroy their business.

However, there is one name that is deeply involved in the smartphone business. It’s Apple. Despite efforts to tap other profit centers like digital services, the iPhone still accounts for more than half of the top line.

This is not to suggest that slowing smartphone sales will spell doom for Apple. However, Apple, like its smartphone competitors, should acknowledge a clear trend. The need for new smartphones will never go away, but their peak growth was in the past and continues to slow toward saturation. At the very least, it causes tougher questions about the near and far future for Apple and others.

James Brumley has no positions in any of the mentioned stocks. The Motley Fool recommends Apple and Shopify. The Motley Fool’s recommended options are Shopify for a long $1,140 call in January 2023, Apple for a long $120 call in March 2023, Shopify for a short call at $1,160 in January 2023, Here’s a March 2023 $130 short call at Apple. The Motley Fool’s U.S. headquarters has a disclosure policy.