The litmus test for the global economy

The smartphone sales decline accelerated in Q1, as Strategy Analytics report:

“Global smartphone shipments fell 17% to reach 275m in Q1. This is the smartphone industry’s worst quarterly performance of all time.

On an annualised basis, as the chart shows, global volume was down 12% to 1.36bn from the Q3 2017 peak. And, of course, Q2 will likely be worse, much worse, with the lockdowns in place around the world.

In terms of the major brands, Samsung and Huawei under-performed. Their sales were  down 19% and 18%, whilst Apple’s decline was limited to 9%.  Xiaomi was the only major brand to avoid a decline as it expanded into India, but even it only managed to hold its volume.

Major changes are also underway in demand patterns as a result of the virus:

  • Business and leisure travel is likely to suffer a major hit for some time, reducing roaming revenue for telecom operators
  • Sports subscriptions will also be of less interest, due to the reduction in events to watch
  • Businesses will use video much more, reducing the need for cellphones – fewer salespeople will be driving 50k miles/year to visit customers

Some suggest that the arrival of 5G might boost demand again. But, in reality, 5G is a product in search of a market. The lockdowns have shown that current speeds are more than adequate, and the current infrastructure has proved very robust in terms of stability and capacity. The areas where it might be needed, such as autonomous cars, are many years in the future.

Affordability is also rising up the agenda, and may prove the most important of the paradigm shifts now underway.

One potential eye-opener is that Apple’s launch of the iPhone SE, means it is now competing in the mass market, for phones costing $300-$400, instead of relentlessly moving upmarket at $1000+.

And then there is the steady growth in the used smartphone market, which is unaffected by the slowdown in new sales,  as I noted in March:

“Used smartphones are now becoming a viable market in their own right for the first time. 207m were sold last year, up 18% from 2018, and IDC see the market growing to over 300m phones by 2023.”

And last week, in the midst of the pandemic, saw the launch of a new online platform focused on the sale of used phones.  Valued at $1.8bn, its focus is on meeting:

“An uptick in demand for used smartphones that offer considerable savings compared with new models.

Markets such as India are already operating on the same basis as the used car market around the world, with each phone owned by two or three people before it is scrapped.

As durability increases, it would be no surprise if cash-strapped consumers start to operate on the same basis with smartphones.