Mon, Jul 29, 2013 - Page 13 News List

‘Device exhaustion’ hits smartphones

PROFITS DWINDLING:Developing markets are where the profits can be found, as developed markets are increasingly saturated and innovation becomes more elusive

By Helen Ku  /  Staff reporter

Another product launch, another battle to catch the public’s attention. Companies are trying to provide the best products they have on offer, but consumers are going to say enough is enough.

At least analysts at Citigroup Global Markets Inc are pointing their fingers to the fast-saturating smartphone market.

In a report released on Thursday entitled “Device Exhaustion,” Citigroup analysts led by Glen Yeung said that the smartphone market had created a “good enough” mentality among consumers.

They said smartphone vendors are not going to make greater innovation to their products, because future products will be similar to the existing ones.

“On the one hand, we argue that further integration of other mobile device functionality is limited [like camera, video and GPS]. On the other [hand], we argue that the marginal utility of the new features, called innovations by handset makers, in smartphones is near zero,” they said.

Citigroup said consumers’ diminishing excitement about new smartphones had led to short product sales cycles for new models.

In January, the International Data Corp (IDC) forecast that the global smartphone market will grow 32.7 percent this year from last year. The annual growth is decelerating from 44.1 percent last year and 61.3 percent in 2011.

The estimated saturation will be achieved as early as next year in developed markets and in 2016 in developing markets, the report said.

“Developed countries are now replacement-only markets, with developing countries rapidly approaching this status,” Citigroup analysts said. “Extrapolating current trends, we anticipate developing markets will reach 100 percent handset penetration by 2016.”

Smartphone vendors may find it challenging to continue reaping big profits, given the limits for them to achieve greater innovation to their high-end smartphone products and a falling average selling price (ASP) that squeezes each firm’s profit margin, Citigroup said.

The report said the number of active cellular handsets in developed markets had been equivalent to 137 percent of those nations’ populations.

Though growth potential in smartphone activation rate remains huge in developing markets, vendors might not be able to reap as much profits as they could when selling their low-priced products in countries that have lower purchasing power.

“With markets reaching saturation, ASPs poised to fall, and growth from innovation increasingly elusive, it would seem reasonable to expect margin degradation for high-end handset makers,” the report said.

Meanwhile, Moody’s Analytics forecast on Friday that Taiwan’s tech supply chain shipments would receive boosts from Apple’s new-generation iPhone and iPads during the second half of the year.

As the US company plans to introduce new products in September, Moody’s analyst Katrina Ell said that should help to keep smartphone production and demand buoyant in the coming months.

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