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Has The Tech Industry Reached Its Tipping Point?

Analysts say smartphone makers need to push into under-saturated areas like Africa and elsewhere, and also sell more services like cloud storage

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Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York, Aug. 1, 2018. VOA

Behind Apple’s disconcerting news of weak iPhone sales lies a more sobering truth: The tech industry has hit Peak Smartphone, a tipping point when everyone who can afford one already owns one and no breakthroughs are compelling them to upgrade as frequently as they once did.

Some manufacturers have boosted prices to keep up profit, but Apple’s shortfall highlights the limits of that strategy. The company said demand for iPhones is waning and revenue for the last quarter of 2018 will fall well below projections, a decrease traced mainly to China.

Apple’s shares dropped 10 percent Thursday on the news — its worst loss since 2013. The company shed $74.6 billion in market value, amid a broader sell-off among technology companies, which suffered their worst loss in seven years.

Apple’s news is a “wake-up call for the industry,” said analyst Dan Ives of research firm Wedbush Securities.

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An Apple iPhone X, left, and a Samsung Galaxy S9 Plus mobile phone are displayed during a preview in New York, Feb. 21, 2018. VOA

And it’s not just Apple. Demand has been lackluster across the board, Ives said. Samsung, long the leading seller of smartphones, has been hit even harder, as its phone shipments dropped 8 percent during the 12 months ending in September.

“The smartphone industry is going through significant headwinds,” Ives said. “Smartphone makers used to be like teenagers, and the industry was on fire. Now it feels like they’re more like senior citizens in terms of maturity.”

Victim of its own success

Tech innovations in phones grew in leaps and bounds earlier in the 2010s, with dramatic improvements in screen size, screen resolution, battery life, cameras and processor speed every year.

But the industry is a victim of its own success. Innovation began to slow down around 2014, once Apple boosted the screen size with the iPhone 6 and 6 Plus models. While phones kept improving, new features tended to be incremental, such as a new flash technique to already excellent phone cameras. It’s the stuff consumers won’t typically notice — or want to shell out for.

“Since the iPhone 6 you’ve seen it has been tough to innovate to continue to raise the bar,” Ives said.

Apple, smartphone
A Chinese man uses iPhone to take picture as he prays for health and fortune on the first day of the New Year at Yonghegong Lama Temple in Beijing, Jan. 1, 2019. VOA

Apple customers now upgrade every 33 months on average, longer than the 24 or 25 months three years ago, he said.

Apple’s diminished growth projections, fueled by plummeting sales in China, have reinforced fears the world’s second-largest economy is losing steam. Its $1,000 iPhone is a tough sell to Chinese consumers unnerved by an economic slump and the trade war with the U.S. They also have a slew of cheaper smartphones from homegrown competitors such as Huawei, Xiaomi and Oppo to choose from.

The fact that even Apple’s iPhone juggernaut is suffering cements a larger trend for all major smartphone makers. After a steady rise for a decade, worldwide smartphone shipments fell 3 percent to 1.42 billion in 2018, the first annual drop, according to International Data Corp., which tracks such movements. IDC estimates that shipments will rebound 3 percent in 2019 to 1.46 billion, but that still falls short of 2017 levels.

No ‘silver bullet’

It doesn’t help that top phones come with four-digit price tags — $1,100 for the iPhone XS Max and $1,000 for Samsung’s Galaxy Note 9. The top-end Max model sells for $1,450 in the U.S.

iPhone, Chinese, apple, smartphone
The Apple iPhone 7 is displayed at an Apple store at the Grove in Los Angeles, California. VOA

“They’re getting more and more expensive while offering fewer and fewer new, innovative features that I’ll actually use,” said Zachary Pardes, a tech-savvy 31-year-old in Fairfield, Connecticut. “I’ll upgrade when the battery stops working. When I’m forced to buy a new phone, I’ll buy a new phone.”

Vivian Yang, a manager at a Beijing technology company, also balked at the price. “Nobody needs such a phone,” she said.

IDC analyst Ramon Llamas said the cycle might bottom out and start growing again in 2021 or 2022, when people’s current phones start reaching the end of their useful life. “People will still replace their phones. It’s going to happen eventually,” he said.

But there’s no “silver bullet” that will spur growth to levels seen in the past when the industry was less mature.

Foldable smartphones, with screens that unfold like a wallet to increase display size, are one thing that could spur excitement, but they’re expensive and not due out until at least the end of the year.

Apple, Tim Cook, Campus
iPhone 8 was launched with a special edition red colour, Pixabay

Another thing that might spur growth: 5G, the next-generation that telecom companies are currently in the process of building, expected to be faster and more reliable than the current 4G network. The first 5G compatible phones are due out this year.

“There’s more pressure on 5G as the next-wave smartphone,” since sales are so lackluster, said Ives. “There will be a battle royale for 5G phones.”

But 5G will take years for broad, nationwide deployment, so the new 5G smartphones coming out this year are not likely to make much of a splash immediately either.

Also Read: Apple Users Spent $1.22 bn on App Store in One Holiday Week

Analysts say smartphone makers need to push into under-saturated areas like Africa and elsewhere, and also sell more services like cloud storage, streaming music and phone software. But the glory days of untrammeled growth appear to be over.

“It’s going to be a slow slog,” Llamas said. “By no means is this the end of the smartphone market. But this is an indication that the smartphone market can be a victim of its own success.” (VOA)

Next Story

No one Would Buy a Huawei Smartphone Sans Google or Facebook

Despite all this, there is no respite seen for Huawei in the near future and the company is likely to witness its smartphone business dwindle

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FILE - A member of the media tries out new Huawei Honor 20 series of phones following their global launch in London, UK, May 21, 2019. VOA

By Nishant Arora

Be honest and ask yourself: Would you buy a smartphone that neither supports Android operating system and Google apps nor comes pre-installed with Facebook, WhatsApp and Instagram? This is the scenario which Huawei (and its sub-brand Honor) smartphones stare at in the near future – and an imminent fall if the issue does not get resolved in the next one-two quarters.

Although the Chinese communications giant aims to launch its own operating system called “Hongmeng” to replace the Android OS on its smartphones but ‘abhi Dilli door hai’ as the OS has to see the light of the day and then users’ approval, which is the most critical part.

The absence of apps like Facebook or WhatsApp that truly define user experiences is a double whammy for Huawei.

Currently the second largest smartphone player in the world (powered by stupendous growth in non-US regions like Europe and Asia), Huawei has sensed the tough road ahead. A recent report in Nikkei Asian Review claimed that Huawei has “downgraded its forecast for total smartphone shipments in the second half of 2019 by about 20 per cent to 30 per cent from the previous estimate”.

According to Navkendar Singh, Research Director, Devices and Ecosystem, India and South Asia, IDC, almost half of Huawei’s smartphone volumes come from outside China with its wide smartphone portfolio which runs on Android with Google Mobile Services (GMS) – a collection of Google applications and application programming interfaces (APIs) that help support functionality across devices.

“China has its own ecosystem of apps which are hugely popular but only in China. Outside it, almost all popular Android apps are from Google or from US-based companies. These apps are the heart of experience of any smartphone user these days,” Singh told IANS.

“Without these apps present on its own OS, it will be very very tough for Huawei to pull in demand for its phones running on its own OS,” he added.

Sandwiched between the ongoing US-China trade war, Chinese telecom equipment major Huawei is frantically looking to salvage its prestige and fast cover the lost ground.

The company is also looking at the Indian smartphone market which has touched 450 million smartphone users and has a great potential to grow.

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Huawei smartphones are seen in front of displayed Google Play logo in this illustration picture, May 20, 2019. VOA

“In India, they have never been really able to scale up to be a major player. But considering the growth potential in India, the decision by Google and Facebook has put a spanner in the Huawei’s possible aggressive plans for the country as the next growth market in next two-three years outside of China,” Singh told IANS.

Huawei pipped Apple as the second largest smartphone seller in the first quarter of 2019 after Samsung. It clocked 17 per cent market share in the global smartphone market, according to Counterpoint Research.

The Chinese tech giant, meanwhile, has denied reports that it has cut down smartphone manufacturing.

The company, however, is reassessing its target to become the world’s top-selling smartphone vendor by 2020, after the US trade ban was put in place.

On May 15, US President Donald Trump effectively banned Huawei with a national security order.

Huawei has filed a motion in a US court challenging the constitutionality of the US President Donald Trump’s order to ban it.

Also Read- Samsung Galaxy M40 Tech Review: Stunning Display, Better Chipset

According to reports, Google has also discussed with the US government about an exemption from the Huawei ban, saying it is bad for the company’s technology business.

Despite all this, there is no respite seen for Huawei in the near future and the company is likely to witness its smartphone business dwindle.

Unless, a miracle happens. (IANS)