Is the global smartphone market saturated?

Analyst speculates that the smartphone market has reached 'exhaustion' stage. Is the innovation and disruption stage over?

Is the smartphone and device market moving so fast that it's hitting a state of "exhaustion"?

Photo credit: Joe McKendrick

Over the past few weeks, I have been seeing some posts breathlessly referring to the "revolutionary" design and features of the impending Apple iPhone 5S and iPhone 6, the latter of which will include a larger screen and may be made from a new kind of metal alloy.  It's all pretty stuff, to be sure, but not revolutionary, sorry. The initial introduction of the iPhone in 2007 was revolutionary in the truest sense -- it made Internet access and small-scale computing easy for people all over the world. It had a sleek, well-integrated design. It introduced the concept of the "app store," in which various useful and fun programs could be easily discovered and downloaded. It shifted the entire dynamic of computing to the mobile user.

The bottom line is that the smartphone concept has hit its stride, with much of what it can do for the world already apparent. But just as we still use PCs and laptops that are based on designs that really haven't changed that much since the 1980s, smartphones are likely at a stage where 90 percent of the revolutionary innovation to the technology itself has already happened -- and from now on, we'll be seeing a lot of tweaking and perfecting. What happens on top of, or as a result of, smartphones is still evolving. But smartphones themselves are an established form factor. (For sure, expect to see a stampede to wearable devices -- yet another form factor, and another type of market.)

The plateauing of innovation shifts the tempo and the composition of the smartphone market going forward. Citi Research analyst Glen Yeung recently asked if the smartphone market has reached "exhaustion" stage, observing that the rapidly evolving smartphone and device space is reaching saturation in many global markets, a point in which new generations of devices won't be as profitable, or earth-shaking for that matter.

"Developed markets are approaching full saturation -- suggesting that smartphones are nearing replacement-only mode,” he says, according to a report in The Wall Street Journal's MarketWatch site. "As developed markets get more saturated, that means shorter periods of profit pressuring margins at original equipment manufacturers like Qualcomm Inc., higher costs to get new products out even quicker, and an increased focus on cost management that will put even more pressure on component suppliers."

At first blush, it doesn't appear that smartphones have reached market saturation. A new analysis by Gartner suggests that smartphone sales have surpassed feature phone sales for the first time -- “Smartphones accounted for 51.8 percent of mobile phone sales in the second quarter of 2013, resulting in smartphone sales surpassing feature phone sales for the first time,” said Anshul Gupta, principal research analyst at Gartner.  Worldwide mobile phone sales to end users totaled 435 million units in the second quarter of 2013, an increase of 3.6 percent from the same period last year.

Citi's Yeung suggests that smartphones have moved through the technology adoption cycle far faster than PCs or laptops, meaning that the market is peaking early. "The desktop computer market took a little more than 12 years to mature, reaching a saturation point in 2008, the laptop computer market took 10 years, maturing by 2012. When you get into smartphones and tablets, those markets are expected to mature in 2015, giving smartphones a product life cycle of 7 years and tablets one of 5 years."

If smartphone sales do top out, it would happen as many companies are jumping into the market from all angles. Of course, the devices themselves are just one part of the stack -- there are immense opportunities to build software and services on top of that. The booming cloud and social network arenas, for example, reflect continuing new services and innovations occurring on top of the PC, even to this day. The device is the catalyst and tool -- the innovation comes from the people who use it.

This post was originally published on Smartplanet.com

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