Smartphones Continue to Rise

There were several articles out today quoting IDC data showing Apple was the 4th-largest handset maker by units shipped in Q3 of this year (here is the BusinessWeek article as well as an Engadget article discussing the numbers). A few things to keep in mind about these numbers. First, this only represents units shipped in the 3rd quarter of this year. This is not overall installed base. Second, this is global shipments, not just to the US. Third, this is for all handsets, both the traditional and smartphone variety, and not just smartphones.

This is good news for Apple, but also great news for smartphones in general. Traditional phones still make up a significant piece of the mobile handset market, both in terms of installed base and units shipped. However, the fact is that now 2 of the top 5 (Apple and RIM) are smartphone-only makers, and together represent nearly 8% of overall handset shipments for that quarter.

8% may not sound like much, but it’s part of a continued increase in the sales of smartphones, and these gains have come with a decade of sales. Keep in mind that mobile phones have been for sale for about 3 decades, and that the past 20 years is where mobile phone sales have really had their growth. It’s also worth noting that Apple has gone from nothing to 4% of global shipments in the span of 3 years. Smartphones got their start with Nokia and the Nokia 9000 in 1996. Ericsson’s first smartphone came out in 2000, and the first Treos came out in 2002, along with RIM’s first handset-enabled Blackberry. While you could argue that smartphones go back to 1996, practically speaking, smartphones have only really started to gain ground in the past 8-10 years (technically, you could argue mobile phones go back to the late 1970’s, but practically speaking, the real traction for mobile phones didn’t start until the mid-to-late 1980s, or more realistically in the early 1990s).

My expectation is that smartphones will represent half of all shipped phones in another year or two. They will likely represent half the installed base in about a decade. Why so long? Not everyone replaces their mobile phones on an annual or semi-annual basis. While we all like to focus on the visible market of celebrities and “kids” who want the latest toy, the reality is that most people hang on to their handsets for many, many years. It took nearly a decade for a dedicated smartphone maker like RIM to represent nearly 4% of all handsets shipped. I would expect a decade before smartphones represent close to the (narrow) majority of installed phones globally.

Will traditional handsets ever disappear? Possibly, but not for a long time. There will continue to be a market for people who want cheap, simple devices to make calls. But as smartphones continue to proliferate, and as cheaper models (and cheaper data plans) continue to come out, and prices go down, eventually a smartphone with some kind of plan will be on par, cost-wise, with a regular phone. The nature of the telcos will also likely change. Apple changed the rules for that, refusing to customize or limit their handsets for a particular network, and moving the carriers into the role of providers of bulk bandwidth, and not as value-added vendors. The wireless carriers will become utilities like power, natural gas and water: necessary infrastructure for things to happen, but about as exciting as asphalt. I can also see a time where a smartphone plan is more generic, where there isn’t the delineation of voice, data, text messages, etc. Basically, we’ll buy bandwidth, much like we buy it for our homes from DSL and cable providers.

In the mean time,  I would expect to see the top 5 shift again in the next year or so, with LG likely dropping out of the top 5, and HTC joining the list on the back of increased smartphone sales. Nokia will continue to shrink as both traditional handsets represent a smaller piece of the pie, and as Symbian continues to shrink in popularity. Apple’s share should continue to grow, and RIM should remain on the list, driven by their continued presence in the enterprise.

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3 thoughts on “Smartphones Continue to Rise

  1. I agree with most of your conclusions, and I particularly think Apple’s offerings continue to be very competitive, but it’s too early to write off Nokia. They are fighting back with a new Linux-based OS offering to replace Symbian. Will it be too little too late like the Palm webOS? I don’t know. Nokia is *huge* outside North America.

    • The problem for Nokia is that they are approaching half of what they used to be in the smartphones. At one point, they owned about 60-65% of the global smartphone market, but now they are 40% and dropping. I’m not convinced Nokia can get it together in time, and their new phone is too little too late. Nokia is feeling the same pain as RIM: a paltry selection of apps, and limited desire on the part of developers to build for the platforms. WIthout apps and a vibrant ecosystem for content, Nokia is unlikely to recover, no matter how good technically their upcoming products are. It’s not just technology or even price, it’s also apps and content.

      • I’m inclined to agree with you, but predicting the future is a tough game. Three years ago I would have made (and did make, I think) the same comments about the importance of apps and content with respect to Android, but they grew beyond my expectations. If the smartphone market is going to continue to grow as much as you discuss in this post, then those new users will be fair game for any of the platforms, including a revived Nokia. Heck, even webOS may yet have a chance now that it’s part of HP.

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