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Is the Smartphone Boom About to Fizzle?

There's good reason to believe the smartphone boom in the U.S. is coming to a close. Although analysts are still good at making straight-line forecasts into the future, such as IDC's claim that smartphone sales will grow 33% this year, we're quickly reaching a saturation point.

Just look at what happened to the largest smartphone marker, Samsung, last month after analysts cut back their estimates of Galaxy S4 sales, as shipments came in at 74 million units, or 2 million less than forecast: its stock tumbled 13%, losing some $25 billion in value. 

Apple (NASDAQ: AAPL  ) as well has been stung by slowing growth, and even the expected introduction of the iPhone 5S won't be enough to prop up sales for long, while BlackBerry (NASDAQ: BBRY  ) , which had pinned all of its hopes on its Z10 phone, is finding carriers slashing the price to just $50 from $200 a mere six months after its introduction. Nokia was also hoping for a big splash when it switched over to Windows Phone devices, but sales cratered 27% from the year-ago period.

According to comScore, 59% of the smartphone market has been already penetrated, with 141 million people in the U.S. owning a device. Apple and Samsung dominate the subscriber ranks, with almost two-thirds of all subscribers belonging to one or the other (Apple is well ahead with almost 40%), but Android devices lead the way, with more than half of all subscribers owning one. It says that while there's still growth to come, it's about to slow down, and perhaps dramatically so.

The one bit of hope is that international sales of smartphones will pick up where domestic sales falter. The market researchers at IHS say smartphone penetration around the globe hasn't hit even half of what it is in the U.S., and shipments are expected to hit 1.5 billion units by 2017, growing at a compound rate of almost 16% annually.

Carriers, though, could derail that outlook as they stop subsidizing the device makers. T-Mobile started the ball rolling by announcing an end to the subsidy practice, while Verizon and AT&T unveiled early upgrade programs that has consumers paying full freight (T-Mobile has its own early upgrade program, too).

With the full cost of the phone now resting with the consumer, even if it's paid for monthly, the dominance of the premium brands is likely to come to an end. Instead, we'll see low-cost alternatives out of China from manufacturers such as Huawei and Lenovo. 

Despite analyst projections that handset sales will increase by a third in 2013, which sounds like pretty robust growth regardless, it's below the 36% growth realized in 2012 -- which itself was down from 50% growth the year before.

The smartphone industry isn't about to keel over and die tomorrow, but investors should realize that the order of things is changing, and today's winners won't be the same ones we see tomorrow.

While the smartphone market is maturing, the global mobile revolution is still in its infancy. With so many different companies, it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has released a free report on mobile named "The Next Trillion-Dollar Revolution" that tells you how. The report describes why this seismic shift will dwarf any other technology revolution seen before it and also names the company at the forefront of the trend. You can access this report today by clicking here -- it's free.

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  • Report this Comment On July 23, 2013, at 10:12 PM, spakklal wrote:

    Everybody is waiting for the iPhone 5S to be released this fall. Since older iPhones have a very good resale value, most of them will sell the older iPhones and buy the new iPhones. The first time buyers in Asia are buying iPhone 4S and gradually they will upgrade their iPhones to newer versions.

    Some Analysts will write anything to get noticed. Apple has recently signed a deal with the largest Mobile Vendor Reliance Communications in india and will sign a deal with China Mobile & other mobile vendors around the world, since AAPL is coming with a mid range iPhone which may not need subsidy.

    One might think that, with Android gaining so much traction with consumers, Android device makers could extort similar premiums from carriers. That doesn’t seem to be the case. After all, if Samsung decides it wants $500 per device from carriers, those carriers can just turn to HTC or Motorola for a different (and some might argue, better) Android device… then play the makers against each other. In this sense, the diversity of the Android ecosystem actually works against device makers. It does create market forces that ought to help keep prices down for consumers, but which also mean manufacturers are operating on little or no margin.

    As the sole provider of iOS devices, Apple does not face that pressure. Its profit margins are not being eroded by competitors offering the same platform. By the same token, Apple feels no pressure to lower its prices to consumers — especially since it seems to be able to sell almost everything it makes.You should know that Apple still has 75% of the market share in the $600+ segment of the market. Apple still enjoys 70% profit in the Smartphone & 85% Profit in the Tablet Segment.

    This fall you will notice Apple introduce a High end Phone as well as Midrange iPhone to take market share from Samsung and other Suppliers. Apple will introduce New Software Services in the next few months.

    Apple's net profit in smartphones is around 22 billion dollars for the last 12 months working with only 240 Mobile operators. Samsung's Profit is less than 10 billion dollars for all the Smartphones they sell in 200 + Countries & 800 + Mobile operators.

    I believe with the New iPhone 5S and other new Products to be released in the next 6months, Apple will grow double Digits.

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