Is the Smartphone Market Really Saturated?

iPhone 5c

The bear case against Apple (NASDAQ: AAPL  ) typically suggests that the smartphone market is quickly becoming saturated, and Apple's business, which relies heavily on iPhone sales (52% of revenue in its fourth quarter), will suffer accordingly. But is this really the case? New data from GSMA Intelligence compiled and organized by Asymco's Horace Dediu suggests that smartphone growth is far from over.

Global saturation in smartphones is far off
All the talk of the saturation of the smartphone market, Dediu explains, is largely related to a point of inflection in the growth rates in the North America and Western Europe markets. Importantly, however, these markets account for just 11% of the world's population.

Extrapolating from GSMA Intelligence's reported trends, Dediu suggests that global growth in smartphone adoption may not start decelerating until 2017.

Importantly, reaching this point of inflection in growth doesn't automatically signal the beginning of the decline of smartphone sales. If this was the case, Apple investors could be in for some trouble. After growth decelerates, there is still growth -- albeit at declining rates. Further, Dediu's insights suggest that it could be another decade before the smartphone market reaches saturation. And what happens after market saturation? Sales will be dependent on cycles of replacements.

But if growth is slowing in North America and Western Europe, where will growth come from next? Central and Eastern Europe, followed by the Asia Pacific region, and then finally (though several years away before growth really takes off) Africa and Middle East adoption.

What's new?
Though it's really no surprise that adoption in developing countries will come later than adoption in developed markets, the perspective is useful. For instance, Apple's stock is basically priced for zero growth beyond the rate of inflation. Though Apple's rate of adoption will undoubtedly differ from the industry's smartphone adoption curve since its phones cost considerably more, this data is comforting for Apple investors since it suggests that much of the world's population is still very early on the adoption curve.

Even more, Apple's recent deal with China Mobile has positioned Apple strategically to take advantage of one of the world's largest markets, one that is lagging the North America and European markets in smartphone adoption. As the world's largest carrier, only 24% of China Mobile's customers use 3G.

If there's still plenty of growth left for Apple's iPhone business, the only reason Apple really would deserve such a conservative valuation would be because its gross profit margins are expected to decline. But that doesn't seem to be the case either. Though Apple's gross margin has fallen significantly from its peak above 45%, the decline seems to have stabilized recently.

Trading at just about 13.6 times earnings with plenty of growth ahead in the smartphone market, there's no reason for Apple investors to be worried about the company's prospects -- especially with global smartphone sales still growing robustly.

Even when growth stops, there's money to be made
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (2) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

DocumentId: 2786831, ~/Articles/ArticleHandler.aspx, 4/18/2014 10:00:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement