More Bad News for Apple's iPhone Unit Volumes

As if investor sentiment around Apple's (AAPL -0.81%) iPhone business wasn't bad enough, IDC has just put out fresh estimates on how the smartphone market will fare this year. Global smartphone shipments are now expected to decline by 3% for 2018, further evidence that the market is maturing and unit volumes are plateauing. Total smartphone shipments this year should be a hair over 1.4 billion units.

President Trump's ongoing trade war with China still "has the industry on edge," according to IDC, as the global smartphone supply chain is heavily concentrated in the Middle Kingdom.

Image source: Apple.

The smartphone market is plateauing

The silver lining is that smartphone volumes are expected to return to "low single-digit growth in 2019 and through 2022." The Chinese market -- the largest in the world -- is starting to stabilize, even as volumes in China will decline by nearly 9% this year. The U.S. market is also expected to grow in 2019 after contracting in 2018.

There has been much concern in recent months over Apple's iPhone volumes. While the Mac maker has said it will stop disclosing unit volumes, it still tried to assuage investor fears regarding iPhone XR volumes. However, the ongoing shift to larger smartphones should buoy the market. Devices with 6- to 7-inch displays showed the strongest growth in the third quarter, according to IDC. That should bode well for the iPhone XS Max (6.5-inch display) and the iPhone XR (6.1-inch display). Devices with 5.5-inch displays and larger will represent two-thirds of global shipments this year, and could account for nearly 88% of volumes by 2022.

IDC expects Apple to ship 210.4 million iPhones this year, which would represent a decline of 2.5%. For reference, Apple sold 140.4 million iPhones in the first three quarters of the year, so the company will need to sell around 70 million iPhones in the fourth quarter to hit IDC's forecast. That shouldn't be too hard of an order to fill, as Apple shipped 78.3 million and 77.3 million iPhones in the past two December quarters, respectively.

Data source: IDC. YOY = year over year.

Of course, Alphabet (GOOG 0.56%) (GOOGL 0.69%) subsidiary Google retained its dominant status, with Android representing 85% of the market. Android original equipment manufacturers are following Apple upmarket with higher-priced premium devices, even though the Mac maker largely commands that space.

IDC's estimates are just the latest sign that the smartphone market is peaking, which actually reinforces Apple's argument that unit volumes are becoming less relevant. As long as global shipments remain relatively stable and investors temper their growth expectations, the task then becomes building a strong platform business on top of those reliable volumes, which is precisely what Apple is doing with price increases and its booming services business.