Consumer demand for smartphones continues to wane. While still up year over year, worldwide deliveries of smartphones nearly fell to their early-2020, pandemic-crimped levels during the second quarter. Were it not for broken supply chains in the early days of the pandemic, last quarter's unit sales would have fallen to levels not seen since 2014, when they were on the way up. Not even the venerable Apple (AAPL -0.35%) iPhone is selling as briskly as it used to.
The drop in demand is not an insurmountable challenge, but it's not one that investors can afford to ignore. While we're not quite there yet, the sales slowdown is another piece of evidence that smartphone saturation is an increasingly real headwind. Manufacturers must respond if they can.
Another quarter, another smartphone slowdown
The data comes from technology market research outfit International Data Corp. (IDC). The organization reports an 8.7% year-over-year decline in second-quarter deliveries of smartphones, marking the fourth consecutive quarter this figure has fallen.
The most popular brands held their own. That's Samsung and the aforementioned Apple. Apple's iPhone sales were essentially even with the second quarter of last year, while Samsung's capacity to shake off some of the current chip shortage allowed it to improve its total deliveries by 5.6%. Value brands like Oppo, Xiaomi, and Vivo, meanwhile, each saw sales slip by more than 20%.
IDC research director Nabila Popal commented on the quarterly data: "What started out as a supply-constrained industry earlier this year has turned into a demand-constrained market." She added that "roaring inflation and economic uncertainty ... seriously dampened consumer spending and increased inventory across all regions."
IDC believes the second-quarter slowdown will be offset by reinflated demand in the foreseeable future. And perhaps it will. That optimistic outlook, however, ignores a bigger-picture downtrend that's been in place since 2017, following 2016's peak in smartphone purchases.
The graphic below tells the tale. Last quarter's worldwide shipments of 286 million smartphones were almost as low as the 275.2 million in Q1 2020, and the 278.4 million in Q2 2020. If you take those highly disrupted quarters out of the mix, last quarter's shipments were a multiyear low for any quarter. More than that, though, the chart makes clear that smartphone sales have been suffering slower growth for years now, led by Samsung's weakening sales:
Data source: International Data Corporation (IDC). Chart by author. All data is in millions of units.
A closer look at the image also shows us that prior to COVID-19, demand for Apple's iPhone was also slowing. It perked up during the pandemic, as Apple was better equipped to handle supply chain disruption than its peers. Even so, the iPhone's pandemic growth is also clearly leveling off as well.
There are several plausible reasons for this waning growth pace, each of which should be considered. Among them are the increasing quality and the increasing prices of the devices. Making ever-bigger investments in smartphones, consumers may feel more compelled to keep them longer before replacing them. Since the devices are higher quality, however, owners can do so without sacrificing performance.
Mostly, though, the slowdown points to saturation. The Pew Research Center reports that 85% of U.S. residents now own smartphones, mirroring similar ownership rates in other parts of the world. Voicing the same idea more directly, former Shopify subsidiary Oberlo wrote that 6.6 billion people in 2022 are already smartphone users; that leaves some room for further penetration. Arguably the remainder of the addressable market, however, would have embraced smartphones by now if they were going to.
Too big to ignore
Fortunately for investors, most publicly traded smartphone makers also manufacture so many other goods that there's plenty of cushion against this slowdown. For instance, Samsung also makes televisions, appliances, and computers. Xiaomi is deeper into smartphone waters than Samsung, though Xiaomi too manufactures goods like television sets and smartwatches. Clearly, these and other companies should adapt their long-term product strategies as needed, even if the slowdown can't exactly wreck their businesses.
There is one name that's neck-deep in the smartphone business, though: That's Apple. The iPhone still accounts for more than half of its top line, despite efforts to cultivate other profit centers like digital services.
That's not to suggest that the smartphone sales slowdown spells doom for Apple. However, Apple, like its smartphone competitors, should acknowledge the obvious trend. While the need for new smartphones will never go away, their highest-growth days are in the past, and that growth continues to slow as we inch toward saturation. At the very least it's a cause for tougher questions regarding the near and distant futures, for Apple as well as the rest of these companies.
