This chart bodes poorly for the middle class and for companies that primarily sell to the middle and lower classes.
If you've been following the U.S. political conversation over the past four years or so, you'll notice the cacophony has centered on income and wealth inequality. That makes sense as, after peaking at an inflation-adjusted high of $56,895 in 1999, real median income has fallen over the last 16 years. Initially shielded (falsely) by lax lending standards and low interest rates that culminated in a housing crisis and a recession, many Americans are now feeling the brunt of years of falling incomes.
It isn't as if our economy has not grown during this period, it is just more of the gains are going to those at the top of the wage scale. The Federal Reserve Bank of St. Louis reported the wealthiest 5% of all U.S. households accounted for 30% of all consumer spending in 2012, up from 23% in 1992. Businesses are adjusting to this bifurcated market by changing the very nature of their products and marketing strategy: attack the high end with expensive and luxurious products and the low end with price-sensitive offerings.
While this phenomenon is most apparent when looking at home values or the luxury car market, this two-tiered economy appears to be making its way to the smartphone markets. If anything, this bodes well for Apple (AAPL +1.20%) at the expense of Android-based handset makers -- particularly Samsung (NASDAQOTH: SSNLF).
Smartphone average selling prices are key
Apple last week reported its first fiscal quarter earnings to much fanfare. Among the highlights were a net income figure of $18 billion (a new record), $74.6 billion in revenue, and a massive 74.5 million iPhones sold. Perhaps the most impressive figure was the $687 average selling price of the iPhone, a 7.8% year-over-year increase, which successfully paid for the larger screens of iPhone 6 and 6 Plus.
But here's where it gets interesting. According to a new Wall Street Journal article (subscription required), the global average Android OS phone price fell during that period from nearly $400 per unit to its current price of $254. While these worldwide figures reflect a deepening of the total smartphone market as developing areas upgrade from plain cell phones, such a precipitous ASP drop doesn't bode well for No. 1 manufacturer Samsung's high-end phone line.
Twitter provides a more direct -- and depressing -- link
For a more-direct U.S. demographic comparison, look no further than 2014 maps of Twitter users. A Business Insider article compared the wealthy area of Manhattan to the relatively poorer city of Newark, N.J., by operating system. By outlining where tweets come from by operating system, and geographically, Business Insider demonstrated that Apple's iOS was a staple in richer environs while Android was the OS of choice in the less-affluent areas.
Business Insider summed up its findings concisely in the article headline: "These Maps Show That Android Is For People With Less Money" (although the actual browser link is more direct: Android is for poor people). In the end, it appears these maps outline America's bigger issue with income and wealth inequality. Unfortunately for Samsung, this paints a tough market going forward as the company is dependent on its higher-end phones for operating profit as it sells its low-end phones at razor-thin margins to compete with fellow Android makers.
But it appears the high-end U.S. market is coalescing around Apple. Unless Samsung can reverse this trend, investors should anticipate poor fundamental performance as it battles price-sensitive smartphone customers in the U.S. and in developing markets.
