Please ensure Javascript is enabled for purposes of website accessibility

Bad News for the Device Market

By Jamal Carnette, CFA - Jan 30, 2016 at 2:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

PC and tablet shipments have been slowing. This research indicates mobile phones will considerably slow.

According to marketing research and analytics firm Gartner, the device market is quickly slowing down. This year, the firm expects PC, tablets, and mobile-phone shipments to increase to 2.44 billion units, only up 1.9% from 2015's figure of 2.4 billion. By 2018, total shipments are only expected to increase to 2.55 billion.

It's not all negative news for device makers, but it does point to headwinds for some of the larger tech companies.

PC market continues to gravitate toward a high-end, upgrade market
The overall PC market will continue to struggle, according to this recent research,  with shipments only expected to grow 2.5% annualized through 2018. Overall, PC shipments are expected to grow from 290 million to 312 million during this time frame. Traditional PCs (desktops and low-end notebooks) are expected to continue to underperform throughout the next few years, with Gartner expecting shipment decreases every year through 2018, falling 3.8% annualized, from 246 million in 2015 to 219 million.

The overall PC market is expected to be aided by high-end Ultramobiles, which are forecast to grow 27% annualized during that period, but only comprise a fraction of the market. Last year, only 45 million Ultramobile PCs were sold, 15.5% of the total PC market. By growing to 92 million in 2018, that figure would increase to 29% of the total PC market. This is good news for high-end products like Apple's Macbook line and Microsoft's new Surface Book.

The tablet market will continue to struggle
After experiencing tremendous growth in the early part of this decade, the tablet market has considerably cooled over the last two years. A combination of a slower-than-expected upgrade cycle and a capable substitute in larger smartphones has slowed tablet unit shipments. For example, Apple (AAPL 2.14%) shipped fewer iPad units last fiscal year than it did in 2012.

Unfortunately, this latest research forecasts that to continue. Gartner expects shipments of the tablet market to register only 0.34% annualized growth, going from 196 million in 2015 to 198 million in 2018. Companies heavily dependent on the tablet market for revenue will have to grow market share in order to experience substantive top-line growth.

The mobile phone market is now expected to slow
While the tablet and PC markets continue to slow, the mobile phone market has been a huge area of growth. As a result of immersive ecosystems created by Alphabet (GOOG 2.36%) (GOOGL 2.39%) and Apple, smartphones have continued their torrid pace. The emerging markets have been strong for the host of vendors sporting Android's ecosystem, and Apple has witnessed strong growth from China, in particular.

Gartner believes this trend will continue, as the company estimates 82% of all mobile phones will be smartphones by the end of 2016, up from 12% in 2015. This is good news for the ecosystem providers in the intermediate time frame as it signifies new consumers.

However, the overall mobile phone market, including smartphones, is now expected to start to cool, as well. Mobile phones, in total, are expected to ship 2.03 billion units in 2018, only 2.1% annualized growth during this period. After the upgrade period, look for smartphone sales to closely track this figure.

Overall, this isn't the greatest forecast for device makers, but a maturing market isn't always a bad thing for investors. The data suggests this mature market will value quality over quantity; look for higher-end device manufacturers and the companies that support them to have success.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool recommends Gartner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$172.10 (2.14%) $3.61
Alphabet Inc. Stock Quote
Alphabet Inc.
$121.68 (2.39%) $2.84
Alphabet Inc. Stock Quote
Alphabet Inc.
$122.65 (2.36%) $2.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.