Even with New Products Flooding In, Smartphone Sales Decline... Has the 'Golden Age' Passed? [Im Juhyung's Tech Talk]

Global Smartphone Market Decline Since 2016
Causes Include Production Disruptions, Intense Competition, and Lack of Innovation
Apple's Ecosystem Shines Brighter Amid 'Red Ocean' Competition
Latecomers Like Samsung Focus on Innovation Such as 'Foldable Phones'

Former Apple CEO Steve Jobs, who announced the world's first 'iPhone' in 2007. / Photo by Yonhap News

[Asia Economy Reporter Lim Juhyung] "Today, we have reinvented the mobile phone."

This was a statement made by former Apple CEO Steve Jobs at the 'Macworld Keynote' held in San Francisco, USA, on January 9, 2007. On that day, CEO Jobs appeared holding the famous 'iPhone' in his hand. The birth of the smartphone, featuring a large display with an integrated keyboard, capable not only of making calls but also managing emails, schedules, and games, sparked a major transformation in the global internet industry over the following decade.

But has the 'peak' of the smartphone era arrived? In fact, global smartphone shipments have been gradually declining since 2016. During the COVID-19 pandemic in 2020, production dropped sharply by nearly 10%. If the golden age of the smartphone market has ended, competition among mobile phone manufacturers is bound to intensify.

◆Shipments Decline Since 2016... Has the 'Peak' Been Reached?

According to IDC, a market research firm in the IT industry, global smartphone shipments peaked at approximately 1.4734 billion units in 2016. At that time, with a world population of 7.4 billion, roughly one in every five people on Earth purchased a new smartphone.

According to the statistics aggregation site 'Statista', global smartphone shipments from 2008 to 2020 have shown a declining trend since 2016. / Photo by Internet Homepage Capture

The smartphone market experienced tremendous growth for about ten years since its initial launch in 2007. However, after barely achieving a 3.5% growth in 2016, the peak year, it began to decline.

In 2020, when COVID-19 shook the world, the smartphone market suffered a significant blow, shrinking by about 10% compared to the previous year. In 2021, it rebounded with a 6.6% increase year-over-year but failed to fully recover the losses from 2020. In other words, the smartphone market continues to show a gradual decline.

Why are consumers no longer actively purchasing smartphones as before? IDC, which tracks smartphone shipments, points to several factors limiting market growth. Ryan Reith, head of IDC's Mobile Device Tracker, noted, "New smart devices such as PCs, tablets, and home IoT are emerging and competing with smartphones."

Additionally, the lack of innovation in smartphones, which have been established in the market for the past 15 years, is also cited as a problem. According to a 2019 consumer survey by the U.S. market research firm Strategy Analytics, the average replacement cycle for smartphone users was 33 months, indicating that replacement cycles are gradually lengthening. Due to a lack of new designs or features that capture consumers' attention, there is little motivation to spend significant money on upgrading smartphones.

◆Red Ocean Smartphone Market, Apple Dominates with Its Ecosystem

As the smartphone market becomes a red ocean, competition among manufacturers is expected to intensify further. Leading companies such as Apple and Samsung Electronics are already busy leveraging their respective strengths.

Apple, which holds the top operating profit in the smartphone industry, is a prime example of successfully building a powerful 'ecosystem.' A smartphone is both a mobile phone and a small computer. Each component, from the display and lithium-ion battery to the SoC (system on chip semiconductor), involves enormous costs as cutting-edge products.

Apple's self-designed smartphone system-on-chip (SoC) 'M1' / Photo by Apple

However, Apple, a pioneer in the smartphone industry, has succeeded in vertically integrating smartphone production and designing most advanced products in-house through steady research efforts over 15 years. Notable examples include the 'M1' computer chip, which overwhelmingly outperforms competitors, its proprietary operating system iOS, and a closed but highly optimized service for 'Apple consumers.'

Apple, which controls most of the added value in smartphones, has achieved an unparalleled operating profit margin compared to any competitor. In the first quarter of this year, Apple reported $123.9 billion in revenue and $34.6 billion in net profit. The gross margin, excluding operating costs from total revenue, reached 43.8%.

Apple's smartphone market share over the past year ranged between 11% and 20%, and even at its best performance, it struggled to exceed one-fifth of the total market. However, the profit remaining after selling smartphones accounts for nearly 70% of the entire market. This indicates how solid its ecosystem is.

◆Latecomers Betting on Innovation like 'Foldable Phones'... Can They Reverse Market Stagnation?

What about Samsung Electronics, a latecomer and currently one of Apple's main rivals? Samsung has not built a complete ecosystem like Apple but is actively competing by creating new markets with innovative new features.

Samsung's representative success story is the foldable phone. Instead of directly competing with the iPhone in pure performance, Samsung became the leader in foldable phones featuring foldable displays. According to market research firm Display Supply Chain Consultants (DSCC), Samsung Electronics accounted for 88% of the 7.98 million foldable phones shipped last year.

Samsung's foldable smartphones Galaxy Fold (left) and Flip / Photo by Yonhap News

Foldable phones, emphasizing their folding function, have succeeded in attracting consumer interest based on enhanced portability and a larger display. This has become a much-needed breakthrough addressing one of the main causes of stagnation in the smartphone market: the lack of innovation.

In fact, unlike the overall smartphone market, foldable phones are experiencing explosive growth. DSCC estimates that about 14 million foldable phones will be sold this year alone, doubling last year's figures.

Another market research firm, Canalys, forecasts that the foldable phone market will grow at an average annual rate of 53% from last year through 2024.

Many companies are aiming to enter the foldable phone market, which has already become 'another market.' The most aggressive companies are Chinese firms such as Oppo, Huawei, Xiaomi, and Honor, which have either released or are preparing to release foldable phones.

There are also rumors that Apple, which has been observing the foldable phone market, will release a foldable phone. According to the U.S. website 'AppleInsider,' which reports on Apple-related rumors, Apple recently filed a patent related to a foldable iPhone.

This content was produced with the assistance of AI translation services.