An Analysis of the Smartphone Market

The advent of the smartphone has contributed to the emergence of a new generation of mobile Internet devices. Smartphones have become popular and common across the globe because of Internet connectivity. These devices enable the sharing of real-time information and support communication via the Internet, particularly on social media platforms. As these devices have become popular, the smartphone industry has experienced tremendous growth and profitability. Smartphones will continue to dominate the mobile devices industry given the anticipated increase in sales in the coming years. The anticipated growth of the smartphone industry will also be fueled by the fact that customers in this industry continue to prefer access to a wide range of mobile services unlike before.

For the key players in the smartphone market, an understanding of the market size, share, and structure of this market is critical to enhancing their competitiveness. An economic analysis is essential for these players in order to understand emerging trends and position themselves for profitability. This paper provides an economic analysis of the smartphone market in terms of its size, structure, and trends. Insights obtained from the economic analysis are critical for industry players to develop and adopt effective competitive strategies. This analysis seeks to answer the question, What are the current economic trends in the smartphone market? Economic analysis of the smartphone market is also critical for stakeholders in economics and policymakers to understand how to propel the growth of this industry.

Literature Review

The global smartphone market and strategies employed by its key players have been the subject of numerous studies conducted in the recent past. These studies have been fueled by the rapid growth of this industry as smartphones are the most rapidly adopted electronic devices. Cho (2015) notes that the proportion of smartphones in the global mobile industry increased dramatically from 10.9% to 54.9%.[footnoteRef:1] As a result of this growth, smartphones have the core of mobile handset competition worldwide. The increased preference for smartphone devices has contributed to the rapid growth of the smartphone market. Fan & Tang (2020) contend that the smartphone industry has become one of the fastest-growing sectors worldwide. Over the past few years, global smartphone sales have increased from 122 million units to over 1.4 billion units (Dedrick & Kraemer, 2017; Fan & Tang, 2020).[footnoteRef:2] As of 2016, the total revenue from worldwide smartphone sales was $400 billion. [1: Growth of smartphones in the global mobile handset industry between 2008 and 2013. ] [2: Global smartphone sales between 2007 and 2015.]

Lee & Kwon (2017) state that the growth of this market is reflected in the growth of the smartphone penetration rate among adults. It is estimated that the smartphone penetration rate among adults has reached 60% in more than 50 countries worldwide (Lee & Kwon, 2017). However, some countries have a higher penetration rate such as UAE, Singapore, Saudi Arabia, Korea, and the United States at 90.8%, 86.1%, 86.1%, 83%, and 70.7% respectively.[footnoteRef:3] According to Dedrick & Kraemer (2017), the growth of the smartphone market has originated from developed countries like the United States, China, and Japan as well as regions like Europe. However, the Chinese market has played a major role in the growth of this industry throughout the world. [3: Smartphone Penetration Rate among Adults as of 2016. ]

The increase in smartphone penetration rate, which has fueled the growth of this market, is attributable to the enhanced performance and capabilities of these devices since the first iPhone was introduced in 2007 (Lee & Kwon, 2017). According to Cho (2015), competition in the smartphone market relies on a mobile operating system, which incorporates a complex smartphone system. Smartphones are essentially based on a new mobile ecosystem in which the devices are connected to different applications. Lee & Kwon (2017) concur with Cho (2015) that smartphones have improved characteristics like user interface, add-on applications, performance, and security. These characteristics affect the preferences of customers and in turn, shape the competitiveness of key players in this market. This implies that the key players in the smartphone industry compete primarily on the performance and capabilities of their devices. The average specifications and factory prices of smartphones have grown rapidly as key players seek to enhance their competitiveness and profitability (Lee & Kwon, 2017). As shown in Table 1 below, companies in this industry have enhanced the specifications of their devices in effort to enhance competitiveness.

Table 1 Cumulative Growth of the Technical Attributes of Smartphones[footnoteRef:4] [4: Rate of change in average improvements of smartphone attributes between 2011-2016 by Lee & Kwon (2017).]

Dedrick & Kraemer (2017) contend that the growth in smartphone sales across the globe has been accompanied by an increase in the total value of shipments. As shown in Table 2 below, the total value of smartphone shipments increased to $425.2 billion in 2015 from $52 billion in 2007 (Dedrick & Kraemer, 2017). However, the growth of the total...

…services will increase to 5.7 billion by 2025, which will account for nearly 70% of the global population. However, the smartphone market is expected to experience slowed-down growth in the number of subscribers worldwide. This will be as a result of the saturation of markets and the complex economics of reaching rural markets.

The demand for budget-centric smartphones and more devices to meet customers needs will not necessrily contribute to the rapid growth of the number of subscribers. Recent trends indicate that the growth in the number of subscribers in this market is influenced by various factors within and beyond the industry. In this case, market saturation does not necessarily lead to subscriber growth. The slowed-down growth in subscribers is likely to contribute to declining total costs of key players in this market. Factors beyond the smartphone market that affect subscriber growth include unemployment rates, country income level, gross savings, inflation, and GDP per capita. These macroeconomic factors affect individual customers and shape their purchase decisions.

Declining Shipments

Based on data provided by the IDC Worldwide Mobile Phone Tracker (2017), smartphone shipments by the top 2 companies have declined since 2012. In addition, there has also been a decline in the total value of global shipments in this market. Since 2005 and 2012, shipments by top 2 firms and the value of global shipments increased year-to-year. However, as the market started to become saturated, global shipments started to decline.

Given these trends, the number and value of global shipments of smartphones will continue to decline in the short- and medium-term. The decline in shipments is expected to continue despite the fact that this oligopolistic market does not generate adequate smartphones for customers. Market saturation has contributed to the decline in global shipments of smartphones. Additionally, the smartphone market seemingly has too few products that are unable to meet customer demand. The number and composition of product offerings in this market contribute to the continued decline in global shipments.

In conclusion, the smartphone industry is the fastest-growing market across the globe. This market has experienced tremendous growth over the past few decades because of advancements in mobile technology. Smartphones have developed to become critical parts of the mobile phone industry and account for a significant percentage of mobile devices. Existing literature shows that the market has experienced tremendous growth over the past few years as major players compete on performance and capabilities. However, an understanding of current economic trends is critical for industry stakeholders in terms of their…