Wednesday, December 12, 2012

How low can they go? How will the market adjust to lower revs and margins?


TECH CRUNCH on $50 Androids >>

Informa: 1 in 2 smartphones to be sub $150 by 2017

There were several interesting stories this week directly related to the on-going trend of smartphone commoditization and dropping ASPs. Forget the $100 laptop, we're entering the world of the $50 smartphone.

Let's look at MediaTek's plans to begin offering low-cost quad-core smartphone chipset solutions. Taiwan-based MTK says that their quad-core platform will be available during Q1 2013 and already one big-name smartphone vendor, Sony, is kicking the tires. MTK provides the guts for hundreds of millions of handsets per year. While most of these are feature phones, the company has been pushing into smartphones over the past few years. Expect more competitive disruptions to come and a plethora of even more new industry entrants.

At a conference talk, Wikipedia founder Jimmy Wales highlighted the popularity of a $50 Android-based Huawei smartphone in Africa. And that's street price according to Wales. Frankly, I wasn't aware prices had already come down so low as only a few years ago, the sub-$80 trade-price smartphone still seemed years off. But it's a nice story about the march towards the democratization of information.

Today, industry analysts at Informa released some info from an interesting report saying that 50% of "smartphones sold in 2017 will be priced below US$150."

The average smartphone price will drop from US$188 in 2011 to US$152 in 2017 as a result of it balancing the huge demand for entry-level smartphones in emerging markets and the demand for “super-smartphones” in developed markets. The devices’ average gross margin is expected to remain flat – in the range of 20 -25%.

I suppose they are referring to retail prices. Informa believes that Apple and Samsung will continue to maintain profit margins well above average, which runs under the assumption that the value of those brand names will continue on a linear trajectory.

In the year 2012, it seems like a safe bet to state that Apple and Samsung will continue to be the mind-share leaders in 2017. But let's recall that the Motorola RAZR and Nokia's N95 were two of the market's premium devices about half a decade ago.

I am not sure about brands, but one trend is clear: smartphone prices and margins are coming down and it's time for vendors to adjust to the competitive environment. And what happens to the market for feature phones when smartphones are retailing for $50?

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