Photo: Bloomberg
Photo: Bloomberg

Sluggish Apple iPhone sales indicate a shift in the smartphone market

It would be incorrect to blame the supposedly higher pricing of the iPhone, because Xiaomi and Lenovo, with their affordable phones, are also struggling

Apple’s Q2 2016 numbers did not make for pretty reading, at least by Apple’s own standards—the slowdown came after successive years of growing iPhone sales, and the revenue growth that came along. The Cupertino-based company sold 51.2 million iPhones globally, which is a 16% decline compared to the 61 million iPhones it sold in the same period last year. It is the first time iPhone sales have ever declined, year-on-year. That meant revenues were also down at $50.6 billion, a 13% decline from $58 billion in Q2 2015. But simply saying that iPhone’s premium pricing is the reason for this decline would be rather simplistic, and a factually incorrect assumption.

Research firm IDC has released the global smartphone shipment numbers for the first few months of 2016, and they indicate a far bigger problem—the smartphone market seems to have peaked, and is now levelling off. At least levelling off at the moment, instead of actually declining. The total number of smartphones shipped globally in the first quarter of 2016 (1Q16) were 334.9 million, which is a very slight increase from the 334.3 million units shipped in the first quarter of 2015 (1Q15), which makes this the smallest ever year-on-year growth. The primary reason is the strong smartphone saturation in various markets.

While Samsung remains the leader, shipping 81.9 million phones in the quarter, that number was down 0.6% compared to last year. Despite the 16.3% decline in iPhone shipments, Apple still remains in a strong second place.

However, these aren’t the only two brands that are struggling. Last year, Lenovo and Xiaomi were placed fourth and fifth in terms of the global smartphone shipments, but they have been knocked out of the top five this year. Instead, Huawei (27.5 million shipments), Oppo (18.5 million shipments) and Vivo (14.3 million shipments) take up the other three places in the top five rankings this year.

The biggest reason why Lenovo and Xiaomi are getting hurt is because numbers suggest the average selling price of a smartphone in China has gone up from $207 in 2013 to $257 in 2015, indicating greater purchasing power and an appetite for more premium smartphones. Lenovo and Xiaomi were betting on the sub-$150 and sub-$200 price segments for the past few years in the country, and being China-centric businesses did not go well. “Now Huawei, OPPO, and Vivo, which play mainly in the sub-$250 range, are positioned for a strong 2016," said Melissa Chau, senior research manager, IDC Worldwide Quarterly Mobile Phone Tracker.

However, it still remains a surprise that Xiaomi, with its unique positioning around extremely affordable smartphones with flagship level hardware and performance, is unable to compete with Huawei and Vivo, which are selling phones that cost significantly more. In fact, one of Huawei’s most popular smartphones globally is the flagship, the Google Nexus 6P ($499 approximately), which costs significantly more than anything Xiaomi or Lenovo sell.

For the past couple of years, smartphone makers were riding on the wave of first-time adopters buying smartphones. That seems to have slowed down, and instead, phone makers are now having to make products that’ll make users of other brands jump ship. While pricing does remain a factor, the quality of the product itself becomes even more important now.