Smartphones are 85% of shipping units & 69% of active subscribers. Managing your life with your smartphone. ![]() I remember a call I had with a journalist in 2007 right after the launch of the iPhone. Most of the cell phones up until then were, simply, cell phones. I told the reporter that the new iPhone was going to begin a wave of really 'smart' phones defined by those that incorporated a full-fledged mobile operating system and enabled third parties to develop applications. Of course, the rise of the smartphone initiated the requirement to provide a name to describe cell phones that didn't have an operating system. I called them 'feature' phones like the Motorola RAZR since they all had a number of features but didn't have an open OS and third party apps. A number of my analyst peers starting using the 'smartphone' moniker, and, thus, the world of smartphones was born. At first, smartphones were only a small single digit percentage of the total cellular phone market, but a number of analysts predicted that the smartphone market share would continue to grow each year until it dominated the entire cell phone market. Now, seven years later, we're talking about the 'death' of the feature phone since most phones today are all smart. There are still some feature phones out there, but some recent low-cost Android product offerings have made it possible for just about anyone to own a smartphone. But, smartphones won't become 100% of the total anytime soon because there is a continued market for short-term, pre-paid cell phones (see below). Kate Pearce and I have just completed our annual five-year smartphone forecast. This article represents a summary of the major findings from that research. Compass research subscribers will get a copy of the full smartphone forecast report including all the detailed market share breakouts and explanations. Visit the Compass Intelligence web site to purchase the full report. First, some definitions are in order. Compass defines three classes of smartphone distribution: - Shipments - the units produced and sold by the manufacturer, e.g. shipments of the Samsung Galaxy S5 to various retail store and online ordering distributors.
- Sales - the units sold through various channels such as retail (e.g. BestBuy) or online (Amazon).
- Active Subscribers - the subscribers that are active with a wireless operator such as AT&T or Verizon.
You can see the relationship between the channels of distribution in Figure 1. ![]()
Our US smartphone forecast includes estimates for the past three years (2011-2013) and the next five years (2014-2018). We estimate that smartphone manufacturer shipments in the US were 78.8 million in 2011, rising to 154.5 units this year and will grow to be 174.7 million units in 2018. Sales of smartphones in the US were 59.1 million in 2011, will be 120.5 million this year and will grow to be relatively flat at 120.6 million in 2018. Active subscribers (sometimes called installed base) was 114.8 million in 2011, is estimated to be 239.6 million in 2014 and will grow to be 278.5 million in 2018. Some analysts estimate the number of US subscribers will exceed 300 million in 2018, but these usually include a number of inactive units, units being retired and other units being recycled and distributed elsewhere (typically in other third world developing markets). You can see from this forecast that shipments by the manufacturer are continuing to grow while the Sales to consumers and Active Subscribers are fairly level. This has to do with managing channel inventory, model switching and device retirements. The smartphone market is very dynamic with new models coming in to the market each year, users upgrading to new models which creates retired units that go into recycling or are torn down to extract valuable metals and components. We estimate that smartphones now represent 89% of total manufacturer shipments in the US and 69% of Active Subscribers. Naturally, there are many older feature phones in the market that have not yet been retired that pull down the smartphone installed base market share. In seven years, we have migrated from a predominantly feature phone world to one dominated by smartphones. Feature phones will still be around for a number of years for some special limited markets such pre-paid cellular through grocery stores and drug stores. People traveling to the US will buy these phones (typically under $100) and a phone card for defined, limited use such as on a construction project or by someone visiting the US on a vacation. Most of the smartphones have a 5" or greater display today whereas just a couple of years ago, the average was 4" (iPhone). Samsung has two smartphone products: one that includes a stylus for note-taking (e.g. Galaxy Note 3) and one that doesn't include this capability. We have developed a definition for the different sizes of smartphones and tablets as show in Figure 2. ![]()
The average price people are paying when they get a smartphone is staying about the same. Thus, the features are continuing to go up for the same bill of materials thus causing customers to pay about the same from one year to the next. The major smartphone brands are: - Apple
- BlackBerry
- Google (includes Motorola which is in the process of being sold to Lenovo)
- HTC
- Huawei
- Lenovo
- LG
- Microsoft (which includes Nokia which Microsoft recently acquired)
- Samsung
- Sony
- ZTE
Apple and Samsung together account for a combined 70% of Shipment market share. Note that Microsoft includes Nokia's Lumia line since Microsoft acquired the handheld business from Nokia Inc. Nokia Inc. is now focusing on location-based services (HERE) and other cloud services along with their traditional infrastructure business. Each smartphone manufacturer is building a set of applications and services around their platform to entice subscribers to remain in their 'walled garden', thus making it more painful for subscribers to switch to a new platform. The breakout of US smartphone by mobile OS has stabilized with Google Android currently owning 53.1% share of the smartphone market while Apple iOS has 34.5% share. This means that these two platforms command over 70% market share based on Shipments. This won't change much in the US market over the next few years unless something extraordinary happens. It's now difficult for one of the outlier manufacturers to gain substantial market share based on Shipments although any manufacturer will get respect with sales if they provide an innovative new feature or service. The Amazon Fire phone is a good example as we expect it to sell well after it enters the market this summer. We also breakout market share by consumer vs. business. Currently, consumers represent 65% of the market with 35% business. We believe that due to the growing tolerance by enterprises of employees bringing their personal smartphone products to work that the consumer segment will grow to 80% within five years. The driving factor here is that more consumers are buying smartphones and then are using them for both personal and work. The Bring Your Own Device (BYOD) encourages employees to get the device they want and then use them for work. One interesting thing happening in smartphones today is the selection process. If the person has one platform like iOS or Android, they tend to stick with it and get the latest and greatest new product when it's announced. And, the major operators all provide 'convenience' upgrade programs where the subscriber pays a small monthly fee (typically between $25 and $40) which gives them the ability to upgrade their smartphone every year. But, when a major advance is made on one platform, it can cause a change in operating system share. This is happening today with the Amazon Fire phone and could happen in September when Apple is likely to introduce the iPhone 6 with a larger display. Finally, we breakout the market share by wireless operator. The operator market shares is not estimated to change very much over the next five years. However, the combination of T-Mobile and Sprint would produce an operator about as large as Verizon and AT&T. This doesn't justify the combination; although it's expected that Sprint and their parent company Softbank led by Masayoshi Son will attempt to acquire T-Mobile sometime this year. While such a combination will certainly will get serious review by the FCC and FTC, I would predict that the combination of Sprint and T-Mobile will be approved and, thus, contribute to Mr. Son's dream of building a global wireless operator. With smartphones utilized everywhere, we're seeing them becoming the most important personal device that we carry with us every day. It used to be that you'd go back to your house if you left your keys or wallet, but today, the most important device you carry around is your smartphone. The smartphone is becoming a companion to everything we do. I would call it your life companion since you take it everywhere go you. We had feature phones a few years ago and smartphones today. Perhaps we'll call them mobile companions in the future. | 
