Smartphone Trends Illustrate Industry Profit Squeeze

By Gary Kim August 05, 2013

The communications ecosystem is fundamentally affected by decisions made by consumers, service providers, app providers, financiers, regulators, lawmakers and infrastructure suppliers.

These days, it also is clear that business strategy also has to be shaped by processes wringing profit out of the global communications business, a trend that is ever present.

In the infrastructure business, the rise of Huawei is a prime example.

Skype and other over-the-top messaging services are examples of the same trend in the applications and services part of the business.

It now is a foundational reality that, as truly helpful as Internet Protocol has been in enabling the transition to multi-purpose and networks, IP also has enabled new competition, able to compete at lower costs.

In fact, Moore’s Law, optical fiber, signal processing, shared and unlicensed spectrum, open source, broadband, cloud computing and smartphones all contribute to the profit squeeze as they enable new competition.

Canalys, for example, notes that in the second quarter of 2013, Samsung and Apple grew their smartphone shipments by 55 percent and 20 percent, respectively, to maintain first and second place.

But both lost share to Chinese vendors. Collectively, the five Chinese vendors shipping the most devices worldwide (Lenovo, Yulong, Huawei, ZTE and Xiaomi) made up 20 percent of the total market, up from less than 15 percent a year ago.

Globally, demand for lower cost smartphones propels the trend. For the same reason Apple and other high end suppliers have to worry about profit margins and market share.

Shipments in China grew 108 percent year over year, representing more than a third of all worldwide shipments, Canalys says.

The United States was the second-biggest market, while India was the fastest growing major market, with 129-percent growth.

The point is that profit margins have been squeezed in the global communications business for some time, and that pressure is not abating. Further waves of industry consolidation will be one clear response to those trends.

Edited by Alisen Downey

Contributing Editor

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