Western European smartphone market nosedives – Canalys

Market researcher Canalys has published its Q1 2018 smartphone numbers for Europe and they indicate a severe contraction in its richest markets.

Overall European smartphone shipments fell 6.3% year-on-year according to Canalys’ research, but it was very much a game of two halves, with Eastern Europe growing by 12.3%, driven largely by Russia, while Western Europe fell off a cliff, down 13.9% annually. The overall drop for the continent was the biggest ever for a single quarter.

“This is a new era for smartphones in Europe,” said Ben Stanton of Canalys. “The few remaining growth markets are not enough to offset the saturated ones. We are moving from a growth era to a cyclical era. This presents a brand-new challenge to the incumbents, and we expect several smaller brands to leave the market in the coming years.”

Canalys Europe smartphone Q1 2018 1

This would appear to mirror the broader global trend of consolidation in the smartphone market, with the top vendors gaining market share at the expense of the long tail. Samsung is the number one vendor but is having its own long tail attacked by Huawei and Xiaomi as cheaper phones increasingly offer much of the performance as flagship ones.

“It is not all gloom for the smaller players,” said Lucio Chen of Canalys. “Xiaomi and Nokia, under HMD Global, are both relatively new entrants to the European market, but have stormed to fourth and fifth place.

“Xiaomi is working closely with distributors, such as Ingram Micro and ABC Data, to drive products into retail stores. HMD has taken a different approach, using its operator relationships on the feature phone side to get its new smartphones ranged across Europe. But both Xiaomi and HMD Global have the benefit of being privately owned.

“As Xiaomi has shown, private companies have an incentive to operate at a substantial net loss to drive smartphone shipments, boosting market capitalization before IPO. But this is not sustainable in the long term, and both Xiaomi and HMD Global will eventually have to shift their revenue and cost structures, as the top three have now done, toward profitability.”

Canalys Europe smartphone Q1 2018 2

The nature of the component manufacturing business means that what used to be premium specs have become commoditised, which is the main reason for the shift towards cheaper phones even in rich countries. Now you can get a phone with a quality screen, camera, processor, etc for far less than the price of an iPhone X or whatever.

“Dual-SIM is also a growing specification trend in Europe,” said Vincent Thielke of Canalys. “It has taken longer to take hold than elsewhere in the world, because operators are paranoid about ranging dual-SIM phones, as it opens up the opportunity for competitors to sell lines into their installed base. But due to the growth of dual-SIM through retail channels, especially through brands such as Huawei and Wiko, operators are being forced to re-evaluate their portfolios and consider dual-SIM. Vendors are reacting too, and Samsung has made an explicit push to bring dual-SIM to more of its devices in more of its channels in 2018.”

Canalys Europe smartphone Q1 2018 3

The one vendor that seems to be impervious to the eddies and currents of smartphone fashion is Apple. While its brand is peerless, the fact that Apple has its own platform is probably the main reason it’s so much more resistant to commoditisation. When comparing Android devices specs are likely to be a more significant consideration then when choosing between Apple and Android. This is probably the main reason why Apple’s margins are so much higher too.

Chinese smartphone market is shrinking but we can’t agree on how much

A slew of Chinese smartphone numbers have been churned out by leading educated-guessers and the only thing they agree on is that it’s declining.

Counterpoint reckons Q1 2018 Chinese smartphone shipments declined 8% annually, but Canalys has a much bigger decline of 21%, while GfK is going for a more modest 6% decline. Counterpoint and Canalys will derive their intelligence from the supply-side – i.e. manufacturers, supply chain, etc, while GfK uses point-of-sale terminals to get a demand-side picture.

Regardless of the method there will be a fair bit of extrapolation, conjecture and intuition in all the numbers, which explains why they can sometimes be so far apart.

“2018 started on a slower note for the world’s largest smartphone market,” said James Yan of Counterpoint. “The slowdown can be attributed to lengthening smartphone replacement cycle for the Chinese consumers. Additionally, lack of product launches in Q1 2018 with OEMs focusing on inventory clearance, especially for non-bezel-less display devices, were other key factors impacting shipment volumes. Bezel-less devices are now popular in China and more OEMs are expected to launch sub-1000 RMB (~US$160) bezel-less portfolio to differentiate their offerings in the mid segment.”

“The level of competition has forced every vendor to imitate the others’ product portfolios and go-to-market strategies,” said Mo Jia of Canalys. “But the costs of marketing and channel management in a country as big as China are huge, and only vendors that have reached a certain size can cope. While Huawei, Oppo, Vivo and Xiaomi must contend with a shrinking Chinese market, they can take comfort from the fact that it will continue to consolidate, and that their size will help them last longer than other smaller players.”

“We start the year with a very different picture to the final quarter of 2017, when smartphone demand records were broken,” said GfK’s Arndt Polifke, commenting on the global picture. “In the first quarter of 2018 by comparison, there was a year-on-year decline in global smartphone demand. It’s perhaps no surprise as we hit saturation point in more markets. On the other hand, consumers are tending to choose higher-priced models as they embrace the latest innovations offered by smartphone brands. As a result, the average sales price grew by an astonishing 21 percent year-on-year to USD 374. This led to 18 percent revenue growth globally, which is exceptional for a maturing industry.”

GfK is the only one of the three to talk about value as well, and in its released confirms this global trend is playing out in China. Smartphone revenues there grew by 14% to $41.1 billion in spite of the volume decline. This seems to be down to the growing strength of the big smartphone brands, including Apple, and their ability to persuade Chinese punters to upgrade to more expensive devices.

Counterpoint China Q1 2018

 

Canalys China Q1 2018

Canalys reckons Apple Watch shipments exploded in Q4 2017

Estimates from research firm Canalys put the number of Apple Watches shipped in Q4 2017 at 8 million, which is apparently more than the entire Swiss watch industry.

Apple doesn’t break out its Apple Watch shipments publicly, so these are only estimates, but probably good ones as that’s Canalys’ day job. Furthermore there seems to be some consensus with IDC tweeting similar vibes ahead of publishing its hard estimates. Either way it looks like the latest version of the Watch is gaining some momentum.

“The cellular version of the Apple Watch was in strong demand in the US, Japan and Australia, where all major operators stocked it in time for the holiday season,” said Vincent Thielke of Canalys. “But limited operator selection in the UK, Germany and France influenced consumer purchase decisions, and stifled the growth potential of the connected Apple Watch. Moving into new markets, such as Singapore and Hong Kong in Q1 2018, just in time for Chinese New Year, is a good move.”

Business Insider had a look at the claim made in the IDC tweet about the Swiss watch industry and its official source of data, which seems to indicate Q4 2017 exports of Swiss watches in the region of 6-7 million. There are, of course, other sources of conventional watches but Apple does seem to be aiming more towards the luxury end.

What to read into this trend, however, is far from clear. It’s not known to what extent the most recent shipments were influenced by operator bundling, nor how much more seasonal smart watch sales are than conventional ones. Furthermore Swiss brands such as Rolex tend to be very expensive and so should be expected to sell in lower volumes.

The Canalys chart for the full year is below, which implies 100% of the Apple Watches shipped in Q4 were the new series. It’s interesting to note some traction for the modem-enabled ones since it’s unlikely many users will leave the house without their phone anyway, unless they’re going for a run.

Canalys 2017 Apple Watch

Q4 2017 global smartphone sales value spiked thanks to the iPhone X

A couple of early looks at the Q4 2017 global smartphone market indicate the iPhone X sold well and dragged the average selling price up with it.

GfK, which derives its data from point-of-sale terminals, reckons global ASPs experienced a record spike in Q4, growing 11% year-on-year. This trend seems to have been driven mainly by Europe and Asia, with Central and Eastern Europe ASP jumping 28% and Western Europe seeing the average sale value increase by 17% despite a 3% decline in sales volume.

“Smartphone year-on-year demand growth moderated for the fourth consecutive quarter, rising only one percent to 397 million units in 4Q17,” said Arndt Polifke, Global Director of PoS telecom research at GfK. “However, sales value increased by 11 percent year-on-year in the quarter, which is exceptional growth for such a mature technology category. This came as the proliferation of smartphones with larger and bezel-less displays incentivized consumers to purchase more expensive devices.”

“The outlook for 2018 is positive as GfK forecasts global smartphone demand to rise by three percent compared to 2017, driven by Emerging Asia and Central and Eastern Europe,” said Yotaro Noguchi, product lead in GfK’s trends and forecasting division. “With saturation in developed markets, consumer retention will be a key focus for smartphone makers, which, alongside increased commoditization, will encourage greater innovation and differentiation in order to spur sales.”

GfK Q4 2017

GfK didn’t comment on vendors but it can’t be a coincidence that Q4 2017 also marked the first time the £1,000 iPhone X went on sale. Yes, there are other expensive flagship smartphones out there too, but that was the biggie. Some early vendor numbers from Canalys, which derives its data from further up the smartphone channel, indicate Apple managed to flog a nice lot of Xs – 29 million to be precise.

“The iPhone X performance is impressive for a device priced at US$999, but it is slightly below industry expectations,” said Ben Stanton, Analyst at Canalys. “Apple struggled with supply issues in early November, but achieved a massive uplift in production in late November and throughout December.

“This helped it meet and even exceed demand in some markets by the end of the quarter. One major benefit to Apple is that customers are increasingly realizing the residual value of their old smartphones, opting for trade-in programs to offset the high price of the iPhone X. But that big price tag, and Apple’s split launch strategy, still had an impact, and shipments were not the fastest ever for an iPhone.”

It should be noted that Apple has yet to publish its shipments numbers and doesn’t publicly break them out by model. One of the main roles for industry analysts is to be better guessers than everyone else, so this Canalys datapoint needs to be treated as guidance rather than definitive. Having said that history has shown that large numbers of people with find the money for the latest Apple shiny thing, regardless of the price tag, so there’s no reason to wholly distrust the 29 million figure.

Apple on the rebound in China according to Canalys

Analyst firm Canalys reckons Apple’s smartphone fortunes in China are improving after six consecutive quarters of decline.

Chinese iPhone shipments apparently increased by 40% year-on-year, hitting 11 million in Q3 2017, although it should be noted that Apple has yet to formally announce its shipment and revenue numbers for the quarter. Canalys warns, however, that this upturn in Apple’s Chinese fortunes could be fleeting.

“Apple’s growth this quarter is only temporary,” said Mo Jia of Canalys. “The high sell-in caters to the pent-up demand of iPhone upgraders in the absence of the iPhone X. Price cuts on earlier models after announcing the iPhone 8 have also helped. However, Apple is unlikely to sustain this growth in Q4.

“While the iPhone X launches this week, its pricing structure and supply are inhibiting. The iPhone X will enjoy a healthy grey market status, but its popularity is unlikely to help Apple in the short term.”

The Canalys Apple China numbers are below, followed by the year-on-year comparison for the top five Chinese smartphone vendors. As you can see the company reckons overall shipments declined by 5% in the country, but at the same time four of the top five vendors experienced substantial increases.

Canalys Apple China

Canalys Q3 China

Here’s what Canalys had to say on the matter: “Huawei grew shipments by 23%, shipping over 22 million units to take the lead, while Oppo declined slightly (compared to the stellar performance a year ago) shipping 21 million units. Vivo, with a 26% growth was the most impressive performer in the top 3, shipping over 20 million units. Xiaomi and Apple round up the top 5 this quarter.”

Xiaomi looks like it shipped around 16 million for the quarter, taking the total for the top five to 91 million – 76% of the total. Canalys says total shipments fell by around 6 million, but the top five increased theirs by around 14 million, meaning the long tail must have dropped a whopping 20 million shipments annually – around half its likely previous total.

To sanity-check these numbers we asked Neil Mawston at Strategy Analytics for a second opinion. He hasn’t come up with his Q3 numbers yet – quite sensible since the vendors haven’t either – but he did say this: “We provisionally model China at 0% YoY growth (zero) for 121 million smartphone shipments in Q3 2017.” So opinion is divided, but that long-tail drop-off still seems odd.

Canalys thought it might as well have a crack at India while it was at it, which seems to be the engine room of global smartphone growth these days, following the sudden decline of the Chinese long tail. There we’re seeing healthy growth of 23%, driven largely by Chinese vendors, although Samsung is clinging onto top spot.

“Xiaomi’s growth is a clear example of how a successful online brand can effectively enter the offline market while maintaining low overheads,” said Rushabh Doshi of Canalys. “But Xiaomi focuses on the low end. It struggles in the mid-range (devices priced between INR15,000 and INR20,000 [US$230 and US$310]), where Samsung, Oppo and Vivo are particularly strong. Nevertheless, we predict Xiaomi’s continued go-to-market innovations will allow it to overtake Samsung within a couple of quarters.”

Canalys Q3 India

There seems to be more consensus on India than there was on China, with analyst firm Counterpoint publishing a pretty equivalent set of numbers, although they’re also still keeping an eye on its featurephone market. Both firms also agreed that India overtook the US to become the second biggest smartphone market in Q3.

“India continues to be an attractive destination for handset OEMs,” said Karn Chauhan of Counterpoint. “With strong smartphone growth and a sizeable featurephone market for at least three to four years, OEMs in India can target a diverse set of audiences. This has allowed a number of OEM’s to still realize double digit growth in the featurephone segment in spite of being absent in the smartphone segment.”

Counterpoint Q3 India