Falling ASPs Foretell a Smartphone Shakeup
The smartphone market has gone through a number of trends -- shrinking devices,growing screens, touch everything, voice controls, to name a few -- but now there's a new trend that could change the very makeup of the industry.
This time it isn't about device form, but in falling average selling prices (ASPs). For handset makers, it's leading to new faces getting a better shot at competing. For wireless operators, it has already spawned new pricing strategies.
Smartphone ASPs have fallen to $375, down from $450 at the beginning of 2012, according to new research from IDC. Apple Inc., for example, just reported its lowest ASP, at $582, since the second quarter of 2009. And, Samsung Corp. predicted on Friday that its ASP would fall in the third quarter as mid- and low-range devices continue to grow.
At the same time, T-Mobile US has kick-started the trend of doing away with device subsides in the U.S., instead offering plans in which customers pay the unlocked price of the device. They aren't necessarily the best deals and, indeed, AT&T Inc. and Verizon Wireless aren't lowering the price of service in return, but they do change how consumers think about their device purchases. A Samsung Galaxy S4 starts to look at lot less attractive when you realize the unsubsidized price is $700. (See AT&T's Next to Shorten Wait for Device Upgrades and T-Mobile: Might as Well JUMP.)
The falling prices and new pricing plans are good news for new entrants looking to steal smartphone market share with cheaper models. Chinese vendors Lenovo Group Ltd., CoolPad, ZTE Corp., Huawei Technologies Co. Ltd. and TCL & Alcatel Mobile Phones Ltd. are five prime examples. According to Strategy Analytics, together they already shipped nearly a fourth of all smartphones in 2013. Competition amongst these players will continue to drive their prices lower and potentially encourage their higher-end competitors to follow suite.
Strategy Analytics analyst Neil Shah says that the decline in smartphone ASPs has been less severe in the U.S. than the rest of the world, but he expects prices here to continue to drop, driven by the prepaid segment and feature phone postpaid users.
"These new smartphone upgraders are not necessarily upgrading to flagship models such as iPhone 5 or Galaxy S4 but to cheaper models such as ZTE Avid 4G or Nokia Lumia 521," he writes in an email to Light Reading.
Price, it seems, is starting to take precedence over the latest and greatest specs. The dipping smartphone ASPs will put pressure onhigh-end smartphone makers like Apple and Samsung and may even make it harder for struggling brands like BlackBerry to make a come back. But, they are good news for consumers who will have more choice in what they buy and how they pay for it.
Trends change very quickly in the smartphone market. Just ask High Tech Computer Corp. (HTC) and Nokia Corp. about that. Going cheap could end up being a fad too, but the one thing you can count on is, the smartphone leader board may look different by this time next year, maybe even next quarter.
— Sarah Reedy, Senior Editor, Light Reading