Corona Virus Impact Update, Smartphones and Premium vs. The Masses

A few weeks ago, I shared the concerns I was hearing from supply chain vendors over Coronavirus. Then it was only a warning, but now we see the first impact on tech manufacturing. Apple has come out and said it wouldn’t make March’s guidance due to issues in their factories being able to manufacture iPhones. Apple had already provided a wide range of guidance, and things ended up being worse than even Apple thought.

Talking with contacts in the manufacturing supply chain, factories had to have a 14-day quarantine for employees coming back from certain regions of China after the Chinese New Year. Most factories did not even allow employees to come back to work until Feb. 10th, at which point most factories did not see a full workforce return due to quarantines.

Another fun fact I found out was a rule was implemented that if any employee who was found to have symptoms, mainly a fever, at a manufacturing plant, then that plant had a mandatory shut down for 30 days.

It has been kept relatively quiet in which factories have been impacted the most, but a lot of different components come out of Wuhan and the city shutting down alone would have had a significant impact on manufacturing as other factories were stuck waiting for parts even if they were operational.

Yes, this is a short term blip, but it may go longer than even the March quarter. As companies seek to re-ramp their supply chain and meet demand, they have a lot of catching up to do. Some companies are likely to manage this better than others, but I’ve already heard concerns products may be delayed or in short supply even into the holiday season of 2020.

Premium vs. Mass Market Smartphones
With Samsung’s newest smartphone launch, and even coming off observations from Apple’s fall launch, my perspective has been altering now that both Apple and Samsung are creating a line between pro smartphones and non-pro smartphones. This line has been drawn both by pricing and capabilities.

As was evidenced by the iPhone Xr, the masses are going to buy the cheaper option of the new lineup. Apple learned there was a price threshold in any lineup the masses were willing to pay, and that limit was over $800. Samsung has priced all three of its flagship devices above that price, which will be interesting to see how the market responds. What interests me the most to analyze, as this market has evolved, is to look less (short-term) at what the pro device capabilities have because those are not features the mass market will have access to, at least right away.

It’s great that iPhone and Samsung devices have pro-features that do incredible things technologically, but the masses are not using those features. When we look at the opportunity for modern technology to impact the types of content we consume or create, we have to look not at what exists in the small pro-segment of consumer smartphones but at what is in the hands of most people. Interestingly, here, the gap between pro and mainstream is much smaller in Apple’s current lineup than Samsung’s. And I’ll be curious if Apple keeps this strategy consistent even as they bring more pro-features (largely camera related) to their lineup.

That being said, looking at what pushes the envelope in pro-smartphones is relevant if it is viewed as something that starts in the pro-segment and then becomes common throughout the lineup. My guess is those pro-feature innovations coming to smartphones are things that become common to the lower-priced models either the next year or the year after. In that regard, it is worth analyzing the technology behind the pro-features to understand what could be possible for the mainstream at some point.

The last thing that has impacted my thinking lately, is how much farther can we push the boundaries on features for pro-devices before we dramatically overserve the market? There is more than ample evidence that supports the consumer psychology behind the overserving features of a product where it can quickly move from cool to off-putting. Historically, consumer products have had to balance this fine line of making features that dramatically overserve the market and then lose more value than gain with a technological advance.

This is also a key part of our analysis, to understand where the line from useful to over-serving is drawn and help the market make sense of the impacts of what technology becomes mainstream, and what technology remains niche.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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