The Smartphone Market in Q1 2016

Now that Lenovo has reported its Q1 2016 financial results, we have a reasonably full picture of how the global smartphone market performed in the quarter. While many of the largest vendors report their performance directly as public companies, some of the medium-sized and smaller vendors are privately held, so we need to rely on third party data from analyst firms such as IDC, Strategy Analytics, and Gartner to fill in some of the gaps. All of this leaves us with some interesting insights into the changing dynamics of the smartphone market.

Small legacy vendors continue to decline

Some of the longest-standing players in the market continue to see serious declines over time in their smartphone shipments. Among this group are BlackBerry, HTC, and Sony, as well as the former Nokia smartphone business now owned by Microsoft. This group, along with Motorola (now part of Lenovo), has at different times made up the top five smartphone vendors in the world but each now ships well under five million smartphones per quarter, as shown in the chart below:

Small legacy vendors

That’s quite a fall from grace for each of this group and it’s a useful reminder of how much fortunes can change in this market despite very significant share and volumes. At its peak, BlackBerry shipped over 40 million phones a year yet, over the past four quarters, it shipped under 4 million. Nokia led the global smartphone market for a number of years but Microsoft’s smartphone business shipped just 21 million devices over the last four quarters and just 6.8 million in the last two. Sony had looked like it was doing better than most of its medium-sized Android competitors for some time, seeing growth in shipments from 2011 to 2014, but over the last year, things have turned sharply downward as it refocused its business on premium, higher-margin devices.

Dynamics are shifting among the larger players

Among the larger players, dynamics and market shares have shifted fairly dramatically over the last few years, though there’s been relative stability among the top three, as the chart below shows:

Large vendors

Samsung and Apple continue to occupy the top two spots, with little sign this is likely to change. Though Apple very briefly matched Samsung’s shipments in its big iPhone 6 quarter at the end of 2014, the gap between the two has widened again since, as Apple’s growth has fallen off and Samsung’s has recovered slightly. Meanwhile, Huawei has left the rest of the pack behind as the number three vendor, leaving a handful of others clustered together vying for fourth place. Interestingly, two new Chinese vendors – Oppo and Vivo – have rocketed into top spots over the last year or so, with Oppo claiming fourth in Q1 2016 for the first time according to several analyst firms and Vivo taking sixth. Meanwhile, Lenovo (including Motorola) went through a period of very strong growth driven both by Lenovo’s domestic success and the acquisition of Motorola, only to see its domestic business fall off a cliff over the past year, with the Motorola business unable to make up the difference. As such, Lenovo dropped from fourth place in late 2015 to ninth this past quarter. Xiaomi, too, which had been a darling of the tech press for some time and put out some ambitious forecasts in the past, has seen its star fade somewhat over the past year as its shipment growth has plateaued.

A flat market overall

I’ve written a couple of pieces in this space over the last month or two about the flattening and declining US smartphone market but it’s worth taking a step back and looking at the global picture too. Total global smartphone sales

As you can see, there was a period of very rapid growth for most of this chart, rising from a little over 100 million at the end of 2011 to just over 400 million in the fourth quarter of last year. However, you can also see a dramatic slowdown over the last six quarters or so, as growth largely evaporated from the market. Q1 2016 hit around 340 million units, as did Q1 2015 a year earlier, so there was essentially zero growth over that year. Given the market had grown fairly consistently by 70-100 million each year until that point, that’s a major change. Obviously, the main reason is the increasing saturation of mature smartphone markets and the ensuing slowing of growth there. Even big growth markets like China have seen this deceleration over the last year or so and, as I’ve discussed previously, total shipments in the US are now shrinking. This is likely the shape of things to come over the upcoming years, which will make growth more challenging for individual vendors unless they’re able to win significant share or tap into the remaining growth in emerging markets.

Margins continue to be terrible for most

Third party analyst firms don’t publish financial figures for the major vendors in the same way they do shipments, so we’re left with more gaps in the data here. But from those who do report publicly, we can still draw some fairly strong conclusions. What is clear is, though Apple and Samsung are consistently profitable in their smartphone businesses, hardly anyone else is. Apple doesn’t report its margins for iPhones directly but consensus suggest it is in the 30% range, while Samsung has dropped from its peak in the high teens but managed a 14% operating margin on its mobile business in Q1. The chart below shows numbers for these and other vendors, with Apple’s overall operating margin but divisional operating margins for the others:

Smartphone margins

As you can see, all the others are fairly consistently unprofitable and, in some cases, severely so. As shipments have declined for some of the smaller vendors in particular, we’ve seen margins decline with them. Even in the better times, few of these companies managed margins above 10%, with HTC a rare exception thanks to its focus on premium smartphones. HTC’s margins have consistently worsened (and fallen off the bottom of the chart in Q1 2016), while Sony’s have also been very poor for several recent quarters. LG had appeared to be doing better but has dropped into the red recently, while Lenovo continues to push back the date for its future profitability in its mobile business.

A grim market for most

Between the disappearing growth in the overall market and the stiffening competition among the medium and small vendors, especially in Android, this has become a grim market for most players. Only Apple and Samsung among the publicly traded companies are generating meaningful margins from smartphones, while most of the others are losing money and share to rapidly growing Chinese vendors. Even some of the Chinese vendors who had done well in the past, such as Lenovo and Xiaomi, have struggled to keep up and are suffering as a result. We’re going to continue to see new names pop up in the top vendor charts, while familiar names that had seemed dominant continue to fall off. It should be fascinating to watch.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

3 thoughts on “The Smartphone Market in Q1 2016”

  1. Do you have any idea of the profit margins of Huawei? It is the rising star in shipments, but is absent from your operating margin chart. It would be interesting to see if Huawei’s growth is sustainable.

    1. Huawei, like Samsung, has many other businesses to help them balance revenues. They make a lot of money in backend network services and hardware. It is unlikely their profit margin is any better than the normal of a low-mid range Android vendor.

      But they are very much like Samsung in that they are not a one trick pony which makes them very sustainable.

      1. Thanks.

        However, if Huawei is not profitable on its smartphones, but “balancing” revenues from other products, doesn’t that make them more alike LG or Sony, rather than Samsung?

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