Have We Seen Peak Prices for Smartphones?

By Dan Gallagher 

When it comes to smartphones, upselling may have found its limit.

Last year's big, new redesigned smartphones from Apple Inc. and Samsung featured prices notably higher than their predecessors. Apple's iPhone X -- billed heavily as the"smartphone of the future" -- took that game to new heights by starting at $1,000. But that strategy has its limitations.

Both companies indeed reported stronger revenues from their respective smartphone businesses during 2017. But unit sales were largely flat with the year before, indicating that many consumers weren't sold enough on the latest enhancements to cough up the extra dough.

Samsung, for its part, seems to be trying a slightly different tack this time: The company unveiled its new top-of-the-line Galaxy S9 smartphone Sunday at the Mobile World Congress trade show in Barcelona, Spain. The device features the same eye-catching design of last year's Galaxy, including a curved edge-to-edge display, along with notable enhancements to the phone's camera and some other internal improvements. One thing Samsung doesn't appear to be changing is the price, which will be in the mid-to-high $700s, depending on the carrier. The Galaxy S9 goes on sale next month.

Keeping prices level could help Samsung to get more of its users to buy its latest devices. The same could hold true for Apple if it chooses to follow a similar strategy with its new iPhones expected later this year. Apple and Samsung both face growing competition globally from Chinese companies such as Huawei and Xiaomi. But combined, the two giants still account for more than one-third of the world's smartphone sales, giving them a significant impact across the globe.

That impact was felt last year. According to IDC, about 1.472 billion smartphones sold globally in 2017, a very slight decline from the 1.473 billion sold the year before. That was still the first decline ever by an industry that had averaged about 26% growth over the previous five years.

That decline came during a year of major enhancements offered up by Apple, Samsung and other device makers. Market-research firm Gartner also reported a 5.6% fall in smartphone unit sales during the typically strong fourth quarter, with analyst Anshul Gupta noting that "high expectations and few incremental benefits" helped weaken demand during the period.

Today's high-end smartphone market is officially a mature one. That means the market depends far more on upgrades than it does on new customers. And those upgrades will happen less frequently as higher prices keep customers holding on to their phones longer -- especially when annual enhancements don't change much about the basic form and function of top-end devices. Upselling only works when there is something significant to sell.

Write to Dan Gallagher at [e-mail]

(END) Dow Jones Newswires

February 25, 2018 16:05 ET (21:05 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.