Are smart phone sales starting to decline?

Samsung have been hugesly sucessful, but could now be hit by declining smart phone sales

It has emerged that Samsung are to miss their revenue targets, as fears grow that smart phone sales are starting to decline for the first time.

Samsung are the undisputed leaders of the smart phone market, where they are now believed to command as much as 75% of the market in the UK. They are also the world’s leading producers of memory chips and flat panel TVs, with other significant business lines in semiconductors and display units, two areas where the company has been successful last quarter. The company will release their official results at the end of this month, but are guiding investors that they will miss the revenue marks across the organisation now.

This comes on the back of news that the consumer electronics market as a whole has had a tough quarter, with sales significantly down from 2012. With markets like compact digital cameras – the cheap ones at least – declining so steeply that they probably won’t be around much longer – putting more pressure on other areas of Samsung’s business.

That said, it’s certainly not all doom and gloom for the Korean-based tech giants. Samsung’s operating profit has increased by 47% on this period of 2012, rising to $6.46 trillion. The forecast indicates an 8.2% increase on the previous quarter. That quarter delivered an operating profit of 8.78 trillion, which was powered mostly by huge sales of smart phones.

The fear now lies in how robust smart phone sales will be moving forward. April to June 2013 was meant to deliver 57 trillion worth of sales, but the company look set to miss their target. Whilst no break down has been given about individual Samsung business units, its expected that smart phones may be the root of their mini-wobble. This is despite them being a clear market leader, having emphatically squeezed the iPhone’s market share.

The financial markets are showing concern around smart phone producing companies for the first real time. BlackBerry posted an unexpected loss, which sent their share price tumbling 28%. Whilst the Canadian based company has been in trouble for some time, the market had modest to high hopes for their re-invention. That re-invention, led by their new BB10 operating system and two new smart phones has failed and the company may now be in terminal decline.

Market doubts extend to Apple as well. Their share price is now trading significantly below their historic highs, and the company, for now at least, seems to be out of reach of those peaks. The main investor concern centred around slowing demand for their flagship iPhone 5. With their next smart phone due later this year, September will be a huge month for Apple and its share price. If the new iPhone is anything less than spectacular, and if the new iOS 7 doesn’t go down well (which is far from certain due to the big changes compared to iOS 6) then Apple may find themselves in an unusually difficult place.

So with Samsung’s mobile division been such a huge revenue driver for the company – accounting for upwards of 70% of their revenue – there are renewed fears that their share price may take a hit.

More than anything though, it seems that the smart phone business is finally slowing. As market penetration deepens – some stats put smart phone ownership at 60% amongst mobile phone owners in the UK – there is a receding pool of new prospects to target. The smart phone industry is thus reaching maturity, and the record sales figures will slow as a result.

With most customers on a contract that typically lasts two years, and with the notoriously difficult to break nature of these, it seems that the phone companies are going to have to settle on pushing people to upgrade rather than winning new customers. This places the onus on the smart phone makers to come up with ever better models with new features that compel us to upgrade.

With that in mind, there’s going to be a whole slew of new releases over the rest of this year. From the hugely anticipated iPhone through to the renewed push of mega camera-phones, it should be interesting to watch the market and measure the sales.

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