Smartphone market becoming survival of the fittest
The mobile landscape is becoming incredibly difficult to compete in, or even just to survive in.
New companies are entering the market with dirt-cheap devices that have the same specs as the big names at a fraction of the cost. Small companies can afford to pursue such strategies, but larger players such as Samsung cannot compete in this manner as they have other costs to consider, such as marketing, channel incentive programmes and stocking fees, among many more. Profit margins are also being hit by falling prices, leaving the big players with less money to spend on marketing, R&D and innovation.
Inevitably, this is going to take its toll on the dynamics of the mobile landscape. It is reasonable to expect that several phone makers will leave the space completely over the next couple of years as it becomes increasingly unfeasible for them to continue. Whether that happens or not remains to be seen, but what is clear for all to see is that the market has a very bumpy road ahead of it.
Here is a look at the shape of the market today – three big fish floundering, one big fish making waves, and the minnows swimming along in shoals.
Microsoft’s acquisition of Nokia has always been a move that raised eyebrows in the market. Many observers couldn’t understand why Microsoft would sink such a large sum of cash to purchase a mobile company that was in so much trouble. Such attitudes were perfectly understandable, and the move has still not helped Microsoft gain much in the way of share in its OS battle with Android and iOS. Indeed, IDC research shows that Windows Phone OS commands less than a 3 per cent share of the GCC smartphone market. This figure is poised to increase, but not in a way that will signal any great shift. The launch of Windows 10 could prove to be a light at the end of the tunnel, but even that prospect hasn’t stopped Microsoft from laying off thousands of staff from its mobile division.
HTC is another phone maker feeling the heat of increased competition in the mobile market. When HTC released its much-anticipated HTC One M9, the reviews were fairly lacklustre. The device didn’t live up to expectations, and the result was poor sales across its entire portfolio.
As a consequence, the company is looking to make significant cuts across its operations in a bid to balance things out and continue fighting into the coming quarters. In the GCC, HTC will need to streamline its channel operations if it wishes to resolve operational inefficiencies and properly penetrate the market.
Samsung is perhaps the manufacturer that has been struggling the most in recent times. The company has been taking direct hits right across its smartphone portfolio. Whether it is at the high end or low end, Samsung is facing mounting pressure amid increasingly aggressive competition. It is still the undisputed heavyweight champion of the smartphone division, but its profits and market share continue to slide.
Even here in the GCC, Samsung’s smartphone share has been in decline for the past five quarters, leading to downsizing and the implementation of cost-cutting measures.
One company that continues to make headlines with record-breaking sales and profits is Apple.
The iPhone continues to set the standards that other smartphone developers must aspire to. Despite its limited portfolio of phone offerings, Apple commands almost 20 per cent share of the market in the GCC. And while the iPhone has long been a success, it was the launch of the iPhone 6 and iPhone 6 Plus that persuaded many Android users to finally make the leap to iOS.
That was because one of the major factors holding them back in the first place wasn’t price, but screen size – an issue that has now been resolved. Apple competes solely in the high-end market, which means its profit margins are significant when compared to the competition, and the company is looking to build on the momentum it has gathered here in the GCC by opening its own retail stores and establishing more offices throughout the region.
It’s not all doom and gloom for the rest of the market, however. Huawei and Lenovo continue to make waves with increased shipments quarter-on-quarter, and both have been ramping up their marketing and channel activities, leading to them making gains in their market shares.
Some smaller operators such as Innjoo and Wileyfox have opted to take the online route to success. This strategy helps them cut back considerably on channel spending and ultimately pass the savings on to the customer. Although the market share of such firms remains tiny here in the GCC, the significance of the online channel is gaining popularity and acceptance.
Saad El Khadem is a research analyst at IDC Middle East and Africa.
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Updated: November 9, 2015 04:00 AM