Early indications suggest smartphone prices might soften in the second half of 2020, especially if the global economy does not rebound and consumer confidence remains low.
The Covid-19 pandemic has delivered a double whammy to the smartphone industry - hitting first the supply chain and then consumer demand. What started primarily as a supply-side problem out of China, grew into a global economic crisis with retail outlets across the planet closing and consumers worldwide in lock-down causing a massive demand-side impact.
“The coronavirus pandemic has caused the global smartphone market to experience its worst decline ever."
Anshul Gupta senior research analyst, Gartner
All of the top five smartphone vendors recorded hefty declines in the first quarter of 2020, except for Xiaomi. It managed to avoid the worst of the lock-down impact due to a strong online sales presence particularly for its entry-level and mid-range Redmi devices.
Samsung smartphone sales collapsed by 22.7% in the first quarter of 2020, but the Korean company still maintained the No. 1 spot with 18.5% market share. When the pandemic hit, Samsung had more inventory in the channel in preparation for new smartphone launches. It also benefited from its manufacturing facilities being outside China, based in Vietnam and Korea. However, an inefficient online channel combined with the lock-down led to much weaker sales.
Apple had the least decline in sales of the top five manufacturers with a decline of 8.2% - though this does translate into 41 million units! Apple had been experiencing a strong start to the year due to the unexpected popularity of the iPhone 11, according to Annette Zimmermann, research vice president at Gartner.
"If COVID-19 did not happen, Apple would have likely seen its iPhone sales reach record levels in the quarter. Apple’s ability to serve clients via its online stores and its production returning to near normal levels at the end of March helped recover some of the early positive momentum.”
Huawei fared the worst of the top five global smartphone vendors. Sales fell by 27.3% year over year. This was the brand's first ever decline in smartphone sales, however Huawei still held onto the No. 2 position with 14.2% market share.
Oppo’s smartphone sales fell 19.1% in the first quarter of 2020. Oppo’s offline distribution model ,which is usually considered one of its strengths, caused the manufacturer to suffer as the work-from-home trend forced consumers and businesses to purchase products online.
Apple seems to be reviewing its pricing strategy to compete for a share of the mid-market. This move started before the pandemic with the release of the iPhone SE in February. Meanwhile Samsung had already begun discounting its flagship Galaxy S20 series before Covid-19 after less than enthusiastic sales.
The impact of Covid-19 is likely to consolidate plans for Apple to deliver its new iPhone 12 across a range of price points, starting at a lower price than we have seen in the past. Meanwhile discounting of older model phones across all manufacturers is also expected as the year progresses.
Apple is due to launch the iPhone 12 in September. Rumours abound but it is universally believed there will be at least four new versions of the iPhone 12 and it will be the first 5G-compatible Apple smartphone, will have an OLED screen, and most likely boast a LiDAR scanner.
Apple has never sold a new iPhone with an OLED display for under US$999, but the iPhone 12 line-up is expected to include a wider range of models including a smaller 5.4" model, which pundits predict will be US$649.
Industry insider, Jon Prosser of Front Page Tech, has predicted that price will be a major feature of the iPhone 12. Analysts are listening to Prosser after he accurately predicted the pricing of the SE20 launched in February for A$749.
Prosser has claimed US$649 for the entry level iPhone 12, which will be a smaller handset with a dual camera set up. This would make it under A$1,000 and less than the cost of the current iPhone 11 which starts at A$1,199.
Meanwhile Samsung was already discounting its 2020 flagship device, the Galaxy s20 series, before the pandemic. In Australia the Galaxy S20 was discounted from Day 1. From launch, Telstra ran a limited-time discount offer of $150 off the 128GB S20 or S20+ 5G devices paired with any Telstra month-to-month mobile plan. There was also an offer of 80,000 Telstra Plus points, and a free pair of Galaxy Buds+ for pre-ordering.
The S20 range has not enjoyed an auspicious start, and analysts are questioning whether this is altogether due to coronavirus. Instead they are pointing to issues with new camera features and a higher price tag.
According to the Korea Herald, the new flagship line had a disastrous launch in Korea, with sales down 50% compared to the launch for the Galaxy S10 line.
It is reasonable to expect continued discounting of this line especially towards the end of the year.
Frank Gillett, an analyst at research firm Forrester, is also predicting price cuts on older smartphone models. If the demand continues to be impacted as the year progresses, new pricing strategies could be put into place, he says.
"What you might also see are some creative pricing models to make it feel more affordable and responsive to people's situations. Perhaps there will be a temporary promotion to help people out at a lower price if they can show an unemployment cheque or an emergency services ID."
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