Smartphone vendors should prep for slower growth in 2014

They're expected to continue to lean on higher resolutions and faster processors to drive sales

More powerful processors will allow smartphone vendors to turn their high-end models into gaming consoles, but slower growth will also force them to focus more on improving their less expensive products next year.

This year smartphone shipments are expected to surpass 1 billion units for the first time, thanks to impressive 39 percent growth year-on-year, according to IDC. Shipments are expected to continue to grow by almost 20 percent next year, so vendors will have to work harder to get users to upgrade.

Here are some of the trends that will shape the market in 2014:

Higher screen resolutions

Larger screens with higher resolutions have been one of the biggest smartphone trends in the last couple years, and that shows few signs of abating. For example, LG Electronics' Display unit has developed a 5.5-inch screen for next generation smartphones with a 2560 by 1440 pixel resolution.

That combination equals a density of 538 ppi (pixels-per-inch), which compares to the HTC One's 468 ppi on a 4.7-inch screen and the Samsung's Galaxy S4's 441 ppi on a 5-inch screen.

The higher resolution allows users to see a full view of a PC-version Web page without any image distortion, LG said when it announced the display earlier this year. Whether other vendors follow suit remains to be seen, but Samsung is reportedly working on a displays with the same resolution on a smaller screen size.

LTE picks up pace

While LTE is still in its infancy in many parts of the world, operators have started to test a technology called carrier aggregation to offer faster download speeds. It allows networks to devote more resources to some users by treating two channels in the same or different frequency bands as if they were one.

U.K. mobile operator EE is testing two times 20MHz to reach 300Mbps, which is the theoretical maximum, for now. Vodafone and TelefA3nica in Germany as well as SK Telecom in South Korea are testing one 10MHz channel plus one 20MHz channel for up to 225Mbps. The South Korean operator was the first to offer carrier aggregation in June, but only at speeds that can be matched by the fastest regular LTE networks.

EE expects the first commercial 300Mbps routers will be introduced by the middle of next year, with smartphones arriving in the second half of the year.

New LTE chipsets will also open the door for 4G phones that cost less.

A game console in disguise

Smartphones have had a profound effect on the gaming sector by making portable devices such as the Sony PlayStation Portable and the Nintendo 3DS less appealing. As smartphones become even more powerful next year, vendors such as Samsung and Apple will go after a larger share of the gaming market.

Last month, Qualcomm announced the Snapdragon 805 processor with the Adreno 420 GPU. With up to 40 percent graphics and compute performance improvement over its predecessor, the GPU enables "advanced console quality gaming on Ultra HD or 4K displays, which is beyond what most consumers have in their living rooms," according to Qualcomm.

The Snapdragon 805 processor -- which runs four cores at up to 2.5GHz -- is available in small volumes now and is expected to be available in commercial devices in the first half of 2014.

Next year will also see at least one major vendor emphasize that a new smartphone model can be transformed into a PC-like device, CCS Insight expects. The device will come with a second interface when deployed as a computer, which is something Ubuntu has been working on. However, despite some media attention, the device will enjoy limited success, it said in recent report.

More focus on low-end devices

Even though higher resolutions and faster network connections and processors will be enough to get some people to buy a new high-end smartphone, that segment of the market has plateaued. The key driver behind smartphone growth in the years ahead will be an expected price decrease, according to IDC.

In 2013, the average sales price for a smartphone is expected to be US$337, down about 13 percent from $387 in 2012. This trend will continue and prices will gradually drop to $265 by 2017, the research company recently said.

For vendors, this means finding a balance between performance, price and making a profit, according to IDC. But for users, this will result in more bang for their buck, and the difference between high-end and much cheaper phones will shrink.

The Moto G has already set a benchmark for phones that cost under $200 with its quad-core processor and 4.5-inch HD screen, and puts pressure on vendors like Samsung and LG Electronics to come up with something better.

Motorola Mobility, which has been struggling, seems to have a hit with the Moto G. The smartphone has already had a major impact, despite being on sale for only a short time, according to Magnus Ahlqvist, Motorola corporate vice president for Europe, Middle East and Africa.

One thing that's missing from the Moto G's spec sheet is LTE, which is still too expensive for vendors to add to their low-end products. But that is likely to change as competition heats up in the chipset market. MediaTek is getting ready to launch its first SoCs (system-on-a-chips) with LTE, which is expected to help push the price for a smartphone with LTE below $200 without a contract during next year.

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Copyright © 2013 IDG Communications, Inc.

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