Expect anemic mobile phone growth in U.S. through 2018

The market is saturated and customers are keeping devices longer

Google's Nexus 6

The overall mobile phone market in the U.S. will decline this year by 1% even as many emerging countries around the world see robust growth, an IDC analyst said Monday.

After several years of accelerated growth, the U.S. market is feeling the effects of market saturation and smartphone ownership that's lasting longer than once expected, Ramon Llamas, an analyst IDC, said in an updated forecast.

IDC's five-year forecast issued for October significantly undercuts its April forecast, dropping expectations for U.S. smartphone and feature phone shipments by manufacturers to retailers. IDC now expects 1.7 million fewer phones shipped in 2104 than it had expected in April; it predicts 174 million phones will ship this year, with that figure declining gradually to 169 million in 2018.

Smartphone shipments alone will grow just slightly through 2018 in the U.S., but about 5% less than earlier expected, rising from 150 million in 2014 to 160.5 million in 2018. Feature phones shipments have dropped off faster than earlier expected.

Llamas said the signs of decline started in late 2011, prompting carriers in the past year to try to get customers to replace phones more often with easy trade-in plans and relaxed contracts.

It's too soon to say what effect the early trade-in plans will have on the market, Llamas said. The life of an average smartphone still lasts about two years, but that could be changing.

Paying on installment plans "could really change the market," Llamas said in an interview. "But if people pay off their devices and then realize they don't have to pay the carrier as much [at the end of the payoff period] and only pay for wireless service, they might just hold onto their phones. I think people will hold onto their phones as long as they can after they are paid off. If this plays out and they hold on and don't update, we'll see flattening of sales volumes year after year, or even declines, all in the name of saving money."

Even though device makers introduce exciting and feature-rich new smartphones, like the Nexus 6 and the iPhone 6, that level of innovation isn't enough to drive the overall market in the U.S. robustly, Llamas said. "The time that a hot phone could change the market has come and gone," he said. "Most U.S. adults have a smartphone and the others who don't probably won't be getting one. Can any vendor make a different in this flattening trend? Not really."

Realizing what's happening in the U.S. and among other major economies, both Apple and Samsung have concentrated heavily on selling their new smartphones in China and other areas where smartphone sales are still strong.

Llamas summarized the U.S. situation this way: "Having reached market saturation, the U.S. mobile phone market will be largely characterized by replacement handsets rather than handsets for first-time users, resulting in anemic growth going forward. By 2018..., total mobile phone shipments into the U.S. will reach 168.9 million units, a calculated annual growth rate of just minus 0.8%"

Copyright © 2014 IDG Communications, Inc.

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