As Smartphone Sales Rise, a Price War Looms

Strategy Analytics new data show:

Samsung shipped 213 million smartphones worldwide in full-year 2012, the largest amount ever shipped by a vendor in a single year. Apple held second position, while Nokia retained third place for full-year volumes.

Much of the Samsung improvement came from its Galaxy line, which is considered the nemesis of the iPhone. Samsung is expected to release a new version soon — the Galaxy S IV. It should reach the market slightly ahead of the anticipated iPhone 5S. Once again, two important product launches will happen within months, or even weeks of one another.

Samsung sees that competition will be based to a large extent on price, as well as features and marketing. It said as much as it released quarterly numbers:

The furious growth spurt seen in the global smartphone market last year is expected to be pacified by intensifying price competition compounded by a slew of new products. In the first quarter, demand for smartphones in developed countries is expected to decelerate.

What this does is signal that sales in developing markets and the underdeveloped world will step to the center of the jockeying for sales. Customers in these markets usually cannot pay for a $200 or $300 product. So, price competition in the developed world will be based on the need to pick over saturated markets, while price competition in the rest of the world will be based on the ability of consumers to pay.

The other, less expected cause of price pressure is the desperate attempt by the second- and third-tier smartphone companies to battle for their lives. Nokia Corp.’s (NYSE: NOK) last quarter showed that its Microsoft Corp. (NASDAQ: MSFT) based Lumia product recorded very modest sales, but enough to show it has found a receptive customer base. Google Inc. (NASDAQ: GOOG) has the financial muscle to press for some market share of its Motorola phones. Sony Corp.’s (NYSE: SNE) turnaround, trumpeted endlessly by its management, will rely on its smartphone products. And HTC and LG are not without the balance sheet power to remain in the market indefinitely.

There are too many competitors in the market, and price will be the only way that some of the participants can draw sales. Even if the market were made up of only Apple and Samsung, market saturation for high-end smartphones cannot be more than a few years away.

Price has become important.

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From Strategy Analytics

Global Smartphone Vendor Shipments and Market Share in Q4 2012 [1]