Smartphones: better kit could depress long-term growth

Mobile phone operators once successfully instilled the fear of missing out into their customers, encouraging the replacement of smartphones for the latest models every two years. Network phone subsidies helped keep shipments and earnings at global phonemakers strong. Industry data for past year suggests that is ending.

Global smartphone shipments dropped 18.3 per cent — the most on record — to about 300mn units in the December quarter, according to research group IDC. For the year shipments fell 11.3 per cent, the lowest total for a decade.

Blame temporary disruptions resulting from year-end violent protests over Covid-19 restrictions at Apple’s main iPhone factory in China. Price inflation and slowing global economic growth too affected holiday shopping. Buyers increasingly seek cheaper, older models.

But there is good reason to believe that the poor shipment figures are part of a longer lasting trend. Seven years ago, two-thirds of US consumers replaced their smartphones in two years or less. That gap has widened to about three years owing to more durable materials and increased software updates. Pricier Apple and Samsung flagship models have created a robust market for second-hand phones.

Longer ownership offers green perks. Consider that 80 per cent of a smartphone’s carbon footprint is created during manufacture. About 5bn mobile phones are thrown away each year. Not all parts can be recycled and some can release toxic chemicals.

All this is bad news for the companies. The iPhone is Apple’s most important product, accounting for about half of overall revenue. Samsung Electronics earned more than 40 per cent from its mobile business in the third quarter 2022. Shares of both companies are down a tenth in the past year, reflecting waning demand.

There will be knock-on effects on a larger range of sectors. The duo are the main clients for component makers (flash memory through displays) in Japan, Vietnam, China and South Korea. Less consumer Fomo means more oh-no for the entire smartphone industry.