New Smartphones Are Coming. Will People Buy Them?

Please follow and like us:

There are few certainties in a global pandemic, but smartphone launches—and rumors about upcoming launches—are apparently still a sure thing. In mid-February Samsung shipped its flagship Galaxy smartphone, hosting a large event in San Francisco (complete with fever scanners for the crowd). Last week 9to5Mac reported that a new iPhone will be revealed soon, a device that tech blogs are referring to as either “iPhone SE 2” or “iPhone 9.” Noted Apple analyst Ming-Chi Kuo has also reported that a new version of the iPhone SE, a smaller, less expensive phone than the flagship models, is expected to arrive sometime in the first half of the year.

The big question is whether people will buy these phones, or any other brand new smartphone this year. As the dire effects of the novel coronavirus become more widespread, financial markets have been in a free fall. Businesses and schools have been closed around the world, and in the US, the unemployment rate is projected to hit a double-digit high. Some bank research teams predict that the US economy will go to a dark place over the next two quarters—and that even if there’s a rebound by the end of the year, consumers will still be extremely cautious about spending.

Analysts and economics experts who spoke to WIRED say it’s a challenge to forecast how Covid-19 could ultimately affect consumer discretionary spending on electronics like smartphones, both from an economic standpoint and a cultural perspective. The 2008 recession doesn’t offer much of a playbook when you consider that smartphones as we now know them were nascent back then, and the communication services running on them weren’t as vital to our everyday lives. More notably, this economic recession could be unlike anything we’ve ever experienced before because of the near-global lockdown we’re in.

“This is going to be the social-distancing recession, and we’ve had nothing like that before,” says Ori Heffetz, an associate professor at Cornell University who researches the psychological, social, and cultural aspects of economics. “We’ve had recessions that were the result of wars, terrorism, the bursting of asset or real estate bubbles, but this is the first time that the economic woes we’re experiencing also include, by government decree, staying at home.” While being stuck indoors might lead some people to invest in electronics that help them get their work done or devices for their kids, phone upgrades might not be considered as essential, Heffetz says.

Marching Onward

The coronavirus pandemic has been so fundamentally disruptive to our everyday lives and business operations that it might seem smartphone launches would be disrupted too. But analysts who spoke to WIRED note that products pegged for launch in the first half of this year were well into development before the external shock of Covid-19 hit. So, despite the fracturing of technology supply chains, and despite the cancellation of the world’s largest mobile conference in February, new phones will likely still ship.

There are also signs business is picking up in China, where most of the world’s smartphone manufacturing is done (though consulting firm McKinsey warns that manufacturing hubs remain behind, and that “supplies of materials and components, especially those that are highly labor intensive, are also limited, creating a second wave of disruption.”)

“In just three weeks our thinking has changed from there being supply-side issues with devices like phones and PCs, to focusing on the demand side,” says Ryan Reith, program vice president of worldwide mobile device tracking at global research firm IDC. “There will be phone launches—some may be pushed out, but they’ll happen eventually. Things will get built. But I think it’s going to be very severe on the demand side.”

Advertisement

IDC has not yet released data for global smartphone shipments for the first quarter of 2020, something the firm typically does in April. Global smartphone shipments were already on the decline for several consecutive quarters before the pandemic hit, as people were holding onto older phone models for longer. There was a modest return to growth in the third quarter of 2019, of just under 1 percent, but that turned out to be a blip. In February 2020, the firm issued a note saying that Covid-19 could result in a 10 percent year-over-year decline for smartphone shipments in the first half of 2020.

Now, Reith says, the firm is starting to see declines in consumption too, particularly in China, the world’s largest smartphone market. He estimates that smartphone purchases in China were down 40 percent in January and 60 percent in February, compared with the same months a year prior.

As Bank of America noted in its report on the US economy last week, the consumer is “on the front line from the shock of the Covid-19 pandemic.” In early March there was a sharp drop in spending on travel and lodging; by the middle of the month, this had spread to recreation, clothes, entertainment, and “other discretionary goods and services.” Jobless claims have skyrocketed, to 6.6 million last week. The Federal Reserve Bank of St. Louis has estimated that the unemployment rate could soar to 32 percent in the second quarter of this year. Others, such as Bank of America, are predicting a much lower (but still record-setting) unemployment peak of 15.6 percent.

Things like tax rebates, expanded unemployment benefits, and stimulus checks could help offset some lost income for people, but “it will take time for income to return to pre-Covid-19 levels, retraining the recovery,” the Bank of America analysts note.

“Certainly, $1,200 checks—ones that won’t go to everyone—that doesn’t mean people are sitting there saying, 'OK great, I’m going to buy an iPhone now,' even if it’s $500,” IDC’s Reith says, referring to the stimulus check that’s part of the Coronavirus Aid, Relief, and Economic Security Act.

“The first consumer goods to collapse in a recession are the durables, which includes discretionary gadgets,” says Heffetz. “There was a time period when these phones gave us freedom; you could be out of the office or at the beach or at the bar, but you could still be working. You were always accessible. Now I’m at home, in front of a big screen, on Wi-Fi the whole time.” He notes that regardless of how extended our isolation periods are, it may change the way we think about what technology is necessary in our lives.

In the aftermath of the 2008 recession, Heffetz says, some people convinced themselves that upgrading from a Nokia mobile phone to a smartphone was a justifiable expense for maintaining professional networks. Now, those must-haves might be a faster internet connection at home, a good laptop for working remotely, or a tablet for your child so they can stream their homework.

How Apple and Samsung Will Fare

Analysts are mixed on how weakened demand for smartphones might ultimately affect premium phone makers like Apple and Samsung. Despite year-over-year declines for global smartphone sales in the holiday quarter of 2019, Apple showed signs of growth, particularly in China. Samsung held on to its position as the number one phone maker in the world. But at that point, concerns about coronavirus weren’t widespread.

“If this is elongated until September, I think it really hurts Apple’s heart,” says Pat Moorhead, founder and principal analyst at Moor Insights & Strategy. “While Apple has done a good job diversifying itself with things like services, it’s still predominantly an iPhone company. And if you’ve lost your job, you’re worried about the future, and you can’t delay your insurance payment or your mortgage payment, the phone is a nice-to-have thing. The only exception is if it’s broken.”

Advertisement

Both Moorhead and IDC’s Reith say they don’t believe Apple is in danger of losing customers to Samsung, and that Apple’s ecosystem lock-in will be strong even in a recession. But Samsung, along with Chinese phone makers like Huawei and Xiaomi, might be better positioned than Apple to sell to price-sensitive consumers, because of their wide range of budget and midrange smartphones. (Huawei is currently the top seller of smartphones in China, while Samsung and Chinese brand Vivio are vying for the top spot in India.)

“We’ve already seen significant discounting in the Samsung Galaxy S20 lineup,” says Reith, referring to Samsung’s most recent flagship launch. “I think when we look at the Android space we will certainly see a shift towards a midrange or lower-priced tier of phones.”

Neil Cybart, founder of Above Avalon and an analyst who covers Apple closely, says if working from home becomes more of a mainstay in our global economy, large companies might have to invest in devices for workers—which could actually be a good thing for a company like Apple. He’s also trying to track whether a global recession could mean that people purchase for longevity, even if they’re limiting overall spending. “Do they buy a higher-quality or higher-priced item because they think it’s going to last longer? There’s that kind of philosophy too.”

“I model Apple financially on a quarterly basis, and my stance has been to let things play out for now,” Cybart says. “It’s very difficult to model these things financially at this point, because the news is moving so quickly.”


Read more: https://www.wired.com/story/smartphones-and-consumer-spending/

Please follow and like us:

Leave a Reply

%d bloggers like this: