NZ phone shipments forecast 2018

IDC says New Zealand phone shipments dropped 14.5 percent in unit terms during 2017. This is the first year-on-year decline reported in this country. A total of 1.60 million phones shipped in 2017 compared with 1.87 million in 2016.

A phone shipment is not the same as a sale. Shipments count the number of phones sent from manufacturers’ warehouses to retail warehouse. Not all shipped phones are sold. To a degree shipments is a measure of the demand anticipated by phone makers and sellers.

Nevertheless, the fall in anticipated demand is substantial.

Chayse Gorton, IDC NZ market analyst says there are three reasons for the fall: market saturation, changing sales strategies and new features not persuading people to upgrade old phones.

All three are valid, but they are not equal.

Shipments down on saturation

On saturation, IDC says 79 percent of consumers owned a smartphone in 2017. This leaves only a few users hanging on to dumb phones – or feature phones in the industry’s jargon.

Even that number seems too high, you rarely see anything other than smart phones in the wild. I suspect there’s a counting problem with older phones being recycled through families and friends that doesn’t capture everything. It’s possible the carriers would know the approximate number of older, dumb phones on their networks because some are not able to connect to 4G.

Meanwhile phone companies spent 2017 focusing on profitability. In earlier years they were happy to shoot for high volumes and hope everything would be all right later. This change mean the average price of phones from the market leaders: Samsung and Apple, increased 14 percent in the year.

This is reflected in IDC’s graph which shows the value of the market flat or even climbing while numbers fall. Rising phone prices isn’t necessarily a form of inflation as more expensive phones offer more capability.

Little reason to upgrade

IDC doesn’t emphasis the point, but it seems the biggest reason for the drop in shipments is that users have little incentive to upgrade. If you look after a phone, it should work fine for three or four years.

There were no compelling new phone features in 2017. IDC says people only upgrade when they see a significant benefit from doing so. This point was underlined at Samsung’s Galaxy S9 launch earlier this week. The new phone resembles the S8, it has upgraded features including a slow-motion video mode, but that’s not enough to tempt the average user to bin or hand down, say, their S8 and spend $1400 plus.

Meanwhile rival research company Gartner reports international smartphone sales recorded their first ever decline in 2017.

Shipments tumble as NZ phone upgrades slow was first posted at billbennett.co.nz.

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Mobile phone handset

Apple sold more phones than any other company including Samsung in the last quarter of 2016.

IDC says it is the first time Apple was New Zealand’s top selling phone brand since early 2012.

During the quarter phone sales hit a record high. Some 672,000 phones shipped1 between October and December 2016. That’s up from 614,000 a year earlier.

Apple shipped 221,000 phones. Samsung shipped 176,000. Third-place Huawei closed the gap on its rivals shipping 143,000 phones.

The three brands accounted for almost 80 percent of total phone sales.

Apple beat Samsung in Q4

Samsung’s Galaxy Note 7 recall after dozens of fires and explosions only goes part of the way to explaining Apple’s success.

IDC New Zealand client device analyst Chayse Gorton says:

“…even with some consumers expected to be holding off upgrading their smartphone until the release of the 10th anniversary edition iPhone, forecasted in late 2017, the demand for iPhone 7 has been stronger than anticipated”.

Gorton says the iPhone 7’s updated specifications were enough to entice Apple users.

He says: “It’s hard to say with confidence that a single feature drove customers to upgrade, such as increased durability. It is likely a combination of improvements leading to consumers perceiving the iPhone 7 models as superior”.

Samsung loyalty

That explains why Apple users upgraded, not why customers of other phone brands switched to Apple. Gorton says the Note 7 problems meant some consumers questioned their loyalty.

It looks as if Apple’s surge is greater than upgrades and Samsung refugees alone might suggest.

Also interesting is Huawei’s rapid growth. Until late 2016 Huawei phones offered similar features and style to Samsung models at a sharp discount.

Samsung faced a battle on three fronts:

  • self-inflicted wounds,
  • Apple at the high end and
  • Huawei cutting the price ground from under Samsung’s feet.

Despite all this Samsung stayed in the top spot for the year. IDC New Zealand puts its market share at 32 percent, while Apple and Huawei were at 27 percent and 14 percent.

This year will see added competition from Oppo. At the same time, Huawei is moving upmarket into Samsung territory with the NZ$1400 Mate 9 Pro.


Vodafone phones

IDC’s chart shows Vodafone has an 11 percent market share with its own branded phones. Some of these are excellent value, in extreme cases they have much of the function of phones costing eight or ten times as much.


  1. IDC counts phone shipments, a measure of how many phones leave warehouses. That’s not quite the same as sales. ↩︎

Abstract, Jackson Pollock

Global PC sales were down 9.6 percent year-on-year during the first quarter of 2016 according to Gartner. Total sales for the quarter were a shade under 65 million. This was the first quarter with less than 65 million units sold since 2007. In contrast, sales in the same quarter of 2013 were a little over 76 million.

Gartner’s numbers are optimistic compared to IDC which put the figure at 60.6 million units sold, down 11.5 percent on the same period a year earlier.

Both analyst companies say Lenovo remains the world largest PC maker. IDC gives it a 20.1 percent market share, Gartner puts the figure at 19.3 percent. Lenovo’s sales fell slower than the overall market.

HP down 9 percent

Number two brand HP saw sales fall 9 percent, while third-place Dell was stable. Gartner says its sales dropped 0.4 percent while IDC put the drop at 2 percent.

Asus and Apple are number four and five. Gartner has Asus a whisker ahead of Apple, IDC reverses the positions. Gartner thinks both companies managed to grow during the quarter, IDC disagrees.

The rest of the market slumped, depending on which set of numbers you prefer sales either fell 18.4 or 19.8 percent. Either way, it’s a bloodbath.

Currency a red herring

Gartner thinks currency movements can explain the decline with PCs now more expensive outside of the USA. Maybe.

However, the figures point to the fifth year in a row of falling PC sales. Sales have dropped year-on-year in each of the last 12 quarters.

The recent quarter’s decline is the worst on record. Look beyond the top brands and you have to ask how long before computer makers exit the business. There is no apparent upside, no recovery in sight.

Earlier analyst forecasts looked forward to the arrival of Windows 10 fueling fresh sales. That was over a year ago and there was no bump, no up-tick.

Keep taking the tablets

You might explain some of the drop in PC sales by the rise in tablet sales. Incidentally, I wrote this blog post on an iPad Pro — a few years ago it would be a PC task.

About 100 million tablets are purchased each year. Some will have been purchased as laptop alternatives. Yet tablet sales are also falling. And, anyway, some hybrid devices that combine PC and tablet features are counted in the PC sales numbers.

The obvious explanation is that phone sales are killing PC sales. Not only do they suck up money that might otherwise be spent on PCs, in many cases they deliver enough PC functionality for a sizable slice of the population. It turns out many people only bought PCs for mail, browsing, video calling and other simple tasks that work just fine on a phone.

Apple CEO Tim Cook has made a point of questioning why people still bother buying PCs. That’s an interesting statement given that Apple is one of the few companies to do well in PC sales in recent years. Perhaps, unlike Gartner and IDC he thinks MacBooks and iMacs don’t count as PCs. He suggests most would be better off buying an iPad.

After three years of falling PC sales computer makers hope Microsoft and Intel’s Skylake processor can revive a flagging industry. 

PC sales hit saturation point two or three years ago. Analysts knew demand would fall, but the drop was worse than expected.

Some thought replacement sales would keep the market ticking over.

It didn’t happen. Business users and consumers moved slower than usual to replace their old laptops and desktops.

PC market not pretty

The numbers are ugly. Gartner said global PC sales dropped 9.6 percent in the second quarter of 2015. IDC Research had the number close to 12 percent. Year-on-year sales are down at least six percent. It’s been that way since 2013.

Conventional industry wisdom says this is because computer makers got better at their job. After years of churning out unreliable hardware they fixed manufacturing processes and supply chains to the point where today’s computers are less likely to fall apart.

This means the last batch of ageing computers lives longer than previous batches.

Not the whole story

There’s something in that idea, but it isn’t the whole story. Most personal computers, even in the bad old days, lived longer than the normal replacement cycle.

The difference then was that new technologies would come along making a before-end-of-life upgrade desirable, if not compelling.

New applications, better ways of storing data, nicer screens, exciting games, higher productivity, greater mobility and so on were all reasons to splash out on new kit before the old hardware had popped its clogs.

Stability

The constant need to upgrade has changed since the internet moved centre stage and since mobile phones became an essential part of life. New PCs don’t surf the web faster, load Facebook pages quicker or post more photos to Instagram than old ones.

At the same time consumers have not been impressed by recent advances. They responded sullenly to Microsoft’s mistaken push towards touch screens and expressed outright contempt for Windows 8. Few felt the need to upgrade.

Nothing underlines this more than the surge in Apple Mac sales over the same period. Some Widows PC customers were so unimpressed they jumped ship.

Business buyers less impressed

If anything, the response from business to Windows 8 was more negative. Many companies resented being forced off what they saw as the perfectly decent Windows XP.

The lack of enthusiasm for Windows 8 may have only affected things at the margins, but it came on top of already falling PC sales and turned a retreat into a rout.

Now PC makers, Microsoft and Intel plan to get the message out that it is time to upgrade. Expect expensive sales campaigns as they push these messages.

New sales pitch

The sales pitch is “Look at our sleek, slim yet astonishingly powerful Ultrabooks. See what you’re missing by keeping those overweight old clunkers. Try our new all-in-ones or our tablet-to-PC convertibles.”

This strategy will work with business customers, if only because the magic words “productivity gains” carry a lot of weight in management circles.

Consumers are going to take more convincing. Dollars spent on new PCs are dollars that can’t be spent replacing ageing smartphones – which have a far shorter shelf life than laptops.

You’ll notice, added mobility aside, those sales pitches don’t include any compelling consumer reasons to replace old kit.

There’s nothing important new computers can do that old ones can’t. That’s the gaping hole at the moment. For now, consumers will wait until their hardware falls apart before upgrading.

Almost no-one makes money selling Android phones. It makes you wonder why hardware companies persist when there’s little prospect of a return.

Numbers tell the story. IDC Research says three out of every four smartphones shipped in 2014 used Google’s Android software. 1

That sounds like success. It isn’t.

Android phone makers taken as a whole lose money. Even the handful making a profit get paltry returns. Most would be better off if they left their money in the bank.

Follow the money

Despite being three-quarters of total phone sales, Android accounts for only 11 percent of phone profits.

Apple is the winner. It has a mere 20 percent share of phone sales, yet this translates into 80 percent of phone profits.

A single Apple iPhone earns more profit than 30 to 40 Android phones.

Two winners: Apple and Samsung

Only two companies make money from phones; Apple and Samsung. Of those Apple makes five times as much as Samsung from each phone sale.

Beyond these two companies the premium phone market is a train wreck. If we are generous, LG breaks even. Sony, HTC and Lenovo, which now includes Motorola lose money on every phone sold.

To be fair to the Android phone makers, things are worse for Blackberry and Microsoft. They lose about NZ$100 each time they sell a phone.

It seemed like a good idea at the time

On paper Android’s economic case seems sensible. Apple, Blackberry and Microsoft have to invest heavily in software.

Apple spends US$2 billion a year on research and development.

There’s understandable confusion about the cost of using Android. Phone makers may not pay a license fee to Google, but Android isn’t free.

Microsoft’s billion dollar Android shake-down

Mary Jo Foley at ZDNet reports Samsung paid Microsoft $1 billion for patent licences that Android allegedly infringes in 2013. That’s half Apple’s entire R&D budget.

Phone makers also insist on adding their own software to the stock Android operating system. They kid themselves they are adding value, mostly it has the opposite effect. This is a waste of money.

There are two versions of Android. An open source version and a proprietary version. Some phone makers choose the open source version and build their own frameworks on top. Most premium Android smartphone makers use the proprietary version.

Proprietary Android

Proprietary Android includes Google’s apps like Chrome as part of the deal. Unlike the bare-bones open source version it includes all the services modern phone makers need: location services; Google Maps; The Play Store; mechanisms for in-app purchases and so on.

Although Google doesn’t charge phone makers for proprietary Android, the deal is that they leave Google’s services intact. This is so Google can track user activity and use that information to target advertising.

That’s where the real money is in Android phones: the phone makers deliver up users for Google to milk. Most phone makers and their customers seem happy with this.

Open source Android hardware

Phone makers could choose the open source version of Android, but they’d have to build all those services and the supporting infrastructure or find partners who can deliver them. There aren’t many alternative service providers out there.

Which brings us back to the question at the top of the story. Why are phone makers, or their shareholders, pouring money into delivering their customers to Google’s advertising machine?

If you ask them, you get mixed answers. Some phone makers, Huawei is one, think they’ll be left standing after the inevitable market shake out and there will be money-making opportunities later.

That’s plausible, but it requires the kind of deep pockets other phone makers don’t have.

What you lose on the swings…

Others expect to lose money selling phones, but hope to get it back from tablets or wrist devices. Good luck with that one. The tablet market is in worse shape that the phone business.

Nor are wrist devices, smart watches and other wearables going to repair balance sheets. And anyway, Android doesn’t seem well-suited to the wearable format.

It speaks volumes that Samsung’s latest smart watches use the company’s own Tizen software in place of Android.

Companies aiming at the high-end of the Android market are between a rock and a hard place. Apple is the rock. None of them can capture the public’s imagination the way Apple does, nor do they come remotely close to Apple’s margins.

China beckons

In the hard place are cheaper phones from Chinese makers like Xiaomi and Huawei. When it comes to quality and features Huawei’s phones are within spitting distance of the would-be posh brands, but at two-thirds the price. Xiaomi models are even cheaper.

There’s also a weariness from consumers. You get some benefit upgrading from say, a Samsung Galaxy S4 to an S6, but there’s little incentive to open the cheque account each time a new model arrives.

Upgrading is confusing. If you were a happy Galaxy S4 owner looking to replace your phone this week what would you choose: the S6, S6 Edge, S6 Edge Plus or the Note 5?2

Another problem facing Android phone makers is that the market appears to have peaked. While the market was growing there was always potential for rewards. Smartphone sales ticked up 10 percent in 2015 compared with 2014, Apple captured all the growth and then some. Android sales fell a little.

Market share matters little when the market isn’t profitable. What matters is who is making money? The simple answer is Apple, Samsung and, at second-hand, Google. For everyone else it’s either a long-term bet or a profitless abyss.


  1. Shipments are similar, but not the same as sales. A phone is shipped when it leaves the factory for the distributor or retailer. Think of it as the number of phones the phone maker hopes to sell.
  2. It must cost Samsung a pretty penny to market four premium phone lines.