Apple, Sony, LG, Samsung, Nikon, Canon, Nokia, Microsoft, Dell, HP and many more have referred to downward price pressures in their quarterly earnings statements. Interestingly, Apple last managed to arbitrarily increase the iPhone’s ASP in 2007 – ‘because it could’.
If you couple reduced ASP with (a) anaemic sales growth, (b) flat or decreasing revenue forecasts for the next 12 to 24 months, – not one is predicting significant growth – and (c) ever decreasing component costs, then you have a new paradigm by which technology companies must operate.
That paradigm is all about cost sensitivity and the resultant consumers’ willingness to go without some features in order to meet what they can afford.
Nearly half of Apple’s iPhone sales in Q2 were for old metal 4 and 4S models. Samsung has introduced an entry level S4 4.3” Mini at under $600. Huawei’s Ascend P2 will be around $500 and Nokia’s new 4G, 4.7” Lumia 625 is under $400.
In the Smart TV area, LG and Samsung both reported negative growth of premium sets, but the entry and mid-level models are still selling well.
CE retailer sources concur that sales in the top end are dead: “More are buying entry-level and mid-level packages now instead of the best of everything. The gap between the entry-level 55” smartTV, tier 3 and the top level tier 1 is now too great (more than double),” said a JB representative.
The new paradigm
Samsung is working hard to be totally in charge of its own supply chain – design a product, make the components, assemble the finished product (using just in time techniques), market and distribute directly to the reseller or consumer. In doing so, it reduces its time to market, cuts out the middleman, and makes more profit.
Apple’s model by comparison only lacks the component and assembly capability relying on Foxconn to provide this competitively for its iPhone. It is behind the eight ball as it must commit minimum numbers to Foxconn well in advance, and it is buying, stocking, and distributing finished units. Logically Apple will always have a more expensive product, albeit technically similar to Samsung’s offerings.
The new paradigm is to provide an end-to-end solution, keeping as much of the pie in the designer’s hands.
Samsung is working hard to both sell its own branded products and to be a supplier of choice to Apple and many other brands. It is a tightrope – why feed your enemy says Apple – but in the end reliability of supply and the right price is required to feed Apple. Samsung’s semi-conductor business surged 71% based on supplying more than half the memory used in smartphones. It now supplies 27.9% of the bare panel market for smart TV’s. As a parts supplier it is guaranteed a stable price. The companies it sells to must bear the cost of marketing, distribution, warranty and the fickle nature of whether the consumer buys the end product.
Opinion: What does this mean to consumers?
Apple is still an aspirational, cool purchase but less so now as its products are well behind competitors like LG’s new G2 and Nokia’s 925 and 1020 smart camera/phone. Apple needs a sub$400 iPhone that does everything the flagship does, albeit not as fast or as well. Apple, by virtue of being first to popularise the smartphone, will survive if it shows leadership again. An Apple smartphone must be smarter than the rest.
Samsung has discovered that its software makes an unremarkable Android handset better and will continue to invest in its version of Samdroid. Ditto for LG, Huawei, Sony, et al that will continue to occupy niche markets. In other words, all will have a very similar range of phones that do much the same and suit different budgets. All will need to have extremely fast response to market forces.
Microsoft Windows Phone will become the BYOD device of choice because it will be able to offer the consistent interface across all platforms. It will be the business phone.
BlackBerry will become the corporate, secure messaging app for all platforms and, if it does not, Microsoft will take this up with Exchange, Skype, Lync and Outlook.
I am not an expert in this field but until the world economy improves, smartTV will be more about getting the biggest screen for the lowest price. High end Home Theatre receivers and speaker systems will be replaced by a sound bar with Bluetooth capabilities.
Apple popularised tablets and now it is under attack from Android and Windows Pro (not RT). My prediction is that unless Apple can somehow make the iPad an integral part of the Applesphere that it will steadily lose market share.
The tablet market will be split into two areas – consumer and BYOD. Microsoft will own all of the BYOD market and sadly for Apple, Samsung and the no-name Android tablets will take the consumer market almost completely by offering products from as low as $50.
Innovation suffers when things become commoditised. A commodity simply means that it’s hard to tell the difference between brand X and Y – they both do the same so price rules.
Android is commoditised. Apple has become niche. Microsoft Windows environment is showing far more innovation as its OEM’s design interesting form factors. We will start to see computing regaining the market share it lost to content consumption devices – an iOS or Android tablet cannot do what a Windows tablet can.
Innovation also requires consumers to be willing to pay more to help recoup the cost of developing new products. I suspect that the world economy will be in a hole for several years so innovation may slow down, as has happened every time there has been a financial crisis (late 80’s, early 90’s).
The only thing that will prise consumers' wallets open is that 'Oh my god’ moment where a new product is so cool and so dynamic that it becomes a must have item. I do not see Google Glass and iWatches as that compelling at this time. I do see, for example, month long battery life, rollable, foldable screens, new form factors (wearable computing) and, perhaps, guaranteed virus and hacker free systems as the next big things.