Can Smartphone Growth Keep Up The Pace?
Predictions on smartphone sales have been bullish for some time as people all around the world increasingly upgrade from feature phones to iPhones, Android devices or other high-end models. IDC reported today that global smartphone shipments grew 65% in the second quarter to 106.5 million, and it predicts growth of 55% for 2011. Gartner similarly projects 57.7% growth for smartphones this year.
The market is likely to get a further boost with the expected launch of the iPhone 5 next month or later this fall, depending on which rumors about the timing turn out to be true. And IDC says the rollout of other new models and phone features in the second half of 2011 should keep smartphone sales humming along. Still, given the weakening economy and the trouble hitting the prepaid phone market, you have to wonder if the smartphone boom won't feel the chill at some point.
No-contract phone provider MetroPCS saw its stock get slammed earlier this week after it reported adding fewer than 200,000 new customers in the quarter, well below Wall Street's consensus forecast of 230,000 to 240,000. The company cited the sluggish economy as part of the reason for the drop-off in subscriber growth.
Likewise, rival prepaid service provider Leap Wireless has seen its stock price plummet more than 30% today after it reported Wednesday a net gain of only 29,000 voice customers in the second quarter, compared to 300,000 in the first quarter. It also lost some 132,000 broadband customers in the quarter.
Both companies are adding smartphones to their device lineups to boost revenues, but it may be a tougher environment for upselling to the less affluent consumers that prepaid wireless providers tend to attract. "We do see it being tough out there currently. We see anecdotal evidence in our stores with our subscribers through conversations, through focus groups," said MetroPCS COO Thomas Keys during the company's earnings conference call Tuesday.
More broadly, consider the stock market overall today is in free-fall, plunging 4% on fears of a growing debt crisis in Europe and a double-dip recession in the U.S. If economic uncertainty deepens in the second half of the year, will more affluent smartphone owners start to reconsider upgrading to a new device? In any case, it's worth reconsidering whether projections for smartphone proliferation will hold up in the face of a gloomier economic outlook.
Nielsen, for instance, has predicted smartphone penetration will break 50% in the U.S. this year. The firm estimates that level is now about 37%. But if smartphone adoption by regular cell phone users slows during the year, it may not make the halfway mark Nielsen forecasts.