The tech market 'law of gravity' reversed during the holidays and it could be the beginning of the end for the smartphone industry's insane run

Steve Kovach

Feb 3, 2018, 07:00 IST

The tech market 'law of gravity' reversed during the holidays and it could be the beginning of the end for the smartphone industry's insane run

Ben Margot/AP

Have we hit peak smartphone?

Smartphone sales declined slightly in 2017, reversing a trend of rapid growth over the past decade.
Meanwhile, PC sales grew in the fourth quarter of 2017. It's a sign the PC's decline has finally bottomed out.
2018 could be a challenging year for smartphone manufacturers as they run out of room to grow.

If you've been paying attention to the PC industry over the last decade or so, you're used to the same story: Traditional PC sales continue to decline as smartphone sales grow.

As personal computing finishes its transition to mobile devices, consumers are hanging onto their PCs longer and opting to upgrade their smartphones every couple of years instead. Smartphone sales growth has been off the charts since the modern smartphone era kicked off in 2007.

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But 2017 was different. Strangely, those two trends reversed themselves.

According to research firm IDC, PC sales were actually up slightly (0.7%) in the fourth quarter of 2017. Smartphone sales were down for the quarter by 6.3%. And for the first time in recent memory, smartphone sales were down slightly (0.7%) for all the full year, according to IDC.

So what caused this phenomenon?

Apple may have played a part in the smartphone decline. The company reported its fourth-quarter earnings Thursday and said it sold 77 million iPhones during the holiday period, a 1.3% decline from the year before. Wall Street was expecting Apple to sell around 80 million iPhones, but it seems like the high-priced iPhone X spooked some would-be upgraders.

Samsung also had an off quarter: Shipments of its smartphones declined 4.4% year-over-years and Samsung lost its traditional spot as the world's No.1 smartphone vendor to Apple, according to IDC.

"Even though we have seen new full-screen displays, advanced biometrics, and improved artificial intelligence, the new and higher price points could be outweighing the benefits of having the latest and greatest device in hand," analyst Anthony Scarsella said in IDC's smartphone report Thursday.

Both Apple and Samsung released expensive new smartphones last fall with high-end specs and large, edge-to-edge screens. Samsung's Galaxy Note 8 sold for about $930. The iPhone X started at $999. Apple also raised the prices of the iPhone 8 and 8 Plus by $50. Despite the positive reviews, it seems like the high price tags kept enough people from upgrading.

As for the surprise rebound in PC shipments, IDC pointed to a variety of factors including businesses upgrading PCs for their staff as well as strong demand in parts of Asia and South America.

The research firm also mentioned "pockets" of the consumer market buying PCs for "emerging use cases that require more compute power." While that sounds a little like bitcoin mining, those rigs are typically built on special racks loaded with GPUs rather than arrays of full-fledged PCs.

According to data from Statista, annual PC shipments have declined every years since 2011. So it's also possible that the PC industry has finally bottomed out after years of decline, and that 1% or 2% fluctuations of sales in either direction are now the norm.

Was it just a fluke?

It's hard to determine this early if 2017 was just a fluke, or if it was a sign of darker times for the smartphone market. The stakes are pretty high though. Apple still generates about two-thirds of its revenue from the iPhone, Google plans to continue ramping up its own hardware business, and Samsung will have to prove it can catch up to the iPhone X with its upcoming Galaxy S9.

Meanwhile, Chinese smartphone manufacturers like ZTE and Huawei are struggling to grow outside of Asia as US carriers refuse to sell those devices.

After ten years of booming smartphone sales that have put the gadgets in the hands of so many consumers throughout the world, it's very possible we're seeing the beginning of the end of the smartphone industry's insane growth.