Canalys Forums 2023: Making waves in the technology channel
15 March 2023
A look at how a lack of market drivers is affecting the smartphone industry.
In 2022, the biggest challenge the smartphone industry faced was muted consumer demand, as global smartphone shipments fell below 1.2 billion. There were various reasons for this, such as macroeconomic challenges limiting consumer spending, and people holding onto devices they bought during the pandemic, as the latest handsets represented only minor upgrades. This resulted in a lengthening of the smartphone replacement cycle. It also shows the smartphone market’s lack of innovation and fundamental fragility. Apart from the usual replacement cycle, new potential drivers for the smartphone industry are 5G capability, AI integration and security. But brands are trying to differentiate their products in various other ways.
Smartphone innovation has changed. Major revolutionary launches have given way to subtle evolution. For vendors, this has meant it has become much harder to create excitement around devices as well as differentiate their products. Several Android vendors have pushed hardware features to keep up with Apple’s high-end game. Over the last few years, foldables have become a new way for Android brands to challenge Apple and showcase innovation. The foldable form factor has been on the market for a few years now and has rapidly become normalized through many launches and a particularly big push from Samsung. But there has been limited uptake, with just over 1% of all smartphones – around 14 million foldable devices – shipping in 2022. As a result, smartphone brands will need to look to other areas to find ways to differentiate themselves in a fiercely competitive market.
At MWC in February, there were several big announcements from OEMs and their suppliers. In particular, smartphone vendors are banking on chip manufacturers to create appealing applications via next-generation AI chipsets. But these chipsets need to add more value to users apart from just cameras and improved performance. Qualcomm showcased a billion-parameter model using its Snapdragon 8 Gen 2 chipset to create text-to-image models running on “edge AI”. From an application perspective, these models would add to the ability of devices to increase end users’ productivity. With the introduction of these functionalities, brands will be able to innovate with a better customer experience. Nevertheless, these features are embedded only in the flagship chips used in high-end devices. Offering them in mid-range and entry-level devices will still be a slow process, as we see some older-generation AI camera features only just coming into mid-range Android devices.
Brands have been relying a lot on AI and 5G integration. They aim to provide a better user experience with 5G services, even though some AI applications can still be used on 4G smartphones. According to Canalys research, 5G-capable devices accounted for 59% of total shipments in Q4 2022. But the 5G market push still appears to be coming from chip manufacturers and telcos. The cost of 5G services is still high, and the new technology hasn’t yet sparked any new applications and mass-market use cases. And smartphone vendors are yet to highlight new use cases for these 5G-capable devices to generate that fear of missing out that would galvanize sales.
As the 2023 market looks similar to 2022 in terms of shipments, the dearth of novel use cases seems like a long-term issue that brands need to address. New smartphone use cases are limited and the emerging tech adoption rate is slow. Overall, it is another alarming situation that the industry must tackle, along with the macro- and microeconomic issues.
We recommend concentrating on three key criteria while working to innovate with new devices:
The slow rate of innovation adoption is making it difficult for brands to create natural demand and make the consumer feel the urge to upgrade to a new device. But there are still opportunities to innovate with some differentiating features and create a niche.