Smartphones set for growth in Asia, price still important in U.S.

The continued evolution of mobile networks in Asia is expected to help propel the adoption of smartphones in the region, according to IMS Research. The research firm said it expects annual smartphone shipments to Asia to more than quadruple by 2015 giving the region 39% of worldwide smartphone shipments.
“There are two key drivers for the booming Asian smartphone market,” noted Chris Schreck, research analyst at IMS. “First, the cellular markets in China and India continue to develop, especially with 3G networks expanding in China and expected to rollout soon in India. The populations of these countries are significant enough to drive substantial smartphone growth, even if smartphones make up a relatively small portion of the country’s total handset shipments. Secondly, smartphones are becoming increasingly affordable. As the minimum hardware components required to support smartphone features continues to decline in price, smartphones have become mass market devices, rather than luxury purchases.”
While IMS predicts Asia is set to experience an explosion in smartphone growth currently being viewed in the U.S. and Europe, the firm warned that the markets are decidedly different and require handset manufacturers to tailor their devices if they want to take advantage of the growth potential.
“Companies like Motorola, who had to change the default search provider from Google to Microsoft on its Android smartphones in China, or Apple, whose iPhone sales in Japan lagged without the inclusion of NFC, have shown the need to adapt products to compete in these markets,” Schreck said. “Additionally, there is increasing competition from Asian handset vendors like Huawei, ZTE, HTC, and Acer in the Asian smartphone space. Finally, the grey market for mobile handsets is much more established in Asia than in western markets, giving consumers viable alternatives to more conventional handset purchasing methods. These challenges are opening up a booming smartphone market to players who have had trouble competing with entrenched competitors in developed western markets.”
IMS added that it expects a majority of smartphone shipments to Asia to be of the “entry-level” variety with average selling prices below $120 before subsidies or taxes.
Price, recommendations matter
Lower prices has also driven the adoption of smartphones in the U.S. according to a report from the NPD Group, which noted that increased promotions and lower prices on smartphones has helped the segment gain market share against feature phones.
According to The NPD Group, the market share for smartphones increased from 23% in the fourth quarter of 2008 to 31% in Q4 2009. The firm noted that nearly two-thirds of smartphones were purchased for $150 or less during the fourth quarter of 2009, versus less than half purchased at that price level during the final three months of 2008. This was propelled by a number of carriers increasing subsidies on smartphones to place them at the $150 or lower price level to better compete against Apple Inc.’s iPhone 3G that sold for $200 after subsidies as well as the more recently launched Motorola Inc. Droid that sold at Verizon Wireless for $200 after rebates.
Despite the increased sales, The NPD Group noted that year-over-year revenues growth for the segment dropped from 37% in 2008 to 21% last year.
“Although we are seeing more expensive models among the best-selling handsets, carriers are now offering some popular smartphones for less than $100,” said Ross Rubin, executive director of industry analysis for NPD. “As the average price of these highly capable devices continues to fall, the price of data plans and ease of use will emerge as more significant factors to limiting consumer sales growth.”
The NPD Group also reported that based on its recent “Smartphone Market Update” survey, consumers relied primarily on recommendations from friends and family members when purchasing a smartphone. The survey found that 29% of consumers asked said they relied on friends and family before making a smartphone purchased, followed by 18% who said they chose a device that was owned by people they knew.
By contrast, consumes that purchased so-called “feature phones,” or those devices without an operating system, were more focused on ease of use when selecting a device compared with smartphone buyers being more interested in their device’s capabilities.
The survey also found that smartphone buyers were more likely than average device purchasers to focus on a specific device before deciding on a carrier.
“Bolstered by the brands of their hardware and operating systems, smartphones have established strong identities in the marketplace,” Rubin said. “That means more consumers now have specific models in mind when choosing their handsets.”