By Timothy W. Martin and Drew FitzGerald
The smartphone industry has a culprit to blame for slumping
sales: Its old devices remain too popular.
Flashy phones of yesteryear, particularly Apple Inc.'s iPhones
and Samsung Electronics Co.'s Galaxy S handsets, are getting
refurbished, and U.S. consumers are snapping them up. Many shoppers
are balking at price tags for new phones pushing $1,000, and
improvements on latest launches in many cases haven't
impressed.
As more people hold on to devices longer, new smartphone
shipments plunged to historic lows at the end of 2017.
"Smartphones now resemble the car industry very closely," said
Sean Cleland, director of mobile at B-Stock Solutions Inc., the
world's largest platform for trade-in and overstock phones, based
in Redwood City, Calif. "I still want to drive a Mercedes, but I'll
wait a couple of years to buy the older model. Same mentality."
Refurbished phones represent the fastest-growing segment of the
global smartphone industry, accounting for nearly one out of every
10 devices sold, according to Counterpoint Technology Market
Research, which tracks device sales. Overall smartphone shipments
hit 1.6 billion last year, Counterpoint says.
These older phones, which can sell for several hundred dollars,
sap some of the demand for brand-new devices, which deliver the
biggest profits. A premium handset today is likely to have three,
if not four, different owners before it eventually gets tossed,
according to industry executives and re-sellers.
Second-hand phones long found their way to Africa, India and
other developing markets. But now, U.S. buyers represent 93% of the
purchases made at second-hand phone online auctions run by B-Stock,
compared with an about-even split between the U.S. and the rest of
the world in 2013.
Samsung and Apple together sell more than one out of every three
phones globally and capture about 95% of the industry's
profits.
U.S. consumers, spurred by two-year carrier contracts and phone
subsidies, were upgrading every 23 months as recently as 2014,
according to BayStreet Research LLC, which tracks device sales.
Now, people are holding onto their phones for an extra eight
months. By next year, the time gap is estimated to widen to 33
months, BayStreet says.
Device makers don't lose out completely when older phones pass
through several hands: For Apple, more iPhone users from the
price-conscious crowd translates into more revenue for its
fast-growing services arm, including the App Store and its music
and payment services.
Apple has faced U.S. and European government investigations in
recent months over the slowed performance of older iPhones. The
company has repeatedly said it would never intentionally shorten
battery life or degrade their devices' user experience. It has
since slashed replacement-battery prices.
Apple Chief Executive Tim Cook, during an earnings call on Feb.
1, said the secondary market has expanded in recent years and that
the iPhone's reliability has generally been "fantastic."
In a recent interview, D.J. Koh, Samsung's mobile chief, said
the growing popularity of second-hand phones has Samsung rethinking
whether to adjust its broad portfolio strategy. Though nothing has
been decided, Samsung in certain markets is weighing whether to
push refurbished flagship devices more aggressively over new
releases of lower-cost phones, Mr. Koh said.
A quarter of U.S. consumers sold their smartphones after
upgrading to a new device in 2017, the highest rate in the world,
according to Deloitte.
That has created ample supply for consumers like Alan Earl, a
40-year-old digital marketer from Phoenix. He recently bought
himself a refurbished iPhone 6S for $350, even though he gets new
iPhones for his two children and wife when they are due for
upgrades. He didn't care for the iPhone X's edge-to-edge display
and wasn't interested in its facial recognition features.
Mr. Earl said he just needs his phone to text, call, check
social media and listen to music. "I don't feel like I'm missing
out," he said. "I don't need any more phone than what I got."
Steep prices for new phones are a significant reason for the
refurbished industry's growth, said Remon Gazal, chief commercial
officer at wireless distributor Brightstar Corp., which specializes
in trade-in distribution. "Now, my phone costs more than my
laptop," Mr. Gazal said.
Smartphones had roaring double-digit growth until the past two
years. In 2017, new smartphone shipments rose just 2.7%, according
to Gartner Inc., a market researcher. In the final three months,
shipments declined for the first time in the industry's
history.
Phone makers had banked they could compensate for slowing volume
by pushing up prices. But customers balked.
"It's the worst case scenario now," said CK Lu, a Gartner
research director. "Now the phones are maybe too expensive."
--Tripp Mickle contributed to this article.
Write to Timothy W. Martin at timothy.martin@wsj.com and Drew
FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
February 28, 2018 08:14 ET (13:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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