Peak Smartphone?

It started with ‘peak oil’ – the notion that oil production will reach its maximum level and decline sharply thereafter. Although this concept was introduced in the 1950s, the phrase really took off from 2002. It’s since become a linguistic meme. Scan the headlines and you’ll encounter peak earnings, peak TV, peak Facebook, peak child, peak stuff and even peak Trump.

But what about peak smartphone? This is the idea that everyone who’s going to own a smartphone already does – and so the surge in smartphone sales over the last decade is going to slow further.

Much of the evidence for ‘peak smartphone’ is anecdotal. Is there anyone who doesn’t own one? Is anyone, apart from a small coterie of tech geeks, anxious to buy the latest model before their current phone wears out? And does anybody really want to spend £1,000 on an iPhone X?

Well, some certainly do. Last week, Apple’s results exceeded expectations, with revenue and profit figures that were better than feared, and still-strong iPhone sales. Nevertheless, there were signs that the company is swimming against the tide.

Take the iPhone X. Yes, it’s currently Apple’s most expensive phone and its best seller, but rising inventories suggest that the company is not selling as many as it expected. For three years now, iPhone sales have been relatively flat. Phones account for over 60% of Apple’s sales and other services and accessories, which are in part dependant on iPhone sales, account for a further 19%. Given that importance, there is considerable pressure to develop new products to delight the consumer. After all, sales of smartphones cannot be assumed to recur with each new device. And with wearable technology yet to seize the public imagination, it’s not clear when such products will materialise.

There’s also plenty of evidence that the broader smartphone market is slowing. One of Apple’s main suppliers, TSMC, announced that February sales were down 9.5% from the previous year. Meanwhile, IDC, which provides market intelligence for the technology sector, noted slowing smartphone demand in China, which has caused a 3.9% year-on-year decline in global smartphone shipments in the first quarter of this year. In the UK, smartphone sales have fallen 11% over the past year, according to GfK, the German market research institute.

The growth of smartphones has helped the economy to boom. Their production has grown into a massive industry with a significant manufacturing base. If peak smartphone really is upon us, there may be wide-reaching implications.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this promotion should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.