Smartphone users sweating assets as market declines

The major players from the smartphone and gaming industry will use next week’s Mobile World Congress (MWC) in Barcelona to try to kick-start sales that slumped last year. However, while the industry overall had to contend with declines in 2022, some categories continued to perform well, says GfK. And, for 2023, it forecasts a stabilisation of the market.

“While we had already predicted saturation effects in 2022 after the strong sales in pandemic years, the additional weakness of the Chinese market significantly impacted the results,” says Jan Lorbach, GfK expert for the telecom industry. “All in all, the global telecom market closed 2022 with a 9.7% decline in revenue compared to the previous year.”

The smartphone segment also saw a 9.1% demand decline from January to December 2022 compared to the previous year, with a total of 908-million units sold. Revenues were hit even harder, with a10.2% drop to US$330-billion.

As budgets became tighter for many, practically the only market drivers in 2022 were consumers with higher and middle incomes. These consumer groups increased their share of all smartphone buyers by a further 4% compared to 2021, and now account for 48% of this group. 

Accordingly, demand for premium devices also increased. For example, revenue of 5G models grew by 1.2% from January to December 2022 compared to the previous year. The same applies to devices with a larger storage. Smartphones with a capacity of more than 256GB recorded an increase of 19% and accounted for 41% of total market revenue in 2022.

While consumers that are still buying smartphones are opting for premium devices, the total number of purchases has decreased in 2022. One reason for this may be that people are keeping their smartphones for a longer time. 

Data from gfknewron Consumer shows that, from January to September 2019, only 48% of consumers used their smartphones for two years and longer. That share has now increased to 57% in the same period of 2022 (an increase of 9%). This development can especially be observed within the15- to 25-year-old age group, where the share now stands at 14% above the average. The younger generation has a clear focus on sustainability and therefore consciously extends the life cycle of their devices.

One of the few segments that remained stable was wearables. With US$13.9-billion in revenue, the wearables market achieved almost the same level in 2022 as in the previous year (minus 1.1%). Although popular segments have lost ground, this has been offset by growth in other product lines.

Revenue development by wearables categories in 2022 compared to the previous year:

• Health and Fitness tracker: -31%

• Smartwatches: +21%

• Wrist Sport Computers: -43%    

These shifts have been driven by increasing consumer demand for more detailed control of their health, via smart features. Accordingly, wearables with a sleep tracking feature (plus 4%) or blood oxygen sensors (plus 20%) showed strong growth. This trend also led to developments in innovation, such as the new feature of stress level measuring (EDA). Launched in the fourth quarter of 2021, these devices already account for 16% of revenue in the wearables market and continue to grow.

Further hot topics for MWC are augmented reality (AR), virtual reality (VR) and the metaverse. While awareness and discussions around the metaverse rise, retail sales of VR headsets in the European market declined by 15% year-over-year in 2022. This is the first decline ever, as the market has previously recorded double-digit growth for years.

Says Sohjin Baek, GfK expert for the global IT hardware industry: “The European market seems to have accomplished initial consumer penetration. The industry should now focus on providing more contents, as well as better visual quality and security, to drive the market based on this initial penetration. Convincing consumers about the use cases will be key to drive VR/metaverse forward.”

Outlook 2023

GfK experts forecast a stronger year 2023 for the global telecom market overall compared to the relatively weak 2022. At a regional level, China, the largest single market, is expected to pick up again and significantly drive global market growth.

Developments within the three main product categories will also have a positive impact:

• Although replacement cycles are extending, smartphone purchases made at the height of the pandemic in 2020 and 2021 are entering the expected renewal cycle window this year.

• In wearables the next generation of health tracking sensors, which will expand the scope of applications, will drive the market. In addition, positive revenue growth is expected for the smartwatches segment.

• AR/VR is expected to become more tangible and grow into areas beyond gaming. This is one of the segments with the greatest potential in the coming years.

To remain competitive in the market and differentiate from competitors in terms of quality, says Lorbach, retailers and manufacturers should continue to innovate for more powerful or faster devices that make consumers’ lives easier. 

“Innovation will further drive consumer’s demand,” he says. “Especially in times when the holding time of smartphones is extending and budgets are tight, consumers will more than ever ask for value for money.”