Smartphone Growth Isn't Coming Back
by Michael Smith, Principal and Founder at MKS Insights
You don’t have to be an industry expert or insider to notice that smartphones are getting harder and harder to justify replacing. Outside of the glass shattering or dropping it in the pool, you would need to have a high disposable income to rationalize spending money on “Face ID”. Now, if you do listen to the experts and industry leaders, they would argue that customers just aren’t as excited as they used to be and that in order to avoid ending up like the personal computer (PC), it’s going to take a revolution and not these continuous minor evolutions. I would offer the following case as to what it would really take, how far are we from that, and who are some potential winners.
WHAT DRIVES CONSUMERS TO BUY?
There are two main things: 1) form factor and 2) breakthrough capability (not “feature” – that’s the key).
Let’s start with form factor. As witnessed in Apple’s last “super-cycle”, the consumer is motivated by a new smartphone that appears materially different in its shape and size. It’s undeniable that there is a certain snob-appeal to having, then showing off that you have, the latest and greatest iPhone. It’s difficult to tell if you have a new Android phone or not, but thanks to Apple’s fantastic marketing, each new iPhone has historically been noticeable.
Today’s iPhone 8 is essentially the iPhone 6 for the vast majority of buyers. Think about that; the iPhone 6 launched in September of 2014 and looks and feels pretty much like the iPhones selling today in July of 2018 – that’s nearly 4 years! With the introduction of the iPhone X, the form factor itself feels different, and you can tell from the front fascia that it is not an older iPhone. So, in a nutshell, outside of creating a flip-phone that folds out into the full screen of the iPhone today, the only thing left to tinker with is screen size, and I just don’t believe that’s enough to create a replacement cycle.
So, what’s left? Curved designs are cute, but gimmicky. A true flip-phone form factor (a la Motorola Razor size) such as the Galaxy X would be the only real catalyst, as it allows for convenience and mobility while finally introducing productivity, since it would mirror a tablet-size screen.
Now what do I mean by “capability” vs “feature”?
I would say form factor creates the king of the category, and the capabilities determine the differentiation (more than one winner).
For example, FaceID is a feature right now, but the capability is that there are five pieces of silicon behind it that can do so much more. How come there are no killer FaceID apps? Mainly because the “capability” has not been exploited beyond Apple’s security and identity implementation.
WHAT COMPONENTS ARE ACTUALLY “MAGICAL”?
Let’s keep this simple:
- Case Materials – we need cases that heal themselves and are more ruggedized while maintaining the z-height of the current iPhone.
- Sensors – the activity ones are overplayed, and the health ones are under-capable, so what’s left on sensors? I would say audio is underappreciated. Directional microphones and audio arrays would help balance out the artificial intelligence aspect and complement those augmented reality requirements.
- Cameras – we definitely need a third camera for more combinational photography that allows for perfect lowlight composition and vector data for building out images.
WHAT COMPONENTS AREN’T CHANGING FAST ENOUGH?
- Batteries – we have had lithium polymer for what seems like forever, so we are going to need to switch composites to get to any hope of extending the battery beyond the day.
- Input/Output (I/O) – we are still mostly reliant on a touch interface, and we are going to have to start looking at a combination of interfaces working in unison to allow for next-generation interaction. This could involve speaking into the phone as it’s listening and using sensors and visual input to aid in its response.
For smartphone users to justify upgrading their phones down the line, providers are going to have to do more than change the screen size. The next company to dedicate more time to working on power sources, battery life, and interfaces will likely be able to get a larger piece of the user pie.
Please note: This article contains the sole views and opinions of Michael Smith and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security. Any use of this article without the express written consent of Guidepoint and Michael Smith is prohibited.