As we touched on last week, the smart device wars have been globalizing as OEMs battle for the emerging market consumer. However, recent findings from Credit Suisse's Emerging Consumer Survey 2014, which point to more significant increases in smartphone momentum as we move through 2014 and towards 2017, when Asia will represent "[…] nearly 50% of all LTE connections," (p. 27).
The driving force for the next wave of smart device adoption, particularly smartphone demand in emerging markets and as lower-priced devices, will hinge more on the availability of not just 3G but especially 4G LTE infrastructure. These networks provide the necessary support for the faster data speeds that, in turn, support the applications which are at the heart of what the next generation of global smartphone users want.
Apps outweigh economic (in-)stability
While the global political and macro-economic environment has been flirting with instability both in Russia and China, respectively, and questions about possible halts to recovery progress grow, Credit Suisse's data point to a more complex and positive situation. It is not consumer purchasing power and confidence alone that has been holding back the next (and much anticipated) surge in smartphone (and tablet) demand globally. Certainly, financial and industry analysts are not mistaken in raising alarm at the growing question marks around the macro-economic impact of the Russian and Ukraine situation regarding the annexation of Crimea, nor the growing local tension and public worry over rural bank defaults in China. However, when it comes to understanding the drivers for emerging market consumer spending intentions, global uncertainty pales next to the growing intent of surveyed global consumers in emerging markets to buy a smartphone, of whom "58% of people [surveyed] say their next phone will have 3G," according the Credit Suisse Emerging Consumer Survey 2014 of 16,000 people from nine emerging markets (p. 26). As the survey found:
Clearly, emerging consumers also want smartphones because they can download applications, which suggests a desire for faster data speeds. The survey shows that apps emerge as the number one reason for consumers buying smartphones in these markets, with nearly 50% of respondents selecting this as the key driver for a smartphone purchase. Additionally, on average, a further 58% of respondents stated that their next device will have 3G speeds. (ibid., p. 26)
Driving change over the networks
One overlooked but likely contributing variable to the continued drag in emerging market uptake of smartphones is not only pricing (which looks to be strategically set to fall this year based on MWC 2014 unveilings, for example), return to greater macro-economic stability particularly for the EU followed by BRICS nations, but importantly the CAPEX spend by emerging market nations and/or carriers in those nations to upgrade the wireless infrastructure networks to support 3G and 4G LTE, high-speed data transfer rates that make smartphones and the desired apps truly in demand. This not only raises the opportunity for smartphone device OEMs but also for the wireless network market more broadly.
In other words, and on a quite positive note for the semiconductor and electronics industry, the next phase of smart phone and smart wireless device demand is poised to begin in light of the expanding and improving network infrastructure in emerging markets. Of course it is not the network upgrading and expansion alone driving this important growth wave, but a conversion of rural middle class consumers in emerging markets who are seeing conditions favorable for various types of discretionary spending, such as for smartphones and related technology purchases, particularly among the growing younger demographic consumers who are leading this group.
To understand the impact of the strategic opportunities presently for smart device growth in emerging markets, watch for Smith's upcoming MarketWatch Quarterly which will review the opportunities and challenges for our industry – opportunities that herald a second growth wave that promises to be more pervasive than that which we've seen in the developed markets in the recent few years.