Recent earnings reports and forecasts underscore the changes happening in the consumer electronics (CE) supply chain, particularly the pressing question of will the hot smartphone and tablet market continue to support overall growth or is that fading? Particularly noted in the news lately are Samsung's challenges which provide a tangible, single company example of the level of impact the supply chain and market changes are having on even the largest of smartphone, tablet and CE device OEMs.
What does IoT mean to smartphone growth?
One of the perplexing questions that we've seen lately is the question surrounding a seeming contradiction in forecasts: If IoT growth is seen as on the rise, and that it will bring with it significant demand and device increases, and if IoT is likely to be engaged through smartphones and tablets, then why do we see and worry about smartphone and tablet sales declines?
This is a reasonable question that continues to be asked. The answer is relatively simple: IoT growth is actually shouldered on access to smartphones, tablets, and devices and then the proliferation of these devices and the connectivity offered, to simplify. The current smartphone and tablet growth has been on the heels of a very specific set of consumers, those who are generally first-movers purchasing high-end, high-valued/priced, leading smart devices in developed market economies. The high-end, mature market sector is the sector that is reaching saturation and that is what the lowered smartphone and tablet forecasts are pointing to – a very specific but high-profiled device and market sector.
Growth, however, is gaining momentum in the smartphone and tablet device marketplace. What is gaining though, are the lower-priced and lower-margined devices globally. We are entering a phase not of high margins, but of volume sales as lower-priced smart devices become available (finally) for the widest set of consumers globally. This is the growth that is at the core of IoT expansion and forecasted positive sales and volumes.
Competition increases underscores emergent growth wave
If one is still leery of the 'second smart wave' approaching, namely the growth of lower-priced smart devices for lower income consumers in mature, emerging and developing, one telltale sign is the successful rise in competition in the tight smart device market. While Samsung and Apple are questioned by financial analysts as to their ability to hold onto dominant global positions, fierce competitors with high strategic goals of being global competitors are gaining and taking market share from leading OEMs. Notably, Xiaomi, ZTE and Chinese device makers are increasing their footprint in the competitive smart device market, taking shares away from both Apple and Samsung by providing "high-end but low-cost devices, as FT recently discussed and also earlier in February.
Last month, we reviewed the opportunities in the expanding global, mobile economy and the impact that new competitors like Xiaomi are having on the supply chain. While the competition may not be welcomed by OEM leaders, the noteworthy competition heating up is reinvigorating pricing, feature, and innovative design aspects to the smartphone and tablet sectors. Those are positives for healthy, free market growth and good for the overall health of the industry.
Internet of Things and Standards?
Meanwhile, growth momentum for IoT can also be measured in the dedicated efforts by leading OEMs to develop and set standards for device interconnection, as recently reported by The New York Times. As the NYT article cites the following development:
A group of technology companies led by Intel announced on Tuesday the formation of the Open Interconnect Consortium. The group, which also includes Atmel, Broadcom, Dell, Samsung and Wind River, will focus on creating an open-source standard for wirelessly connecting devices to one another and to the Internet.
[…] It follows the creation last December of another open-source IoT group, called the AllSeen Alliance, which is led by Qualcomm and has over 50 companies, including Microsoft and Cisco. It appears that both Google and Apple, and possibly other companies, are out to create their own standards for the IoT as well.
The reason for all this activity is sheer numbers, and potentially a lot of market power. The IoT is expected to eventually touch some 200 billion cars, appliances, machinery and devices globally, handling things like remote operation, monitoring and interaction among Internet-connected products.
What is interesting is that the recent consortium formed by Intel is the third major group focused on the same goals for interconnection standards to support IoT devices. Competition is not limited to devices alone, and while IoT growth is very promising, and very real, there are also very real challenges and competitive shifts ahead.