Emerging Markets Power Smartphone Sales

Estimated reading time: 4 minutes

Highlights:

• New connected consumers in emerging markets, especially rural China, continued to drive smartphone growth in 2Q16
• Resilient mid- to high-end sales drive GfK to upgrade its 2016 smartphone market value forecast to USD 426 billion
• No immediate impact in the UK from Brexit

Analysis of the latest smartphone sales trends has prompted GfK to upgrade its forecast for the year. Full year global smartphone sales value in 2016 has been increased from USD 400.7 billion to USD 426 billion, up five% year-on-year. The cause is strong sales of mid-range to high-end units which has reversed the previous trend of low-end (<USD 100) share gains.

Kevin Walsh, director of trends and forecasting at GfK comments, "Volume growth is coming from many emerging markets, especially a resurgent China, but also Emerging Asia and Africa. We need to look beyond sales in the major cities and the shipments of global manufacturers to reveal this strong growth - since it is consumers in rural areas driving this demand. With China being a key part of the trend, it is not surprising that it is local vendors who are benefitting the most."

North America: Consumers delaying upgrades to 4Q 

Here smartphone demand totalled 42 million units in 2Q16, down 5% quarter-on-quarter and 6% year-on-year. Previous drivers of demand, such as the migration from feature to smartphone and 3G to 4G, are having less of an impact now that the high growth phase is over. In addition, churn rates have fallen in response to carrier's retention strategies, including family plans.

The market will need to wait until 4Q for the next incremental driver of growth. It is in the last quarter of the year that major product launches are expected to have a higher impact, compared to 2015. Consumers that have been waiting for big launches will be ready to invest in upgrades.

Western Europe: Brexit fails to bite

Smartphone demand totalled 30 million in 2Q16, a fall of 1% quarter-on-quarter and also of 1% year-on year. The decline was felt most sharply in Spain, where demand declined 11% year-on year. This fall was a response to the country's three leading operators raising their annual tariffs by an average of EUR 30. In the UK, demand declined 2% year-on-year in 2Q, showing no immediate impact from the vote in June to leave the European Union. Declines in these two countries were partially offset by three percent growth in France and one percent growth in Germany.

The share of demand for devices sized 5" and above increased significantly from 38% in 2Q15 to 60% in 2Q16. Correspondingly, the share of demand for high-end smartphones (USD 500+) increased from 31% in 2Q15 to 35% in 2Q16, with unit growth of 12% year-on-year. GfK forecasts that smartphone demand in the region will decline to 134 million units in 2016, a drop of 1% year-on-year.

Central and Eastern Europe: Growth finally returns to Russia and Ukraine

Smartphone demand hit 17 million units in 2Q16, down 1% quarter-on-quarter and up 12% year-on-year. Russia was a key driver of growth, up 12% year-on-year, following five quarters of decline. A release of pent-up demand in Ukraine lead to strong growth of 35% year-on-year following six consecutive quarters of decline. GfK forecasts that smartphone demand in the region will increase to 77 million units in 2016, up 8% year-on-year.

Latin America: Brazil woes continue as Argentina remains buoyant 

Here smartphone demand reached 23 million units in 2Q16, up 5% quarter-on-quarter, but down 8% year-on-year. This regional decline was due to a fall in demand of 20% year-on-year in Brazil. Growth in Argentina remained high at 58% year-on-year, still buoyed by the removal of import restrictions in December last year. GfK forecasts that demand in the region will decline to 94 million units in 2016, a drop of 11% year-on-year.

Middle East and Africa: Saudi Arabia depresses regional growth 

Here smartphone demand reached 41 million units in 2Q16, down two percent quarter-on-quarter, whilst year-on-year growth slowed to 5%. In Saudi Arabia, on-going macroeconomic weakness caused demand to decline by 24% year-on-year in 2Q. This decline offset growth of 19 percent in Egypt and 15% year-on-year in South Africa. GfK forecasts that smartphone demand in the region will grow to 176 million units in 2016, up 9%year-on-year.

China: Rural sales drive highest growth for over two years 

Smartphone demand totalled 109.7 million in 2Q16, giving a flat quarter-on-quarter, while growing 24% year-on-year. This year-on-year growth improved from 19% in 1Q16 and is the highest seen for over two years. The strong growth was driven primarily by continued operator subsidies (which began in early 2016), which helped drive strong 4G smartphone adoption in the smaller cities. Local brands have benefitted from growth outside the major cities, seeing their share of the country's smartphone market increase from 74% in 2Q15 to 81 percent in 2Q16.

The shift to larger screen sizes continued, with 5"+ share increasing to 83% in the quarter, an impressive growth from 63% in 2Q15. GfK forecasts that smartphone demand growth in China will moderate in the second half of the year, bringing 2016 to 439 million units, up 14% year-on-year.

Developed APAC: Australian demand declines year-on-year

17 million units were sold in 2Q16, down 12% quarter-on-quarter and one percent year-on-year.  Demand declined 9% year-on-year in Australia but grew 2% in Japan in the same period. GfK forecasts that demand in the region will total 72 million units in 2016, a decline of 1% year-on-year.

Emerging APAC: Philippines and Vietnam post strong unit sales

Strong growth in both the Philippines (37% year-on-year) and Vietnam (11% year-on-year) helped the region grow overall demand by 3% quarter-on-quarter and 4% year-on-year to 51 million units. Indonesia saw a mild decline of 0.3%. GfK forecasts that demand in the region will reach 213 million units in 2016, a growth of 5% year-on-year.