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Worldwide Smartphone Growth Forecast Cools Down as Prices Drop and Markets Mature: IDC

International Data Corp’s (IDC) latest mobile phone forecast said that worldwide smartphone shipments will reach a total of nearly 1.3 billion units in 2014, representing an increase of 26.3% over 2013.

IDC, meanwhile, expects 1.4 billion smartphones to be shipped worldwide in 2015 for a 12.2% year-over-year growth rate. Slower annual growth continues throughout the forecast with unit shipments approaching 1.9 billion units in 2018, resulting in a 9.8% compound annual growth rate for the forecast period between 2014 and 2018.

Melissa Chau, senior research manager with IDC’s Worldwide Quarterly Mobile Phone Tracker, said that the impact of upstart Chinese players in the global market will be reflected in a race to the bottom when it comes to price.

“While premium phones are not going anywhere, we are seeing increasingly better specs in more affordable smartphones,” she said. “Consumers no longer have to go with a top-of-the-line handset to guarantee decent hardware quality or experience. The bigger question now is how much lower can prices go?”

IDC’s report said that on a worldwide basis, smartphones are expected to have an average selling price of $297 worldwide in 2014, and it will drop to US$241 by 2018. Emerging markets, such as India, will see much lower smartphone prices around $135 each but will fall to US$102 by 2018. The report said, however, the prices in mature markets are not expected to change significantly and modestly higher shipment volumes will not drive up overall revenues as each generation of flagship phones shows less and less differentiation from its predecessors.

IDC said that Android devices will continue to drive shipment volumes from an operating system perspective, while iOS devices drive revenues. By 2018, Android will control 80% of global smartphones shipped and 61% of revenues, while iOS will control only 13% of volumes and 34% of revenues. With Android volumes so dominant, IDC said, it is no longer a possibility for new operating systems like Tizen and Firefox to compete on price alone.

“As shipment volume slows, we expect greater attention to shift toward value trends,” said Ramon Llamas, research manager with IDC’s Mobile Phones team. He said that Apple’s approach with premium pricing ensures a growing portion of overall revenues despite its declining market share. Meanwhile, Android’s multi-faceted approach, with forked versions and low-cost Android One strategy, will produce mixed results, yet it allows deeper penetration into merging markets.

“That can lead to additional pressure on its vendor partners, who will need to seek greater differentiation in terms of devices and experiences in the hyper-competitive smartphone market,” Llamas said.