Sinking Flagships: The Era of the Cheap Smartphone

We all know the big names in the phone industry: Apple, Samsung, Sony and LG and their “all-star” line-up: the iPhone 6s, Galaxy S6, Xperia Z5 and LG V10.

But recently, there have been new players in the smartphone industry that are planning to gain market share  by offering budget friendly smartphones that can satisfy the needs of the average Joe.

You might have heard names such as: Huawei and XiaoMi (which are not considered small manufacturers by any means but they are not so well established in western markets.) On the other hand here is a list of phone manufacturers that you have never heard of (and I am not making these names up):

  • One plus
  • Elephone
  • Meizu
  • Zuk
  • Blu

(Yes, there is a phone manufacturer called Blu and their phones are actually very nice – check out this video review for more information).

The birth of the budget friendly smartphone: the Nexus program – Google’s smartphones.

Nexus phones have never been the most powerful devices on the market, but their appeal came in the form of good software and hardware integration at a relative low price. Phones like the Nexus 4 and 5 succeeded in the market because they had decent hardware and amazing software which resulted in a smooth experience for the average user. This also allowed Google to cut down on costs which in turn resulted in lower prices.

Nexus_5X_(White)

Imitation is the sincerest form of flattery

Nowadays more manufacturers are offering budget friendly smartphones that resemble the phones from the Nexus program. Even manufacturers like Motorola have budget friendly offerings like the Moto E and Moto G.

The average price of Android smartphones has dropped from $410 in 2010 to $254 in 2014. This is mainly due to the fact that the Android operating system is becoming more refined and relatively cheap hardware has more processing power. Thus creating a very decent, if not pleasing, experience for most of the smartphone users in the market – similar to the user experience provided with the Nexus program.

Winners and Losers

At a first glance the idea of a capable smartphone at a cheap price might sound good to everyone but that is not the case. Phones used to be sold at their release price for almost a year but that has changed. Prices start dropping after the first month of release making the value of the phone drop quite rapidly. This is one of the main reasons why budget phones have an advantage. It seems that users no longer get the experience of having the “latest and greatest” phones because 1 or 2 months after they get the latest flagships, phone manufacturers are already announcing the next generation of smartphones. Thus, it makes no sense for users to lock themselves into 2 year contracts as they value of their phones are decreasing much rapidly.

Having said that there are some unexpected winners – the new smartphone manufacturers. The Android operating system has become more efficient and thus manufacturers don’t have to use high end components – thus, lowering their expenses. This has made it possible for many manufacturers to penetrate the market that was previously dominated by companies with huge resources such as: Apple, Samsung, LG and Sony. All in all, the mid-range, budget friendly smartphone is gaining market share and I think it is here to stay.

Stocks mentioned: AAPL, Samsung, SNE


Writer: Eduardo Wu

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