Innovation Isn't Over In Smartphones, As Companies Compete To Build Great, Mass-Market Cheap Devices

Is the smartphone market dead in the water? The flood of inexpensive smartphones rushing into consumer hands globally is relentlessly pushing down their average price. Observers whine that the smartphone market has become "commoditized," a slugfest over cost between copycat handsets loaded with near-identical features.

Innovation in one sense will slow down, as exciting, new smartphone features become few and far between. Instead, innovation will come from manufacturers incorporating premium smartphone capabilities into low-cost and mid-range handsets. This too will require talent and creative thinking, as manufacturers experiment to build premium hardware for a lower price- without giving up on profits.

In a new report from BI Intelligence, we explain why the smartphone market is still dynamic and growing in the solid double-digits, as consumers around the world enter the smartphone market for the first time. We break down where future growth will come from, and explain our reasons for forecasting that the average selling price of handsets will approach $150 in four years.

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Here are some of the key facts:

• Solid growth: We estimate smartphone shipments will grow 35% in 2014 to surpass 1 billion units shipped annually for the first time. Last year, shipments grew about 45%, reaching just shy of the 1 billion annual unit shipments milestone.
• The next billion smartphones: The next billion in smartphone shipments will come faster than the first billion did. It took about eight years to reach 1 billion annual units shipped, but with steady, new growth from emerging markets, we estimate the 2 billion annual shipments mark will be reached in 2017.
• Tapering: But because the base of smartphone shipments is much higher now, earlier growth rates are unsustainable and will continue to taper off in the coming years.
• Emerging markets: China will be at the forefront of new shipments growth. There will be about 600 million smartphone subscriptions in China by the end of 2014, which is nearly 50% growth over the estimated 400 million smartphone subscribers in 2013. China will account for a 35% share of global smartphone shipments in 2014.
• RIP, dumbphones: The end of the feature phone is in sight. We estimate smartphones will make up almost 70% of total mobile phone sales during 2014, and that share will gradually rise to almost 90% by 2018 as smartphones become more ubiquitous.
• Price is the key: A sustained decline in the global average selling price (ASP) of smartphones will drive growth. We estimate the global smartphone ASP will dip 10% in 2014 to about $250 per unit, and will ultimately fall to about $165 in 2018.

In full, the report:

• Provides a full shipments forecast for smartphones between 2014 and 2018.
• Discusses China and India's position as the leading markets for the next wave of smartphone shipments.
• Quantifies feature phone shipments to contextualize their increasing irrelevance in the global mobile market.
• Points to the role of local manufacturers in emerging markets - companies like Xiaomi and Micromax - in putting "good enough," cheap smartphones in consumer hands.
• Analyzes whether innovation in the smartphone market is sustainable amid all this growth or if these devices will become so commoditized that all competition will boil down to price.