Analysis: Apple sounds warning bell for smartphone industry

Sun Jul 29, 2012 10:59am EDT
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By Sinead Carew and Tarmo Virki

(Reuters) - If Apple Inc's weaker-than-expected quarterly result is anything to go by, the global smartphone industry is a lot more vulnerable to economic shocks these days than during the 2008-2009 financial crisis.

In developed markets, every other person already owns a smartphone. In emerging markets, penetration rates are much lower, but cheaper phones that cost under $100 are squeezing profit margins.

That was not the case during the last recession, when Apple's iPhone and Google Inc's Android were still in their infancy. Smartphone demand remained strong even as sales of other electronics declined because consumers felt it was worthwhile to upgrade to a device with so much to more to give - touchscreens, email and full Web browsers.

Without a technology breakthrough such as touchscreen - made popular by the first iPhone in 2007 - people are in far less of a hurry to upgrade their phones this time around, analysts said.

That was evident from Apple's June quarterly results, which showed a much bigger hit from the European debt crisis than Wall Street expected.

"The economy is having an impact on all electronic goods. Even Apple, which did defy gravity in the last recession, is not escaping now," said Hudson Square Research analyst Daniel Ernst.

Smartphone users, who typically upgrade their phones every 18 to 24 months, are now holding on for three months longer than usual, according to Gartner analyst Carolina Milanesi.

"The reason to upgrade is less urgent" she said.   Continued...

People walk past a closed shop, which will be opened and inaugurated as the largest Apple store in southern Europe on July 28, at Passeig de Gracia, in Barcelona July 26, 2012. The iPhone revolutionized the smartphone industry, driving Apple's expansion into Europe and China and, after just half a decade, yields about half its annual $100 billion revenue haul. REUTERS/Albert Gea