Smartphone users sweat fortunes as market declines

The big players in the smartphone and gaming industries will use next week’s Mobile World Congress (MWC) in Barcelona to try to boost last year’s slump in sales. But while the industry as a whole struggled with declines in 2022, some categories continued to perform well, according to GfK. And for 2023, she predicts a stabilization of the market.

“While we had already forecast saturation effects for 2022 after the strong sales in the pandemic years, the additional weakness of the Chinese market had a significant impact on the result,” says Jan Lorbach, GfK expert for the telecommunications industry. “Overall, the global telecom market ended 2022 with a 9.7% decline in revenue compared to the previous year.”

The smartphone segment also recorded a 9.1% drop in demand from January to December 2022 compared to the previous year, with a total of 908 million units sold. Revenue was hit even harder, falling 10.2% to $330 billion.

Since budgets were getting tighter for many, in 2022 practically only consumers with higher and middle incomes were the market drivers. These consumer groups have increased their share of all smartphone buyers by another 4% compared to 2021 and now account for 48% of this group.

The demand for premium devices also increased accordingly. For example, January-December 2022 sales of 5G models increased by 1.2% year-on-year. The same applies to devices with larger memory. Smartphones with a capacity of more than 256 GB saw an increase of 19% and accounted for 41% of the total market sales in 2022.

While consumers who still buy smartphones are choosing premium devices, the total number of purchases in 2022 has decreased. One reason for this could be that people are keeping their smartphones longer.

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Data from gfknewron Consumer shows that from January to September 2019, only 48% of consumers used their smartphone for two years or more. That share has now increased to 57% over the same period in 2022 (an increase of 9%). This development can be observed above all in the 15 to 25 age group, where the proportion is now 14% above the average. The younger generation is clearly focusing on sustainability and is therefore consciously extending the life cycle of their devices.

One of the few segments that remained stable was wearables. With sales of 13.9 billion US dollars in 2022, the wearables market almost reached the level of the previous year (down 1.1%). Although popular segments lost ground, this was offset by growth in other product lines.

Sales development by wearables category in 2022 compared to the previous year:

• Health and fitness trackers: -31%

• Smart watches: +21%

• Sports computer on the wrist: -43%

These changes have been driven by increasing consumer demand for more granular control of their health via smart features. Wearables with a sleep tracking function (plus 4%) or blood oxygen sensors (plus 20%) grew accordingly. This trend also led to innovations such as the new Stress Level Measurement (EDA) feature. Launched in the fourth quarter of 2021, these devices already account for 16% of sales in the wearables market and continue to grow.

Other hot topics for the MWC are Augmented Reality (AR), Virtual Reality (VR) and the Metaverse. As awareness and debate around the Metaverse increases, retail VR headset sales in the European market fell by 15% YoY in 2022. This is the first decline ever, as the market has seen double-digit growth for years before.

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Sohjin Baek, GfK expert for the global IT hardware industry, says: “The European market seems to have reached initial consumer penetration. The industry should now focus on providing more content, better visual quality and security to drive the market based on that initial penetration. Convincing consumers of the use cases will be key to driving VR/Metaverse forward.”

Outlook 2023

GfK experts are forecasting a stronger year for the global telecommunications market overall in 2023 compared to the relatively weak 2022. At the regional level, China, the largest single market, is expected to pick up again and significantly drive global market growth.

Developments in the three main product categories will also have a positive impact:

• Although replacement cycles are lengthening, smartphone purchases made at the peak of the pandemic in 2020 and 2021 are entering the expected refresh cycle window this year.

• For wearables, the market will be driven by the next generation of health tracking sensors that will expand the scope. In addition, positive sales growth is expected for the smartwatches segment.

• AR/VR is expected to become more tangible and move beyond gaming. This is one of the segments with the greatest potential in the coming years.

To stay competitive in the market and differentiate qualitatively from competitors, retailers and manufacturers should continue to innovate for more powerful or faster devices that make consumers’ lives easier, says Lorbach.

“Innovation will continue to drive consumer demand,” he says. “Especially in times when smartphones have been idle for a long time and budgets are tight, consumers are asking more than ever for good value for money.”

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