Smartphone shipments set to hit decade low but Apple on track to take top spot

Apple could lead smartphone industry shipments for the first time this year, at a time when overall shipments are set to drop to their lowest in a decade, a report has found.

Global smartphone shipments are expected to drop 6.5 per cent annually to 1.15 billion units in 2023, Counterpoint Research said in its latest report. In 2014, smartphone shipments stood at 1.32 billion.

Shipments indicate expected demand and they are not equal to actual sales. They represent the number of units that vendors ship to retailers.

Overall, the smartphone industry is projected to decline as macroeconomic challenges and weak consumer demand weigh on the sector. Regional macro risks are extending smartphone replacement cycles to record levels in 2023, Hong Kong-based Counterpoint said.

Apple, meanwhile, is expected to launch its latest iPhone 15 series next month. The new phones could help the company attract new buyers as well as prompt existing customers to upgrade to newer premium devices, Counterpoint analysts said.

Good sales in the fourth quarter could help Apple become number one globally in terms of annual shipments for the first time ever, they said.

The iPhone maker has previously hit the number one spot in quarterly sales.

An Apple iPhone 14 is displayed at an Apple Store in Berkeley, California. Getty Images

“We are watching [the] fourth quarter with interest because the iPhone 15 launch is a window for carriers to steal high-value customers … leaving Apple in a good spot,” said Jeff Fieldhack, Counterpoint’s research director for North America.

“It’s the closest Apple’s been to the top spot. We are talking about a spread that’s literally a few days worth of sales … assuming Apple does not run into production problems like it did last year.”

Apple's share of profitability and revenue in the global smartphone market hit record levels in the second quarter of 2023, amid another low three-month period for the industry.

The company was the single-largest contributor to profitability in the smartphone sector at 85 per cent, up from 81 per cent a year ago and from 84 per cent in the first quarter, Counterpoint said.

The share of revenue from the California-based company grew to 45 per cent, up by about 3 per cent from the second quarter of 2023, it said.

Both measures gave Apple a big lead over Samsung Electronics, the world's biggest mobile phone manufacturer, which had profit and revenue shares of 12 per cent and 17 per cent, respectively.

Replacement cycles, or the average time consumers take before buying new smartphones, in 2022 were more than 40 months, the highest level ever, the Counterpoint report said.

Asia is one of the “major hurdles to positive growth”, as headwinds halt the economic turnaround expected for China at the start of the year, and the broader region experiences “intensifying declines” across emerging markets, it added

A man uses his smartphone as he walks across an intersection during the evening rush hour in Beijing. China’s smartphone sales fell 4 per cent yearly in the June quarter, reaching the lowest second-quarter sales figure since 2014. AP

Smartphone sales in China fell 4 per cent yearly in the June quarter, reaching the lowest second-quarter sales figure since 2014, the report found.

China’s economy, which rebounded after the lifting of Covid-19 restrictions at the start of the year, lost momentum in May, posting weaker retail sales and manufacturing output.

North American market also continues to be a major drag on global recovery, with a disappointing first half setting it up for double-digit full year declines in smartphone sales. Despite strength in the jobs market and inflation falling, consumers are hesitant to upgrade their devices, pushing replacement rates for the US and globally to record highs, Counterpoint said.

“There’s been a decoupling between what’s happening in the economy and consumers buying phones. So far this year, it’s been record low upgrades across all carriers,” Mr Fieldhack said.

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What is blockchain?

Blockchain is a form of distributed ledger technology, a digital system in which data is recorded across multiple places at the same time. Unlike traditional databases, DLTs have no central administrator or centralised data storage. They are transparent because the data is visible and, because they are automatically replicated and impossible to be tampered with, they are secure.

The main difference between blockchain and other forms of DLT is the way data is stored as ‘blocks’ – new transactions are added to the existing ‘chain’ of past transactions, hence the name ‘blockchain’. It is impossible to delete or modify information on the chain due to the replication of blocks across various locations.

Blockchain is mostly associated with cryptocurrency Bitcoin. Due to the inability to tamper with transactions, advocates say this makes the currency more secure and safer than traditional systems. It is maintained by a network of people referred to as ‘miners’, who receive rewards for solving complex mathematical equations that enable transactions to go through.

However, one of the major problems that has come to light has been the presence of illicit material buried in the Bitcoin blockchain, linking it to the dark web.

Other blockchain platforms can offer things like smart contracts, which are automatically implemented when specific conditions from all interested parties are reached, cutting the time involved and the risk of mistakes. Another use could be storing medical records, as patients can be confident their information cannot be changed. The technology can also be used in supply chains, voting and has the potential to used for storing property records.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Defence review at a glance

• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”

• Prioritise a shift towards working with AI and autonomous systems

• Invest in the resilience of military space systems.

• Number of active reserves should be increased by 20%

• More F-35 fighter jets required in the next decade

• New “hybrid Navy” with AUKUS submarines and autonomous vessels