2024 smartphone market rebound: What's driving the change

Emerging economies, changing consumer dynamics and tech breakthroughs are set to drive a revival

Customers explore iPhones at an Apple store in Mall of the Emirates in Dubai. Pawan Singh / The National
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The worldwide smartphone market shows initial indications of a marginal rebound in 2024 following two consecutive years of decline.

This upturn is fuelled by the growth of emerging market economies, a resurgence in consumer spending, an increase in average selling prices, and the swift integration of generative artificial intelligence devices, according to industry experts.

Global smartphone shipments, which declined 12 per cent yearly in 2022, are expected to have dropped 5 per cent in 2023 before returning to a 4 per cent year-on-year growth in 2024, according to new forecasts from researcher Canalys.

During 2023, multiple macroeconomic factors continued to negatively affect consumer discretionary spending, although the impact was less pronounced on business spending, Anshul Gupta, vice president analyst at Gartner, tells The National.

“Continuous high prices, especially for food and energy, raised the cost of living and had a direct impact on consumer spending, causing a decline in smartphone sales,” he says.

And while consumers extended their smartphone replacements by nearly a year between 2020 and 2024, “the lack of substantial technological innovations, coupled with a shift from fixed contracts to flexible arrangements, contributed to the deceleration of smartphone sales”, he adds.

Ramazan Yavuz, senior research manager for Middle East and Africa at International Data Corporation, argues that consumer demand is being affected by the increased lifespan of smartphones, “putting extra pressure on the market, which is already overwhelmed by low profitability, restrained budgets and negative economic outlook”.

Singapore-headquartered Canalys estimates that 1.13 billion smartphones were shipped in 2023, with that figure predicted to reach more than 1.17 billion units this year and 1.25 billion units in 2027, at a compound annual growth rate of 2.6 per cent from 2023 to 2027.

The softening decline points at overall industry stabilisation, as emerging regions like the Middle East, Africa and Latin America are expected to return to growth at 9 per cent, 3 per cent and 2 per cent, respectively, in 2023.

Fellow researcher IDC expects worldwide smartphone shipments to have declined 3.5 per cent annually in 2023 to 1.16 billion units. This is revised from an earlier forecast of a 4.7 per cent decline.

However, it predicts market recovery to continue in 2024 with 3.8 per cent growth, followed by low single-digit growth in the next few years.

“In light of the ongoing economic uncertainty and financial limitations experienced in recent years, a rapid rebound in consumer demand, especially within the consumer electronics sector, appears improbable,” Manish Pravinkumar, a Dubai-based senior consultant at Canalys, tells The National.

“Nevertheless, it is crucial to acknowledge the indispensable role smartphones play in daily productivity tasks across various emerging regions. Consequently, the expected resurgence of demand in these markets, previously impeded by inflation and supply challenges, is poised to surpass that in developed markets.”

Industry experts say the recovery will be evident in two main ways. First, there is a chance for the markets that faced supply shortages due to Covid-induced import controls to bounce back.

Second, companies have overcome the difficulties of having too much inventory, which was a problem in the past one to two years. Now, they are back to their regular schedules for releasing products and shipping them.

Channel partners are eager to restock their inventory, and these efforts are vital for the market's significant recovery in late 2023 and are expected to keep driving growth in 2024, Mr Pravinkumar says.

“I would call it a macroeconomic shift, more so than a shift in consumer preferences,” Thomas Monteiro, senior analyst at Investing.com, tells The National.

I think this distinction is key because, even though both present a similar challenge for the smartphone industry, the former is more long-term in nature, comprising not only a shift in consumer patterns but also in the industry's target audience.”

Striking the right balance

With inventories having normalised by the end of 2023, global smartphone shipments are projected to grow 3 per cent year on year in 2024, says Tarun Pathak, research director at Counterpoint Research.

This will be driven by a “recovery in emerging markets, increasing consumer confidence and improving macroeconomic conditions”, he tells The National.

But with “many moving parts”, particularly across Google’s Android ecosystem, “in 2024, perhaps more than any other, OEMs [original equipment manufacturers] will need to strike the right balance across innovation, competitive positioning and market-specific challenges”, he cautions.

Samsung Electronics, the world’s biggest mobile phone manufacturer, continues to lead the global smartphone market, with a 20 per cent share as of the third quarter of 2023, Counterpoint data shows.

Its biggest rival, Apple, is second with 16 per cent, followed by China’s Oppo and Xiaomi, both with 14 per cent.

“There are significant opportunities for Android OEMs this year and we see a well-positioned Samsung aiming to boost profitability through its flagship foldables which will positively impact ASPs [average selling prices],” Mr Gupta says.

Samsung typically launches its foldables in July or August, a month before Apple’s traditional unveiling of its new iPhones. The South Korean tech giant is slated to introduce its next flagship, the Galaxy S24 series, on January 17.

“Oppo, Vivo and other key Android players will continue to grapple with nuanced market dynamics. As a result, we’re expecting to see more strategic regional focus and downsized investments,” Mr Gupta adds.

Why analysts are worried about sluggish China?

Global smartphone sales are poised to grow slower as economic challenges in China – the world’s second largest economy – have dampened consumer spending across the globe.

For many years, smartphone producers and chipmakers have been priced with a very fast growth rate due to the expected acceleration of the Chinese economy both on the consumer and the producing ends, says Mr Monteiro.

“However, that has changed, as we now see China's expected GDP [gross domestic product] deceleration and shift in the economic matrix, simultaneously increasing production costs and weakening expected sales.”

Sluggish economic growth in the world’s top manufacturing hub is affecting materials and equipment costs globally.

Despite a struggling Chinese economy, other powerful consumer markets, such as India, Mexico, and some parts of Africa, are rising fast, which should keep driving sales in the longer term, analysts say.

“In the shorter term, we are on the verge of avoiding one of the most expected US recessions in history, and the same outcome may just come to fruition in the eurozone,” says Mr Monteiro.

He expects the global smartphone industry to experience an upward sale trajectory – a 3 per cent surge this year, followed by 5.5 per cent to 6.5 per cent growth in coming years as technology and other developing markets grow faster.

Will generative AI units add fuel to fire?

Generative AI smartphones are expected to have taken a 4 per cent share of the total market in 2023 (47 million shipments) and this is likely to double this year, according to Hong Kong-based Counterpoint.

South Korean manufacturer Samsung will capture half of this market this year followed by Chinese manufacturers Xiaomi, Vivo, Honor and Oppo.

In light of the ongoing economic uncertainty, a rapid rebound in consumer demand appears improbable
Manish Pravinkumar, senior consultant at Canalys

Even the introduction of AI or generative AI-enabled devices is expected to bring “only incremental benefits until 2025, resulting in minimal short-term impact on demand”, Mr Gupta says.

“AI has been a feature of smartphones for the last few years … we now expect to see the emergence of smartphones optimised to run generative AI models in addition to the normal use of AI in smartphones.”

This year is expected to be key for how generative AI will be integrated into smartphones and how pervasive that integration will be, Mr Yavuz says.

“Considering current devices already possess multiple AI features, 2024 will show the direction of how AI will shape the device space,” he adds.

“We are expecting an influx of AI-powered phones in 2024. However, these early products will be launched in high-end and premium devices first, addressing a narrower portion of the consumer base next year.”

By 2027, generative AI smartphones' share in the total industry is expected to reach 40 per cent and surpass 522 million units in shipments.

“[The] new generation of ‘smarter phones' … that have a greater integration with AI from both hardware and software levels … is brewing. And this is very likely to keep on driving interest even in more developed markets,” says Mr Monteiro.

Why consumers are switching to better, durable phones

Consumers are now prioritising their purchases, opting for higher-quality products that will last longer, and only switching when necessary, says Nicolet Pienaar, head of intelligence and retail for Middle East and North Africa at GfK.

“When you look at price segments you see that the decline is mainly coming from mid and low-end price units (less than $600) where demand fell over 4 per cent in Meta [Middle East, Turkey and Africa] region [in 2023] … [while] demand for premium (over $600) rose by almost 17 per cent.”

“Consumers are increasingly seeking devices that align with their fast-paced lifestyles and provide a simplified user experience. We can anticipate continued R&D investment, resulting in the introduction of even more advanced and innovative features fuelling the industry in the future,” Ms Pienaar says.

Declining sales are not an issue of a singular brand but an “overall market reality” and manufacturers have no choice other than to become more “innovative” to boost demand for their phones.

For example, Chinese brands are becoming more creative in acquiring new clients by catering to niche buyers in premium segments like foldable devices or gaming mobiles for young consumers, says Ms Pienaar.

Regional developments

Given all the factors and circumstances, not much growth is expected from the Middle East and Africa.

In the UAE, smartphone shipments are seen to inch up 9 per cent this year, Mr Yavuz says.

For Android devices, the outlook is “positive”, with more affordable brands – an advantage a sliver of the Android market has over Apple’s iOS – focused on market penetration.

Apple, meanwhile, is expected to drop slightly in 2024 compared to last year, which “stems from a base effect where it posted a quite healthy performance in 2023”, Mr Yavuz says.

The IDC’s price band forecast for the UAE indicates a drop in the low-end segments – those below $200 – while mid-tier segments, between $200 to $600, are expected to grow in share.

Updated: January 16, 2024, 1:13 PM