Low Smartphone Prices Drive Sales Growth

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Smartphone makers are expected to ship more than 1 billion of the popular devices this year, climbing an incredible 39.3% over 2012's numbers. According to IDC, shipments will continue to grow through 2017, when the analyst firm believes hardware vendors will push 1.7 billion devices into the market. The strong growth can be pinned on low-cost devices that are on fire in emerging regions around the planet.

The average selling price (ASP) of smartphones has dipped 12.8% during 2013, down from $387 last year to $337 this year. IDC believes average selling prices will continue to drop, bottoming out at $265 by 2017.

"The key driver behind smartphone volumes in the years ahead is the expected decrease in prices," said Ramon Llamas, research manager with IDC's Mobile Phone team. "Particularly within emerging markets, where price sensitivity and elasticity are so important, prices will come down for smartphones to move beyond the urban elite and into the hands of mass-market users. Every vendor is closely eyeing how far down they can price their devices while still realizing a profit and offering a robust smartphone experience."

Android can be thanked for the drop in ASPs. Google offers the Android operating system to hardware makers for free. This puts many of them on even footing with respect to the features and user experience they can offer consumers. It is what has allowed companies such as ZTE, Huawei, CoolPad, and others to challenge leaders like Samsung and LG in certain markets.

[For another example, see Motorola's Moto G Targets Emerging Markets.]

As expected, emerging markets -- including Asia/Pacific, Latin America, the Middle East, and Africa -- will drive the growth. In many of these regions, the low cost of smartphones will help people skip feature phones and go straight to smartphones as their first device. Much of North America and Europe has reached the saturation point with respect to smartphones, with some countries showing greater than 100% penetration due to people carrying more than one device.

For example, between now and 2017, IDC believes the North American smartphone market will grow just 7.8% on an annual basis and the European market will grow 11.1%. Meanwhile, Asia/Pacific and Latin America will both see annual growth rates exceeding 23%.

Interestingly, prices will drop everywhere over the next four years except in North America, where IDC expects to see a modest 2.1% increase by 2017. Asia/Pacific will see the average selling price of smartphones decrease by about 8.9% annually by 2017, and Europe will see prices drop by 9% annually. North Americans can expect to pay $567 for their smartphones, while Asia/Pacific and Europe will pay $215 and $269, respectively. (Keep in mind, most Americans purchase smartphones at a discount under contract.)

"The game has changed quite drastically due to the decline in smartphone ASPs," said Ryan Reith, program director with IDC's Worldwide Quarterly Mobile Phone Tracker. "Just a few years back the industry was talking about the next billion people to connect, and it was assumed the majority of these people would do so by way of the feature phone. Given the trajectory of ASPs, smartphones are now a very realistic option to connect those billion users."

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