Advertisement

Blog

IPhone Legacy: End of Feature Phones?

{complink 5117|Sony Ericsson Mobile Communications} is getting out of the “cheap” business. Starting next year, the company will only manufacture and sell smartphones, making it one of the first major wireless handset vendors to acknowledge what is becoming a trend in the business: Smartphones are going mainstream, and eventually only a few vendors will sell feature or plain vanilla handsets.

This development has implications for the electronics industry supply chain. As smartphones become the wireless handset of choice for most consumers worldwide, components suppliers will have to devote a larger portion of production resources to parts headed for high-end wireless handsets than the cheaper alternatives, a development that can result in demand-supply mismatches. Sony-Ericsson's decision will certainly result in semiconductor vendors getting higher margin products into OEM manufacturing centers, helping to ease pricing pressures on commodity parts.

In some ways, the industry has {complink 379|Apple Inc.} to thank — or blame, depending on where your company sits in the supply chain — for the latest development. Although smartphones had been on offer from companies like Sony-Ericsson and Nokia well before the first iPhone appeared in 2007, the product did not really gain wide acceptance until Apple made them more widely available to consumers. The rapid growth of Google Android phones has further eroded support for standard feature phones.

It's easy to see why Sony-Ericsson wants to focus primarily on the smartphone market. First, more consumers now opt for the higher-end devices than cheaper alternatives because of the additional functionalities offered. Also, telecommunication companies are using smartphones to drive the adoption of value-added and higher-margin services. Most smartphones in the United States, for instance, are activated only on the condition that consumers buy data services that add $30 or more to regular subscription costs.

Furthermore, the wireless handset replacement market is becoming a core sales driver for many OEMs and service providers as adoption rates rise above 100 percent in some regions. In Western countries, for example, the pool of new handset subscribers is getting smaller, forcing service providers to find ways of retaining old customers. The easiest way to do this is to offer higher-end smartphones. This trend is also spreading to emerging markets, regions where wireless communication is still relatively new and there is a growing middle class able to afford smartphones.

It's evident in recent sales figures that smartphones will continue to outgrow feature phones. Apple's iPhone 4S, for instance, has reportedly sold out at most retail outlets in the US. The company sold more than 4 million devices in the first few days after it was introduced, according to reports, putting pressure on the supply chain. In fact, Apple has reportedly told iPhone 4S buyers they must pre-order at retailers.

If Sony-Ericsson is turning its supply chain to focus solely on smartphones, will other vendors follow, and does this mean Apple won't introduce a cheaper version of the iPhone? The second question is easier to answer. It's not advisable right now for Apple to debut a stripped-down version of its iPhone, and I doubt the company will do this anyway, despite some speculations it was planning such a move. What would be the justification for this at a time it cannot stock enough iPhones to satisfy current demand? With fears of other vendors cannibalizing its market receding, at least temporarily, Apple may want to keep its higher-margin offerings on the shelf for a lot longer.

Will other manufacturers ditch feature phones? Undoubtedly. The efforts that go into making the products and distributing and marketing them may not be worth the meager profits companies get from feature phones. Some OEMs will abandon the low-margin end to smaller players, although not all of the top five wireless handset makers will exit the feature phone market. Companies like Nokia, for instance, will probably remain players in the sector, pulling in customers and retaining supply contracts with telecom service providers.

It may be safe, though, to conclude that as smartphone penetration increases, feature phones will likely stay on shelves a lot longer and decrease as a percentage of total handset sales.

24 comments on “IPhone Legacy: End of Feature Phones?

  1. SunitaT
    October 18, 2011

    Sony Ericsson Mobile Communications is getting out of the “cheap” business.

    I think this is really smart move by Sony Ericsson. Profit margin is very less in low-end mobiles. Moreover smartphones prices have been consistently dropping because of which more and more people are opting for smartphones. It would be interesting see the response of other OEM's.

  2. mfbertozzi
    October 18, 2011

    It is a good post Tirpalur, from my point of view. Smartphone's market has brought a new paradigm: in the past, any end user, once bought a product, automatically received any feature hw and sw inside, but right now apps market allowed apps developers to create a new market on top and a new area of business, not related to hw device profit, the it appears quite logical SonyEricsson's moving, as you have outlined.

  3. tioluwa
    October 18, 2011

    It is obvious that smart phones are taking over as the article notes, frankly speaking, they are loosing their relevance in a society where functionality is key.

    It is also well stated that as OEMs may tend to switch solely to smart phones, some will stay in the feature phone market. in some ways, there is still use for the feature phones. I think the only thing that will end the manufacturing of feature phones is a drastic drop in their demand which i believe will only be due to a drop in the price of smart phones.

     

    i still see a concern in developing economies when it comes to cost and durability of these smart phones, that still gives feature phones a place. once smart phone cost drop a bit more, feature phones don't stand a chance.

  4. Parser
    October 19, 2011

    A new kind on the market: table computers shift some apps from smart phones making them less desirable. 

    First I had an iPhone with over 70 apps on it. Then came iPad 2 and I found myself using only a few apps on my iPhone. On iPhone very much like emails, new and business news, some social apps and few others, but all reading apps (Kindle included) and all video apps moved to my iPad 2. I am wondering how many people do the same. 

    I think the move to smart phones is great, but could be revised to offload some things to tablet computers and therefore create a new kind of smart phone, cheaper, thinner a companion to a tablet computer. 

  5. prabhakar_deosthali
    October 19, 2011

    In the developing countries there is a huge section of the mobile consumers who are satisfied with the basic functionality. Today in a country like India , even the sweepers like to have a mobile . The low wage workers like carpenters, painters, the watchmen, the security guards all of them want to have a mobile. But they can do with the basic phones as long as there are able to be in touch with their near and dear ones , their masters, their clients. These people are happy using the earlier generation used phones without camera, without color.

    The feature phones can go out of market only if the price of smart phones becomes so low so as to be afforadable to the above section of the people.

  6. FLYINGSCOT
    October 19, 2011

    Until smart phones almost reach parity with brick phones there will be a good sized market for basic phones for the foreseeable future.  Prabhakar is right…..it is all about price.

  7. saranyatil
    October 19, 2011

    Exactly, You just pay a bit more and you have a smart phone. Now there is huge effort put to design and come up with an awesome handheld device. No more people are interested in using big machines even to check upon their emails.

  8. Jay_Bond
    October 19, 2011

    While smartphones are taking the world by storm, there are still many emerging markets where feature phones are needed due to costs. Another problem is the wireless providers, they are offering more smartphones over feature phones, but will not activate the phones without a data plan. For some families with multiple phones, that gets too expensive.

    Apple will most likely not offer a cheaper version of the Iphone. And why should they, people continue to buy the new ones at record pace when they are released. The older models then just get reduced price tags and make them more affordable.

  9. Barbara Jorgensen
    October 19, 2011

    This article really struck a chord with me. I was in a Verizon store this weekend to get an upgrade and the salesperson was pushing iPhones, which, of course, were out of stock. Like my debate over tablets, the bells and whistles of the iPhone are things I just don't need right now. Plus, when I heard that one version was priced at $400, that decided it. Not going to happen.

  10. Eldredge
    October 19, 2011

    I agree – there will remain a portion of the population that wants basic phones because of cost, simplicity, or both. Not everyone wants all of the capabilities of a smart phone, and mobile communication and the associated basic service plan is enough.

  11. bolaji ojo
    October 19, 2011

    @Barbara, I have a standard feature phone ($29 and no contract from Best Buy), which I bought to replace a previous phone after resisting efforts by my service provider to buy a new smartphone. I simply bought a Pay-as-you-go phone from the same carrier and inserted my sim card. Worked fine.

    The offer from my service provider sounded good (new phone for less than $100) but I declined because of their insistence on a 2-year contract. I am sticking with my standard phone for now (and a work-issued Blackberry) but I know I am going to have to buy a new one eventually. It won't be iPhone (I don't want to join the herd) but a nice smartphone is certainly in my future.

  12. Hawk
    October 19, 2011

    @Barbara, I qualify for cave woman. I use my phone, toss it back in the bag and wait for the next time it might be needed. I don't have overage, roaming and data charges. I don't surf the web on the phone, texting is limited to about 20 maximum per month and I've never bought a ringtone online — I wouldn't know how to do it. I don't take pictures with my phone or listen to music on it. Needless to say, my phone isn't a smartphone. But does that mean I am immune to technology. Oh no. I like the iPad and play with it everytime we have a family trip to BestBuy. But do I need it? No. Will I buy one? Nah

  13. Taimoor Zubar
    October 19, 2011

    While smartphones may be the future in developed countries, I don't see them having viral growth in the developing countries unless the price drops to below $100. The market for cellphones in developing countries is a huge one and companies can't abandon this sector. While the margin on the low-priced phones may not be much, the volume sold makes it a considerably profitable market. I don't think leading cellphone manufacturers can abandon the production of low-priced feature phones completely.

  14. JADEN
    October 20, 2011

    Feature Phones have little or no brighter future as the market trend going, it is a low end mobile phones that have no powerful functionality of smartphones.

  15. Anne
    October 20, 2011

    This is the revolution of smartphones, there is tremendous drop in use of feature phones and that indicate an awful decline in its sales.

  16. mfbertozzi
    October 20, 2011

    Well, your interesting post is bringing to me some thoughts about product life cycle, in general. It is right smartphone's features are more powerful then feature phone, current trend is very positive for smartphone and maybe apps' number to install inside will increase as ramp…but for how long? Maybe smartphone's features will become very complex to use and poor feature phones get back. It happened for several products.

  17. Ashu001
    October 20, 2011

    Mfb, I agree entirely. Smartphones have become way too complicated,complex and delicate to use. After a certain amount of time,the need and desire for a simple feature less trumps everthing else. I just wanna use a phone for phone calls and SMS. That's it. Also no-one is looking at the issue of viruses. If you lose your smartphone because of malware/viruses the pain can be immense,really immense. So it makes more sense to keep a basic phone ready for each and every emergency(unlike what marketers would have you believe). Regards Ashish.

  18. Ashu001
    October 20, 2011

    Guys, Remember the Phone used by Peter Parker in Spiderman 2?? The Sony-Ericsson piece was one of the classic feature phones from the SonyEricsson stable. After that it all started to go downhill for them in the basic handset category. So its no real surprise that they decided to exit the segment entirely. Regards Ashish.

  19. Ashu001
    October 20, 2011

    Guys, Remember the Phone used by Peter Parker in Spiderman 2?? The Sony-Ericsson piece was one of the classic feature phones from the SonyEricsson stable. After that it all started to go downhill for them in the basic handset category. So its no real surprise that they decided to exit the segment entirely. Regards Ashish.

  20. Susan Fourtané
    October 24, 2011

    Ashish, 

    You reminded me to this story about a guy who dumped his iPhone and got a simple little old Nokia just to make calls and send SMS.

     http://www.good.is/post/why-i-dumped-my-iphone-and-why-i-m-not-going-back

    -Susan

  21. Susan Fourtané
    October 24, 2011

    Barbara, 

    There are two kinds of salespeople who really annoy me to the point that even if I was planning to buy something I just leave the shop without buying anything the minute after I was annoyed either because they have tried to push a product or because they came around like bees to the honey asking if I need some help (when it's obvious I don't) and stay next to me even thought I said no. 

    iPhones are not exacly the kind of produc that no one buys and need to be pushed. I can't see why he was pushing iPhones. 

    The thing with smartphones and tablets is that if you don't really need one you are not going to buy one unless you really let yourself convince easily. 

    -Susan 

  22. Susan Fourtané
    October 24, 2011

    To me, Sony-Ericsson's move seems to be smart. The smartphones are still relatively news, therfore their prices. In some more years' time when the prices considerably dropped there will not be too much of a market for plain vanilla phones. They will slowly move to phone museum. 

    On the other hand, I don't believe Nokia is going to take its cheaper phones out of the market after the recent investment in moving manufacturing sites, building a new one and all the comes and goes. Plus, its smartphone business is not going well.

    And well, some people who seem to be to weak to control their smartphone and instead the smartphone control them can have the option of always keeping their little Nokias as it happened to this guy: http://www.good.is/post/why-i-dumped-my-iphone-and-why-i-m-not-going-back

    -Susan 

  23. Hawk
    October 24, 2011

    @mfbertozzi, Not if the manufacturers have already dropped out of the feature phone market. You may want an antique as much as you like but the only ones you are going to get are never new (that's why they are antiques) and the price could be way too high also. Feature phones will still be around, I agree, but you may have to walk a few miles to find out and your favorite carrier may either not have it or support it. Keep the ones you have now, you may need it somewhere down the road. Unless you live in a part of the world where people really don't care about extra features on phones.

  24. mfbertozzi
    October 24, 2011

    @Hawk: I really appreciate your post and after all, I think it is right.

    “Unless you live in a part of the world where people really don't care about extra features on phones”

    I believe nobody could definitely say “I don't care about extra features”, sooner or later each one of us need to use them for his professional and persona life. What I am wondering once again is how positive is it. Maybe positive and negative evaluation, at the end, bring same weight on the scale.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.