If we go back a couple of years, the prospects for new technologies never looked rosier. iPhones sold off the shelves. Smartphones were hot and tablet sales were growing fast. We gleefully anticipated the smart watch and salivated over the Internet of Things.
Today, the picture is much more conservative. Google Glass is off the market and being “reinvented.” Smartphone sales have slowed, not risen with the expected surge, and the tablet bonanza has fizzled. Smart watches are the butt of jokes and pundits regularly question their value and their prospects in the market. The implications are the end of the hi-tech mobile boom.
Let's look at the numbers: A January report from Trendforce shows a strong increase in units for 2014 over 2013. Total units were 1.167 billion in 2014, against 927 million in 2013, which is a change of 240 million units (26%). The same chart shows that unit totals for 2015 are expected to be 1.29 billion, a growth of just 123 million over 2014 (10.5%), which is a dramatic drop. The 2014 numbers were bolstered by Apple's iPhone6 sales, a reflection of the loyalty of the customer base.
For tablets, the news isn't too good. Unit sales declined in the 4th quarter of 2014 compared with a year ago. IDC reports a 3.2% decline, the first ever quarterly reduction in unit sales, and for the whole year, growth in units was a paltry 4.4%. Even Apple and Samsung, the volume leaders, weren't immune from this. Both declined around 18% on the quarter, each losing 3 points of market share to “Other”.
Why would mobile tech slow like this? In a Darwinian sense, the new mobile organisms have expanded to fill the available space, and the game now is a battle of niche differentiations, rather than the happy times of a market growing at full throttle. Put another way, if you asked a tech vendor why their product is a winner, they'll now talk about shaving half a millimeter off phone thickness or the availability of neon green phones, rather than a bunch of useful new features. (Apple increased their phone to be the same size as Samsung’s, a strategy that clearly succeeded in protecting its base, but a one-off gambit.)
That's because the playing field on technology has plateaued. Adding more horsepower doesn't bring much benefit. Screen resolution is as good as most people need, and the cameras have more than enough pixels for any selfie. Moreover, there is no premium for performance, so compressing prices downwards and making phone replacement take months longer.
On the app side, over a million smartphone apps seems more than enough, especially as most of them are utter rubbish, and the average consumer uses only 24. We all have our favorites and there isn't much room for yet another variant of Angry Birds. Because the app market is saturated, it no longer provides a vehicle for differentiation of phones based on operating system or vendor app stores.
All of this indicates that the logistics chain is about to suffer shrinkage. A “mobile recession” is likely to last several years, until some genuinely new and interesting idea surfaces as the “must-have” item. This is the pattern we've seen in every high-tech consumer market, so it shouldn't be a surprise. We are about to enter a buyer's market, with over-supply as more Chinese manufacturers vie for share, falling prices from dropping consumer demand and with falling phone prices cascading all the way to resistor and capacitor makers. The battle for the market will be intense.
Chinese assembly shops are talking about replacing workers with robotics in an attempt to save cost. There are risks inherent in that strategy, since laying off robots is a much more expensive proposition than laying off workers, and a deeper recession in the business could make that a possibility.
It's likely that the current tech fatigue will slow take-up of the Internet of Things. The consumer market will be skeptical of smart homes and talking refrigerators, so we'll see a continuation of the current situation, which consists mainly of breathless announcements about products that seem to be looking for a problem to solve (the major factor depressing the growth of a smart-watch market, for instance). The medical and automotive side of the sensor market should not be much affected by this, and the use of sensors in production businesses will continue on its path.
Is there any light at the end of this tunnel? This is the downturn part of a business cycle and it won't last forever. The decline in sales of PC desktop and laptop units has stopped, but we can expect a move to tablet and mobile based computing on a massive scale over the next few years, as we become more attuned to the value of data-anywhere solutions. The advent of much faster data networks will move consumer PC use to tablets, and possibly smart phones, too.