After Apple and Samsung's high-end phones were "cold"

The recent financial reports of Apple and Samsung show that most consumers are becoming less and less interested in mobile phones priced above 7,000 yuan (RMB).

How much is this phenomenon related to objective reasons such as the replacement cycle, consumer psychology, and 5G upgrades?

Global demand for high-end mobile phones stagnates

Although Apple no longer discloses sales, data from FactSet shows that Apple's iPhone revenue in the third quarter of 2019 was US$25.99 billion, which was not only lower than Wall Street's estimate of US$26.31 billion, but also fell 12% compared with the same period last year.

Samsung also recently released its second-quarter financial report, and specifically stated that the market has a relatively large demand for low-priced mobile phone products that consumers are willing to accept (including the Samsung A series), but the sales of the Galaxy S10 are disappointing.

Samsung said: "Sales of new Galaxy A series phones, including Galaxy A50 and A70, were strong, and smartphone shipments increased significantly. However, sales of flagship models remained in a downward trend due to weak sales momentum of the Galaxy S10 and stagnant demand for high-end products."

“95% of mobile phones are aimed at the mid- to high-end market,” said Stephen Stokels, CEO of Unreal Mobile. “In fact, there are many high-quality mobile phones on the market that cost less than $100. In fact, the technical difference between $100 and $1,000 phones is not as big as people think.”

The decline in consumer demand for high-end phones comes from many reasons. First, users are changing phones more frequently. Toni Sacconaghi, an analyst at Bernstein, previously said that iPhone users currently change their phones every four years on average.

Apple CEO Tim Cook also pointed out earlier this year that "consumers are holding onto older iPhones longer than in the past." Cook also said that factors such as consumer attitudes, especially in China, have also begun to play a role. In addition, although the design of mobile phone products is still being updated, for now, it still cannot arouse enough interest in most consumers, and of course it cannot prompt ordinary consumers to think about buying new phones.

For some digital product enthusiasts, they may replace the latest device every year, but most consumers may only care about the durability of their mobile phone camera and the life of the mobile phone battery.

Mobile phone manufacturers are well aware of this phenomenon. Apple launched the iPhone XR in September last year. The phone has advanced design in terms of camera and battery life, but the starting price of $749 still makes many consumers hesitate.

The more expensive iPhone XS ($999) and XS Max ($1099) also have better screens and better cameras, but for the majority of consumers, they are no longer willing to pay for them.

Samsung's A series of phones appeal to consumers who don't want to spend money on high-end models, and Google recently launched the Pixel 3a and Pixel 3a XL, which are only half the price of the Pixel 3 and Pixel 3 XL. Although Apple and Samsung can produce extremely sophisticated mobile phone products, it seems unnecessary for consumers to replace them with new ones within the next one or two years.

How can mobile phone giants improve their business vitality?

As competition in the global smartphone market intensifies in the second half of 2019, Samsung is planning to strengthen its product line lineup and add new models for the mass market. At the same time, Samsung Electronics' Network Business is planning to prioritize laying the foundation for its global 5G business expansion; the consumer electronics division expects TV sales to see seasonal growth and will focus on high-end TV products.

Samsung faces challenges not only from uncertainties in its mobile phone business, but also from changes in the global macroeconomic environment. Therefore, Samsung Electronics is continuing to invest to enhance its business capabilities, and these investments currently include business sectors such as 5G, semiconductors, artificial intelligence (AI), and automotive components.

Samsung's slightly declining financial report shows that not only its own mobile products have experienced a market decline, but the decline of Apple, an important partner, has also affected the performance of Samsung's mobile phone screens, chips and semiconductor storage products.

For the second half of 2019, Samsung said it expects its mobile business to recover further due to increased market shipments and production. Industry analysts also pointed out that as the smartphone industry increasingly adopts new-generation displays to accommodate 5G-related components in the next six months, the demand for OLED screens will grow steadily.

However, with the intensification of competition in the global mid- and low-end mobile phone market and the adjustment of inventory of old models, the increase in costs is likely to continue to lead to a decline in Samsung's mobile business profits. But on the other hand, due to the improvement of the market conditions of commercial 5G services in South Korea and overseas LTE networks, the earnings of related businesses may gradually increase.

On the other hand, Apple's service business revenue, which is the focus of development this year, is becoming a highlight. While the mobile phone business is declining, data shows that the revenue of Apple's service business has jumped from US$9.5 billion in 2018 to the current US$11.46 billion. In terms of revenue from other product lines, iPad and Mac revenues were US$502 million and US$5.82 billion, respectively, which also declined year-on-year; at the same time, Apple's wearable devices, home and accessories product division had a total revenue of US$5.53 billion in the third quarter, a significant year-on-year increase.

"This was our best June quarter ever," Apple CEO Tim Cook said in a statement. "We had record revenue from services, accelerated growth in wearables, iPad and Mac performance, and iPhone sales that are beginning to turn around."

It seems that the market for high-end smartphones is currently saturated, and expensive flagship products are no longer the first choice for the public. How to break this shackle? Obviously, all major mobile phone brands have their own plans.

From the financial reports of Apple and Samsung, we can see that although the sales of high-end mobile phone products are not good, they still have a huge advantage in other fields. In addition, in the near future, due to the further popularization of 5G commercial use and the emergence of foldable screen mobile phones, a new round of mobile phone replacement may be coming to us.