Is the Smartphone Boom About to Fizzle?

Is the Smartphone Boom About to Fizzle?

There's good reason to believe the smartphone boom in the U.S. is coming to a close. Although analysts are still good at making straight-line forecasts into the future, such as IDC's claim that smartphone sales will grow 33% this year, we're quickly reaching a saturation point.

Just look at what happened to the largest smartphone marker, Samsung, last month after analysts cut back their estimates of Galaxy S4 sales, as shipments came in at 74 million units, or 2 million less than forecast: its stock tumbled 13%, losing some $25 billion in value.

Apple as well has been stung by slowing growth, and even the expected introduction of the iPhone 5S won't be enough to prop up sales for long, while BlackBerry , which had pinned all of its hopes on its Z10 phone, is finding carriers slashing the price to just $50 from $200 a mere six months after its introduction. Nokia was also hoping for a big splash when it switched over to Windows Phone devices, but sales cratered 27% from the year-ago period.

According to comScore, 59% of the smartphone market has been already penetrated, with 141 million people in the U.S. owning a device. Apple and Samsung dominate the subscriber ranks, with almost two-thirds of all subscribers belonging to one or the other (Apple is well ahead with almost 40%), but Android devices lead the way, with more than half of all subscribers owning one. It says that while there's still growth to come, it's about to slow down, and perhaps dramatically so.

The one bit of hope is that international sales of smartphones will pick up where domestic sales falter. The market researchers at IHS say smartphone penetration around the globe hasn't hit even half of what it is in the U.S., and shipments are expected to hit 1.5 billion units by 2017, growing at a compound rate of almost 16% annually.

Carriers, though, could derail that outlook as they stop subsidizing the device makers. T-Mobile started the ball rolling by announcing an end to the subsidy practice, while Verizon and AT&T unveiled early upgrade programs that has consumers paying full freight (T-Mobile has its own early upgrade program, too).

With the full cost of the phone now resting with the consumer, even if it's paid for monthly, the dominance of the premium brands is likely to come to an end. Instead, we'll see low-cost alternatives out of China from manufacturers such as Huawei and Lenovo.

Despite analyst projections that handset sales will increase by a third in 2013, which sounds like pretty robust growth regardless, it's below the 36% growth realized in 2012 -- which itself was down from 50% growth the year before.

The smartphone industry isn't about to keel over and die tomorrow, but investors should realize that the order of things is changing, and today's winners won't be the same ones we see tomorrow.

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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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