Verizon’s comments on the smartphone market
Speaking of Verizon Communications Inc. (NYSE:VZ), the company made some interesting comments about the smartphone market in general on its last earnings call. Although it sees new smartphones as a continued area of revenue growth, it believes that competition is spurring a price war between competing smartphone giants.
Fran Shammo, Verizon Communications Inc. (NYSE:VZ)’s CFO, remarked:
“So around this, again, I go back to, if you look at the history of basic phones and what happened over time, again I think the smartphone category will also follow this, where, as the competition and innovation, as new phones come to market…as more ecosystem comes here and more competition happens, the cost of these phones will eventually start to decrease.”
“And we’ve already seen some of this competition happen in certain categories, with the decrease of smartphones. We’ve launched smartphones in prepaid. That gives you an indication that there’s some low end smartphones out there, because we really don’t subsidize much on the prepaid product.”
Verizon Communications Inc. (NYSE:VZ) noted that the increasing shift from 3G to 4G smartphones has led many subscribers to move to shared data plans — leading to higher revenue per account.
But the move from, for example, the 3G iPhone 4S to the 4G iPhone 5 does not appear to be a driving factor for the actual smartphone companies themselves. Apple continues to sell a great deal of older model iPhones.
Apple bounces back
Apple Inc. (NASDAQ:AAPL) shares have gained over 10% since their recent lows, but most of those gains seem to have come from the company’s capital allocation plan — not on hopes for future growth.
Given the comments CEO Tim Cook made on the company’s last earnings call, the Cupertino tech giant likely won’t have a new iPhone model available for several months. Accessory products like an iWatch could help Apple’s overall iPhone business, but the company’s modest guidance would suggest that not even Apple expects much iPhone growth.
It wasn’t long ago that Apple had a virtual monopoly on the smartphone market, but times have changed. In addition the aforementioned S4 and One, Apple must also contend with competing products from LG, Motorola, Sony and even BlackBerry and Nokia Corporation (ADR) (NYSE:NOK).
Apple might not be the worst investment from a value standpoint, but the iPhone is no longer capable of generating the type of impressive growth Apple has seen in recent years.
Has the smartphone market matured?
The bottom line is that the smartphone market appears to have matured at this point. The screens might improve a bit, the processors might get faster, but innovation seems to have slowed significantly.
The only markets left to exploit seem to be at the low end. This might lead to more unit sales, but margins will no doubt be reduced.
That doesn’t mean smartphone stocks are guaranteed to be horrible investments — just that they won’t offer the type of growth investors have come to expect in recent years.
The article Looking for Growth? Avoid Smartphone Companies originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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