Thursday, August 20, 2015

Cell Phone Saturation?

If China’s economy is in for a radical change, it is because the world is slowing its purchases of manufactured products. Phones are a case in point. People first bought smartphones to replace earlier technology, then more capable replacements as the technology improved. The pace of purchases can slow as the technology matures. People also buy smartphones as replacements for phones that break down. Improved designs with better durability result in fewer sales.

In the second quarter total smartphone sales in China declined for the first time. Unit sales were down 4 percent from the year before, according to Gartner. China is the most important market for smartphones, and the decline there was almost large enough to cancel out the global gains in smartphone sales for the quarter. This is not a measure of economic weakness in China, but saturation. So many people have smartphones already that it is hard to find new customers.

We have seen this pattern before, of course. Global PC sales increased relentlessly for years, then declined. Televisions, a hot market five years ago, are a shadow of what they used to be. U.S. auto sales remain below the bubble levels of 2005-2007. In any durable goods market, economic theory says, if you sell enough of something, subsequent sales will slow down.

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