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Why Smartphone Competition will Escalate in 2013

According to the latest market study by Informa Telecoms & Media, the smartphone market will start to diverge and sales will become dominated by two distinct categories -- low-end devices (priced below $150) and high-end devices (priced above $250).

Overall, the pricing trend is downward. More expensive smartphones will find their market share shrinking from 85 percent of total smartphones sold in 2011 to 33 percent in 2017.

In contrast, the low-end smartphones will gain significant new market share during the coming years to account for just over half (52 percent) of all the smartphones sold in 2017.

The smartphone market is undergoing change -- whereby demand will be increasingly polarized between expensive and heavily-subsidized handsets, and affordable devices targeting the emerging markets.

As a result, smartphone competition is becoming more intense.

The average smartphone price will drop from $188 in 2011 to $152 in 2017 -- as a result of balancing the huge demand for entry-level smartphones in emerging markets with the demand for super-smartphones in developed markets.

The average gross margin for a device is expected to remain flat -- in the range of 20 -25 percent. This is because smartphone vendors will increasingly be under pressure to absorb the cost of innovation while keeping up with price competition.

Informa believes that in order to remain profitable, some vendors will have to continue to reduce their operational costs, while others will struggle to maintain profitability.

"As the market develops, the supply chain will increasingly be divided between two camps -- the innovators who will continue to introduce new features and high-performance components to the market place and followers who will take this innovation to the mass market in later years," said Malik Saadi, principal analyst at Informa Telecoms & Media.

These changes will push some established manufacturers to reposition themselves in the new environment and come out with more effective handset-pricing strategies.

Only a few manufacturers will have the ability to operate right across the market, the great majority will have to focus on particular segments to reduce cost and maximize margins.

The established vendors will find it hard to adapt to the new smartphone landscape -- as this could take them away from their core business, servicing the core high-end smartphone market.

These smartphone vendors will have to make a strategic decision to either fight in the high-end segment, or alternatively face stiff competition by assemblers and Chinese ODMs in the low-end segment.

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