Things are about to get even uglier for the high-end smartphone market

Smartphone Q2 Sales Analysis

As it happens, Samsung issued a warning about its upcoming quarterly earnings literally hours before Walmart’s decision to discount the iPhone 5c to $29, apparently permanently. Oddly enough, smartphone chip titan Qualcomm’s share price has started lagging NASDAQ since early June even as overall tech investment sentiment remains giddy. Isolated events? Or omens of high-end gadget sales slowing down? Unfortunately, it’s probably the latter.

We’ve known for months that market growth for both high-end smartphones and tablets has started coming down faster in 2014 than anyone anticipated. In India, tablet revenue growth has slowed down dramatically, dropping to just 32% in the year ending March 2014. Rumblings about China’s weakening smartphone market have rolled around for months. Way back in February, Gartner noted slowing smartphone growth globally and softening trends in China in particular.

Several trends are conspiring to undermine high-end smartphone and tablet demand: The increasing popularity of 5-inch to 6-inch phablets is sucking the life out of proper tablet market, while a flood of cheap, sub-$200 smartphones is robbing demand from luxury smartphones that have displays of under 5 inches.

Vendors have been quite aware of these trends for a long time, but unwilling to fully acknowledge their potential impact in sales projections. This summer may be the turning point as orders for the pivotal back-to-school season are locked in. If retailers are not ordering the expected volumes of pricier smartphones outside of the phablet niche, we could see a fairly dismal second-quarter earnings season in July.

As phone vendors and chip companies start issuing autumn quarter outlooks in the coming weeks after the big tech stock gains of the early summer, we could be in for a bit of turbulence. NASDAQ’s surge over the past two months probably won’t hold up very well in the face of major hardware sector disappointments.

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