Smartphone price drop: Is this when it starts?

Friday, 19 Jul 2013 | 4:32 AM ET
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Are we seeing the beginning of falling smartphone prices?

That's the question doing the rounds after news broke last week that U.S. mobile network operators and retailers are lowering the price of Blackberry's latest Z10 phone to as low as $49 with a service contract, from $199 four months earlier.

According to a research note from Macquarie, manufacturers of high-end smartphones may be forced to lower prices in the coming months, as the market nears saturation and users slow the pace of changing phones.

"We expect high-end smartphone demand to gradually plateau and price competition to intensify from the second half of 2013," analysts at the bank wrote in a report published late Thursday.

"High penetration rates in most developed countries and consumers' lengthening replacement cycles are causing a slowdown in sales growth of several leading smartphone brands," they said.

(Read More: Smartphone 'Saturation' Fears for Apple, Samsung)

With high-end smartphones likely to account for a smaller share of overall smartphone sales, this is also negative for companies operating in the supply chain, the bank warned, noting that component makers are already facing production cuts.

High-End Smartphones.... Boom or Bust?
Competition among smartphone makers is heating up and markets are becoming saturated, explains Ramon Llamas, IDC.

"(China-based LCD manufacturer) Tianma, for instance, has started seeing order cuts, and most companies are seeing decelerating growth and potential disappointment amidst high smartphone penetration," the analysts said.

For investors in the smartphone component space, the bank recommends avoiding companies with exposure to the high-end segment, in particular Taiwan-listed contract manufacturer Hon Hai, camera-lens maker Largan, South Korea-listed LG Innotek and Hong Kong-listed acoustic components maker AAC. These firms are vulnerable to a slowdown in orders from Apple and Samsung, the note said.

(Read More: Samsung Still Asia's Most Popular Brand, Beats Apple)

Macquarie forecasts Apple's next iPhone, expected to be released as early as September, to sell just 48 million units in the second half of 2013, down from the iPhone 5's 63 million in the same period last year.

It added that sales of HTC's award-winning HTC One smartphone is also likely to disappoint, expecting shipments to drop to as low as 1.8 million units in the third quarter against forecasts for 3 million, down from 3.5 million in the second quarter.

Shares of the world's top smartphone makers Apple, Samsung and HTC have been under pressure this year, declining 18.9 percent, 16.4 percent and 43.9 percent, respectively, since the start of 2013.

(Read More: What Happened to Unstoppable Samsung?)

Earlier this month, Samsung released its second quarter earnings estimate which failed to meet analysts' expectations, hiking worries that the market for smartphone makers could be reaching saturation.

By CNBC's Ansuya Harjani; Follow her on Twitter: @Ansuya_H

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