Smartphone sales set for a screeching slowdown across the globe this year, IDC says

After growing more than 10 percent last year, global smartphone sales may barely stay in the green this year, according to quarterly predictions from the International Data Corporation.

Worldwide smartphone shipments will reach 1.45 billion units in 2016, a 0.6 percent growth rate, IDC forecasts. That's compared with 10.4 percent growth in 2015.

An employee hands off an Apple iPhone to a colleague at an Apple store in Palo Alto, California.
David Paul Morris | Bloomberg | Getty Images

Developing countries coming online this year are a key bright spot in an otherwise tepid market, according to IDC associate research director Melissa Chau. Shipments of 4G smartphones are expected to show double-digit uptake this year, driven by areas like Latin America, Central and Eastern Europe, and the Middle East and Africa, IDC said.

"It's been a long slog for 4G uptake in many emerging markets as 4G data tariffs have long been very expensive compared to 3G, while 4G handsets themselves have also been relatively pricey across the board," Chau said. "We are quickly seeing this change in key growth markets like India."

While Alphabet's Android ecosystem remains the most popular option in emerging markets, global smartphone saturation could put Apple at risk for negative growth in annual iPhone sales, IDC said. After three straight quarters of year-over-year declines in iPhone shipments so far, IDC estimates that iOS will end the year down 11 percent, while Android will grow 5.2 percent worldwide.

"By no means is this doomsday for Apple in this category and 2017 marks the tenth year of iPhone, so it is hard to believe Apple doesn't have something big up its sleeve," IDC's report said. "Challenges of low-cost competition remain, and Google getting into the premium space certainly doesn't make things any easier."

Apple CEO Tim Cook has cited "enormous" 4G investments in places like India as a big opportunity for the iPhone, but there are still key challenges there. The Indian iPhone 7 is expected to be up to $250 more expensive than in the U.S., nearing $900 — in a country where the average person made just $1,581.60 last year, the World Bank estimates.

"I think it's important to look not only at per capita income, but sort of look at the number of people that are or will move into the middle class over the next decade, and the age of the population," Cook told investors an earnings call. "The truth is, there's going to be a lot of people there, and a lot of people in the middle class, that are really going to want a smartphone. And I think we can compete well there. ... We're working very hard to realize that opportunity."

Google’s threat to Apple
Google’s threat to Apple

To be sure, IDC is less optimistic than many on Wall Street when it comes to Apple.

IDC predicts a year-over-year decline in iPhone shipments in the December quarter. Analysts surveyed by FactSet expect Apple to sell 78 million iPhones in the December 2016 quarter, up from 75 million from a year ago.

"The reason you buy an Apple product, an iPhone, is not the hardware itself, but its entire ecosystem: iOS, the App Store and so on," Amit Daryanani, managing director and electronic hardware analyst at RBC Capital Markets, told CNBC's "Squawk on the Street" on Tuesday. "You're seeing challenges from Samsung, from Xiaomi, from maybe a Pixel phone right now. But that's a hardware discussion. It doesn't change the value proposition Apple has as an ecosystem."

Abhey Lamba, senior technology analyst at Mizuho Securities, said that his supply chain checks in India and elsewhere show that iPhone demand is strong. But Apple faces supply constraints, with the iPhone 7 Plus out of stock in many locations, Lamba told CNBC's "Squawk Alley."

Still, it all comes as Microsoft and Google are focusing more on consumer hardware. Google's Pixel phone, released this year with Verizon, isn't close to a threat to Apple or Samsung yet, IDC said. Plus, Apple's on pace for a "mega-cycle" with its 10th anniversary iPhone next year, Lamba said.

"I still think Apple is going to win that game. Pixel is not as widely available as Apple," Lamba said. "This weekend I was out phone shopping, and I had a hard time finding a Pixel that I could play with. I walked into AT&T and they were essentially discouraging me from going that route. ... Customers are favoring Apple."