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Smartphone decline highlights the end of the profitable BabyBoomer-led ‘middle-market’

Consumer demand
By Paul Hodges on 06-Aug-2023

Smartphones were a great growth market, led by Apple and Samsung – and sales in China. But not today. Annual sales peaked in 2015-2017, and the growth is now in the second-hand market:

  • Global volumes have fallen 27% from an annualised 1.55bn in 2017 to 1.1bn in Q2
  • China’s volumes have halved from a peak 135M in Q4 2016 to 64M in Q2
  • Apple’s iPhone sales have plateaued since 2015 – they were 231M and 232M in 2022

The chart shows the story in terms of the major companies involved:

  • Samsung dominated in 2013 with a maximum market share of 35% in Q3, but are now just 20.5%
  • The top 3 Chinese players had just 9.6% share in Q1 2013, but are now at 32.4%
  • Apple have seemingly held steady – falling slightly from 17.5% to 16.7% in Q2

But a more detailed analysis highlights an important change in Apple’s strategy:

  • In 2013, Apple focused on selling Luxury high-priced iPhones and had a 17% share
  • Samsung’s 32% share dominated the middle market, with Value only 51%
  • But by 2017, Apple was down to 14%, Samsung to 21% – and Value was 65%

Since then, Apple have charged strategy to maintain market share and profits:

  • In the past, they focused on latest model iPhones. But today’s iPhone sites show every model
  • They are now happy for you to choose a cheaper, older, model instead of top-of-the-range
  • So they now offer the SE at €559 alongside the 14 Pro at €1349
  • And iPhones now dominate the second-hand market, with a 49% share

This highlights a vitally important shift in consumer markets.

The rise of the vast BabyBoomer generation changed the nature of consumer marketing. People no longer had to choose between Luxury and Value.

Instead, a new Middle Market emerged where buyers could pay a higher price and customise their purchase. In cars, for example, it became known as “Adding Go-Faster Stripes” to the model.

Thus VW, for example, use the same A series platform for the Audi A3 ($36.5k in the USA) and the Tiguan ($28.3k). And this strategy boosted profits as producers could spread their costs over a larger volume.

But now, as the chart shows, the Middle Market is disappearing. And we are going back to the more polarised world of Luxury v Value, before the Boomers arrived.

This means companies now have to choose their market positioning very carefully. The Luxury segment has high margins but is normally only 10%-15% of the total. And the Value market is fiercely competitive.


Unlike most companies, Apple don’t break down their Gross Margins by Product area. But last week’s quarterly report showed:

  • iPhone sales revenue fell 3.7% to $157bn in the 9 months to June 2023, from $163bn in 2022
  • Total Apple sales fell in every major region in the same period, except Asia ex-China/Japan
  • Total Gross Margin in the Products segment fell to $84bn from $90bn

Obviously, currency movements have a role in these changes. But essentially, Apple’s strategy is no longer focused on the Luxury and top-end of the Middle Market.

Instead, it is steadily building its share of the booming second-hand market138m second-hand iPhones were sold in 2022, and they now have 49% of the market.

These sales are no doubt, lower-margin –  but they also allow Apple to sell more services via its App Store.

Apple has been the world’s most successful company in recent years. Its example highlights how even Luxury-focused companies now need to build Services and new Value revenues to maintain market share and profits.