Smartphone industry layoffs are coming, challenges are still to come

On September 1, 2015, the U.S. financial media CNBC reported that as demand for smartphones in the Western and Chinese markets has gradually decreased, the profits of smartphone manufacturers have declined, and the once popular industry has begun to see large-scale layoffs.

In the past few months, a large number of smartphone manufacturers and component suppliers, including BlackBerry, HTC, Lenovo, Microsoft, Qualcomm and Panasonic, have announced layoffs.

Panasonic announced 1,300 layoffs due to downsizing its mobile phone battery business, while Microsoft will lay off 7,800 employees due to restructuring its smartphone business. BlackBerry has not yet announced the scale of its layoffs.

Experts say that these large smartphone manufacturers and component suppliers are doing their best to find the next growth market, but at the same time their hard times are not over yet.

“The smartphone industry is reaching its limit,” said Neil Shah, research director at Counterpoint Research. “The layoffs are in two categories: hardware, where traditional vendors like Lenovo and Motorola are, and components, where companies like Qualcomm are.”

Saha said that as smartphones approach saturation in North America, Europe and China, a perfect storm is brewing: the smartphone market will see falling demand, increasing competition from a massive influx of low-priced Chinese-made phones and rising inventories.

Saha believes that most smartphone manufacturers, after achieving success in a particular market, will increase production capacity, but the result will only be oversupply.

"Take Motorola, for example. It did really well in Latin America. But as Huawei's low-priced products entered the market, Motorola's performance has been affected, and now it has a backlog of products," Saha said.

Market research firm IDC said that due to the above factors, global smartphone shipments will slow down to 10.4% this year, compared with 27.5% last year. Meanwhile, as the world's largest market, smartphone shipments in China are expected to grow by only 1.2% this year, compared with 19.7% last year.

The challenge is yet to come

Analysts believe that both smartphone manufacturers and component suppliers will face a tough road ahead.

“The era of easy growth, especially riding the China train, is over,” said Kiranjeet Kaur, senior market analyst at IDC. “It’s not that growth in the smartphone industry has stalled, but the problem is that there are too many competitors competing for the same piece of the pie.”

"At the same time, a lot of manufacturers have very low margins, prices continue to be under pressure, and volumes are no longer growing at a massive rate," Cole said. "So I don't think the tough times are going to ease up anytime soon."

Mark Einstein, an analyst at market research firm Industry Principal, also believes that the challenges facing the smartphone industry remain and there may be more layoffs in the future.

"We've seen a lot of companies in the smartphone industry get left behind," Einstein said. "The next one to watch is Sony and how it handles its smartphone business."

However, the smartphone market has not completely stagnated, and many companies need to seek new growth points.

"As far as we know, the next big opportunity is in wearables and the Internet of Things," Einstein said. "However, competition will be intense for a while as a large number of manufacturers change their business models."