Forbes Magazine: Smartphone makers face a "massacre"

The online version of Forbes magazine published an article titled "HTC's Weak Outlook Confirms A Smartphone Bloodbath Lies Ahead" on Tuesday, saying that the smartphone market has become a mature market and will see a wave of mergers in the future. The existing many manufacturers will be reduced to a number that can be counted on one hand, and they will control most of the market share.

HTC One was once highly anticipated, but it seems that it failed to save the company's quarterly performance

The following is the full article:

HTC said Tuesday morning it will likely post an operating loss in the third quarter as competition intensifies in the smartphone market, leading to higher costs and more inventory. HTC forecast third-quarter revenue of NT$50 billion to NT$60 billion, down from NT$70.7 billion in the second quarter.

Some may be surprised that the besieged HTC is under pressure again, but is anyone really surprised by the "bloodbath" that is unfolding in the smartphone market?

As I've written about many times, the smartphone industry is going through the natural evolution of a maturing market; meaning that over time, the industry will be reduced to a handful of vendors that control the majority of the market.

It's like a movie we've seen before in the PC, DVD player, VCR (video cassette recorder) and other consumer electronics markets, and the endings of these "movies" are almost the same.

But what is different in the smartphone market is that in the just-concluded second quarter, Samsung and Apple accounted for nearly 47% of the market share. According to data released by market research firm Strategy Analytics, this share is lower than the 51% that the two companies occupied in the second quarter, because Apple's share was lower than the previous quarter, while Samsung's share remained unchanged at 31%.

The data showed that sales growth of high-end smartphones has slowed, even for Apple Inc.’s iPhone, which fell 16% from the first quarter, although it beat analysts’ average forecast.

Apple and HTC aren't the only ones feeling the pinch. Nokia and Samsung have also reported disappointing results, and BlackBerry has cut prices and laid off workers, all signs that the smartphone war between incumbents is about to get bloodier.

And that’s just one side of the problem. Another side is that Chinese manufacturers such as Huawei, ZTE and Lenovo are not only attacking the feature phone market, but have also begun to attack the smartphone market.

According to Strategy Analytics, Huawei and ZTE have both become the top five smartphone vendors, with a combined market share of just under 10% in the second quarter, up from the previous quarter and the same period last year. In other words, these companies' growth won't slow down anytime soon.

The average selling price of smartphones from these Chinese vendors is under pressure as other vendors are also increasing their share in the mid- and low-end markets, so profit margins are an important factor to watch. Before HTC expected an operating loss in the third quarter, Motorola Mobility, BlackBerry and Nokia were all already losing money.

With a steady stream of low-cost Android smartphones hitting the market and Apple expected to enter the market, the battle is only going to intensify in the second half of the year. The features of the various mobile operating systems are becoming more and more similar, so the problem for many vendors is that the only weapon they can use to compete is price.

In my experience, cutting prices has never been a winning strategy for either business or stock performance. Some companies have become the first casualties of the smartphone bloodbath, most notably Palm.

And I am sure that other companies will be victims in the future, and some will exit the market. Even Ericsson, which was one of the top three players in the mobile phone market, eventually left to focus on its network business, first joining forces with Sony to form Sony Ericsson, and then selling its stake to Sony.

More mergers are coming; it’s just a matter of time.