HomeEconomy NewsSmartphone slowdown hits where it hurts: Jobs

Smartphone slowdown hits where it hurts: Jobs

Over the past two months, a dozen manufacturers and component suppliers, including Blackberry, HTC, Lenovo, Microsoft, Qualcomm and most recently Panasonic, have announced layoffs.

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By CNBCTV18August 31, 2015, 12:28:48 PM IST IST (Updated)

Smartphone slowdown hits where it hurts: Jobs

As consumers in the West and China buy fewer smartphones, the slowdown is showing up in falling profits for handset makers, as well as sweeping job cuts across the once red-hot sector.



Over the past two months, a dozen manufacturers and component suppliers, including Blackberry, HTC, Lenovo, Microsoft, Qualcomm and most recently Panasonic, have announced layoffs.


The reduction in headcount ranges from 1,300 staff at Panasonic, which is scaling back its mobile phone battery business, to 7,800 at Microsoft amid a restructuring its smartphone business. Blackberry did not disclose the size of its layoffs.


And experts say that the pain is not over for the big smartphone and phone-component makers, as all search for the next big area of growth.


Read More: Smartphone market is slowing massively…blame China


"The smartphone landscape has led to breaking points," said Neil Shah, research director at Counterpoint Research. "There are two kinds of layoffs happening – one in the hardware space with traditional vendors such as Lenovo, Motorola – the other is the component space – with the likes of Qualcomm," he said.


As smartphone markets in North America, Europe and China approach saturation, a perfect storm is brewing, Shah explained. It's a combination of slowing demand, intensifying competition driven by the influx of low-cost Chinese manufacturers, and a buildup in inventory.


Many smartphone makers, after tasting success in a particular market, ramped up production only to be left with excess supply, he said.


"Motorola, for example, was doing really well in Latin America. But as low-cost players such as Huawei came into the market, it's been affecting their performance, so now they are sitting on inventory," Shah said.


With such factors at play, global smartphone shipment growth is expected to slow to 10.4 percent on-year in 2015, down from 27.5 percent in the previous year, according to IDC, a market research firm. In China, the world's biggest market, shipments are forecast to grow just 1.2 percent on-year in 2015, down from 19.7 percent in 2014.


Challenging times ahead


Nor is the business landscape going to get easier for smartphone manufacturers or their component suppliers going forward, say analysts.


"The days of easy growth, especially as many rode the China growth wave, are over. This is not to say that growth has stalled in the industry, but just that there are too many contenders for the same piece of pie," said IDC senior market analyst Kiranjeet Kaur.


Read More: Why BlackBerry could ditch its own OS for Android


"Also, now a large number of vendors are running on very thin margins, while the pricing pressure continues to increase and volume growth is not exponential anymore. I don't expect the situation to ease out anytime soon," she added.


Mark Einstein, Industry Principal at Frost and Sullivan agrees the operating environment will remain challenging, adding there could be more layoffs ahead.


"We've seen a lot of companies really fall from grace in the smartphone industry," he said. "The next big one to watch is Sony – what it'll do with its handset business. It's still up in the air," he said.


While the smartphone market isn't "over", many of these companies will need to find their growth elsewhere, said Einstein.


"The next big phase of growth, as far as we know, is going to be in wearables and the internet of things," he said. "But as manufactures shift their business models, it's going to be tough for a while."

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