Smartphone market's glory days are ending

With phone ownership reaching the saturation point in significant markets, a top analyst says the industry will find it trickier than ever to find new buyers.

The smartphone industry must find new ways to attract first-time buyers and upgraders.

Josh Miller/CNET

The smartphone industry's days of double-digit growth are likely behind it.

Smartphone ownership has reached peak levels in key markets worldwide, Carolina Milanesi, chief of research at Kantar Worldpanel ComTech, said in a report Tuesday.

In North America, 65 percent of consumers own a smartphone. In Europe, that number jumps to 74 percent. In China, the figure rests at 72 percent. This translates to markets with fewer and fewer first-time buyers.

With only incremental improvements in each new generation of phones, it's also harder to tempt smartphone owners to jump to new models. Just look, for instance, at the declining sales at Samsung or flattening sales at Apple. The situation is prompting phone makers to try new approaches, such as LG's new twist of modular add-ons to boost phone capabilities.

Market saturation is a quandary that won't be going away. To try to generate sales growth for 2016, Milanese said, phone vendors must focus on two tactics: Convince die-hard feature phone owners they need a smartphone and persuade smartphone owners they need the "next big thing."

Those tasks will be challenging. Many feature phone owners resist smartphones due to their higher prices and are unlikely to upgrade until their current device kicks the bucket. In countries such as the US, the range of available feature phones is dwindling, which will eventually force all consumers to opt for a smartphone. But those days aren't here just yet.

Existing buyers also need stronger reasons to upgrade.

In the US, 48 percent of smartphone owners expect to upgrade their device in the next 12 months. In the France, Germany, Italy, Spain, United Kingdom, that number is about the same at 46 percent. In urban China, the world's largest smartphone market, the figure drops to 28 percent. Among brands, Apple's iPhone is the No. 1 choice for smartphone upgraders in both the US and China. In Europe, the top spot belongs to Samsung.

"We believe 2016 will be the year when those in the smartphone market must go beyond hardware to succeed," Milanese said. "The industry has been talking about this for years, but the pressure to take that step is more palpable now than ever. Failing to do this will leave them with a smaller piece of a pie that is no longer growing as it once was."

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