Apple Inc. (NASDAQ:AAPL) is going to be a huge winner as the smartphone market surges in size, according to a new report from Citigroup. Citi expects over 700 mln and over 1.1 bln smartphone shipments in 2012 (+50% y/y) and 2013 (+60% y/y), respectively. Their growth assumption is 30% above the market and based on our view that low end smartphone shipments will surge in 2013 as quality significantly improves and prices erode faster than expected. Through 2015, Citigroup expects smartphone shipment CAGR of 35% versus 57% in the prior 3 years (2010-2012).
On the other hand, total global mobile phone sales are expected to grow at 10% CAGR (with 2012 and 2013 unit shipments of 2bln and 2.2 billion, respectively). This compares with 13% CAGR in the prior 3 year period (2010-2012). The slower growth is predicated on higher penetration rates as well as other devices (mainly tablets) that compete for consumer share of the wallet.
Citigroup analysts opine that at the high end (US$500+), Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) continue to dominate. At the lower end, internet/software companies will lead in US$200-300 phones and Chinese brand and whitebox players will annex the sub-US$200 segment many with a zero hardware profit model. Given the rising competition, they expect many traditional mid priced US$200-500 smartphones to be wiped out in the next few years, leaving little future for companies that lack high-end exposure.
Apple Inc. (NASDAQ:AAPL) benefited in the mobile devices market by providing a complete hardware platform, serviced by end-to end design (including chip design, hardware design, firmware, operating system, and applications), and has consequently created a new battleground for its competitors. The new eco-system battleground creates barriers to entry, limits competition, and favors large companies that can provide a complete, end-to-end solution.
Citi concludes with the following statement, ‘on our thesis of massive volume upside and evervgreater polarization of the market, Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) are the only ‘investable’ smartphone brands.’