The Chilling Thing Gartner Just Said About a Once Hot Engine of Global Growth

Hope took another hit from the reality of fickle, strung-out consumers.

Apple sold 1.5 million watches during the first week, about 200,000 a day, its most successful product launch ever. Before the launch, media hype had become a total-immersion program. No company has ever dominated the media like this. Today, MarketWatch reported that sales, based on data from Slice, might have plunged 90% since that week, to fewer than 20,000 watches a day, and on some days fewer than 10,000.

“The value of a smartwatch for the average user is still not compelling enough,” explained IT research and advisory company Gartner in its report on worldwide electronic device shipments.

But it’s not just smartwatches.

The other beacon of hope in the electronic device sector, the smartphone, got broadsided today by Samsung, which cut its Q2 guidance, expecting revenues to drop 8% from a year ago. Yet, in April, the company had launched its flagship Galaxy S6 which was supposed to boost sales. Samsung didn’t give details, but there are a few culprits, such as lousy S6 performance against its competitors, weak demand in China and Europe, and the old standby, currency headwinds.

Gartner now expects shipment growth in the once sizzling mobile phone market to slow to a barely perceptible 3.3% in 2015. The report points at China:

The global market has been affected by a weaker performance in China. We have witnessed fewer and fewer first time buyers in China, a sign that the mobile phone market there is reaching saturation. Vendors in China will have to win replacement buyers and improve the appeal of their premium offerings to attract upgrades, if they want to maintain or increase their market share.

So it’s going to get tough in the Promised Land of 1.36 billion consumers. Hence, hope has to move beyond China:

Vendors looking to grow their performance in the global smartphone market will be challenged to quickly enhance their expansion into emerging markets outside of China, where we still witness a sizeable share of feature phones and an opportunity for double-digit smartphone growth.

Crummy as 3.3% growth in mobile phone shipments may seem, it’s the only segment among these electronic devices that is growing at all. The others are shrinking.

Gartner expects global PC shipments to drop 4.5% to 300 million units this year. It blamed among others the end of the migration from Windows XP that had boosted sales last year, channel inventory reductions, and of course the corporate bugbear: the strong dollar, or more politically correct, “currency depreciation against the dollar.”

The recovery, if any, of the PC business has been moved unceremoniously to next year, hoping for Windows 10 to perform its magic. And it is hitting chipmakers.

Late Monday, AMD slashed its guidance, with revenues now expected to drop 8% sequentially, much worse than its previous forecast of a 3% drop, due to weaker-than-expected consumer PC demand. On Tuesday, AMD’s stock plunged over 15%.

In late June, chipmaker Micron reported a decline in quarterly sales of 3.2% year-over-year and a plunge in net profit of 39%. It also cut its guidance. Its stock plunged 17%. Other chipmakers were also taking on water, including Cypress Semiconductor, Intel, Qualcomm, SanDisk, and TI.

A new meme has been cropping up: the exposure of chipmakers to Asia, particularly after the stock market crash in China.

And the once white-hot “ultramobile” segment, which includes the iPad, iPad mini, Samsung Galaxy Tab S 10.5, Nexus 7, and Acer Iconia Tab 8, is freezing over. Shipments are expected to decline 5.3% year-over-year. Among them, tablets. Everybody had to have one a few years ago. Now Shipments are expected to drop 5.9%.

“The tablet market is hit by fewer new buyers, extended life cycles, and little innovation to encourage new purchases,” the report said. The tablet went from hot to “nice to have” without “real need” for an upgrade, unlike a smartphone that consumers still upgrade to get the latest features, at least for now. And smartphones with larger screens are eating into tablet market share. Instead of two devices, consumers just get a larger smartphone. Replacing two devices by one is the bane of business. And it’s killing smaller tablets.

So Gartner slashed its combined forecast for PCs, tablets, ultramobiles, and mobile phones. Total shipments are expected to inch up 1.5% to 2.5 billion units. Last quarter, it had still expected growth of 2.8%. In terms of dollars, which is what counts the most for US companies, end-user spending on these devices is expected to drop 5.7%. The first decline since 2010!

The “strong” dollar is easy to blame. The thing is, most of these devices are both made and sold overseas, which minimizes the impact on earnings of the “strong” dollar, though it may negatively impact the translation of revenues from foreign currencies into dollars. But companies hedge against this risk. And for US sales of devices made overseas, the “strong” dollar is a benefit as it lowers their costs. This leaves the broader problem of electronic devices that were once a phenomenal engine of global growth but are now too stalling.

And the exposure to China? Turns out, the government’s desperate stock-market rescue efforts have failed to stop the rout. Read… Chinese Stocks Come Totally Unglued Beneath the Surface

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  22 comments for “The Chilling Thing Gartner Just Said About a Once Hot Engine of Global Growth

  1. illumined
    Jul 7, 2015 at 9:43 pm

    I’ve never fully understood the mainstream idea that if a country’s savings rates are too low and debt is too high that somehow all will be well with even lower savings and even higher debt. Something’s got to give way, I suspect this next crisis will be where mainstream economic theories go to die.

  2. NotSoSure
    Jul 7, 2015 at 9:48 pm

    Good article, but I wouldn’t read too much into the iWatch thing. My friend in Alameda has it, but he worships at the altar of Fruit Company and reads the book of Jobs religiously, but anyways I wasn’t impressed as I had been by the iPhone, etc. The fact that you need another iGadget for it to function is a big joke, and they are ripping customers off on that strap.

    My thesis remains, when the sales of other iGadgets start to fall, I am going to start shorting the market. Apple is now IMHO truly the proxy of what remains of the America’s consumer market.

  3. LG
    Jul 8, 2015 at 12:42 am

    Still waiting when people and government figure out most of us are all broke! That be like the “China” syndrome of 2015.

    • interesting
      Jul 8, 2015 at 4:13 am

      broke is an understatement!! i’d cut off my pinky finger for 3% growth every year……hell i’d take 1% at this point since it’s been zero for 25 fucking years.

      • Xheesie
        Jul 12, 2015 at 3:25 pm

        HOW LONG IS IT GOING TO BE before Uhmerukunz wake up to the fact that we are witnessing the COLLAPSE of western industrial civilization and that YOU CANNOT have an INFINITE ECONOMIC GROWTH paradigm on a planet of finite resources–? Extractivism needs to stop and it WILL stop, one way or another– when idiots insist on using up all the natural resources to the point where it costs more than a barrel of oil to extract a barrel of oil, that’s the end of doing that kind of business. Better to jump ahead to the only next chapter we can realistically write and invest in the Slow Money movement, in things like truly renewable energy and, quite frankly, small, local organic farms that are sprouting up like mushrooms in surprising places (mid-city community gardens in large metropolitan areas, off-the-grid neighborhoods in L.A., etc.)– people producing food and goods where they are, NOT shipping stuff thousands and thousands of miles, grown and manufactured an equal distance away. Not sure about this, still? The U.N. reports that in fact it is the small farms that are supplying most of the world with it’s food.

  4. ERG
    Jul 8, 2015 at 8:05 am

    Think it possible that the gizmo market is saturated. After a while, you only need the mobile devices you have and adding more seems both unnecessary and a waste of money.

    • Vespa P200E
      Jul 8, 2015 at 10:43 am

      Agree. There’s appears to be no gotta have gadgets in the foreseeable future but glut of unsold stuff from China.

      Tablet – check, PC – check, phone – check, smartwatches – DOA more or less. The upgrade fantasy stories are getting unglued especially in the once red hot tablet market (I sold my Goog tab as just was not using it much), PC landscape (even for Macbook franchise but I did buy 2 for my daughters in last 1 yr), phone (only ‘cos my employer gives us new iPhone every 18 months and oldest daughter who had to have the newest iPhone), etc.

      Oh add fancy flat screen TVs where one can get 50″ RCA (now Chinese brand) at Fry’s for $299. Pretty much ALL saturated to hilt. There goes China’s growth engine of exporting electronics everywhere and EMS along with the component companies are in for shock…

      • Xheesie
        Jul 12, 2015 at 3:28 pm

        And just how much CRAP do we all actually NEED—??!!!

        NONE of this crap will run without batteries or plugging the crap into the wall.

        Electricity does NOT just “magically” come out of walls.

        Sheesh.

  5. Julian the Apostate
    Jul 8, 2015 at 8:11 am

    Looks like “everything old is new again” just slipped a cog. The Watch was doomed from the start. The Visionary and Barbarian phases (both fueled by Jobs) died when he did. Apple has slipped quietly into the Administrative phase, and while it will continue to be a powerhouse for years the edge is off. Speaking of sharp edges the falling knife lopped of China’s hand at the wrist. Coming soon to a theater near you…

    • Petunia
      Jul 8, 2015 at 9:51 am

      I totally agree that Apple died with Jobs. At least they turned the company over to a technical guy, instead of a marketing executive, to prolong the demise. I hope they stop throwing junk at the consumer to see what sticks. Jobs always put out a quality product.

  6. Petunia
    Jul 8, 2015 at 9:36 am

    The iwatch was a brick from the drawing board. A watch that has to be recharged every 8 hours, really? Who thought that was a good idea.

    • NotSoSure
      Jul 8, 2015 at 9:41 am

      Apple did?

      At this point, they expect worshippers to buy anything really.

      • Petunia
        Jul 8, 2015 at 9:54 am

        If I had been at the meeting where the decision to put this watch on the market was decided, I can guarantee you I would have been fired. This is why I don’t work in tech anymore.

      • Vespa P200E
        Jul 8, 2015 at 10:50 am

        The idiot AAPL worshippers bought theirs to show off but some were ridiculed. Looks like there isn’t much of sales anyway per Wolf’s article. And we have some real idiots literally worshipping Jobs too.

        BTW – MSFT actually developed 1st smartwatch back in 2003. I spoke with them while I was at MSFT and the project died in couple of years. It used wifi to download weather and stock tickers with low battery life.

        What’s really funny is that MSFT was afraid and at the same time very envious of Nokia back then. I still have this orange hat that says “Say NO to Nokia” when Pocket PC based “smart” phone were buggy piece of craps…

  7. Hal
    Jul 8, 2015 at 11:47 am

    the wife and I were out for a dinner several weeks ago when we saw our first 2 iwatches.

    We were seated on a patio at a nice restaurant when a group came in and putting PC aside, they were all from India. Their table talk was all computer systems and then I notices 2 had the new iwatch.

    If you will, the geeks and programmers bought them.

    I mostly wear my cheap casio but do have some nice watches for dress up wear. You know, the kind where when you look at them you see the time and not many buttons to futz with.

    the smart phone is something I woud llike to leave ion car and woudl love to just get a simple flightweight lip phone back.

  8. Mark
    Jul 8, 2015 at 12:19 pm

    A watch that is made in China for what 10 bucks. LIke the IPhone that is made for what 25 bucks. Heck the Chinesse are so dumb they have to outsource certain tech parts to Japan. As if these products cannot be made in North America. Even if it costs Apple 200 dollars to make an IPhone here, there still making money off of it making it here for 200 and selling it for 800. Greed. Greed. Greed.

    I own Zero Apple products and that is the way it is staying.

    Apple will see there day come and go soon enough just like everyone else who is ” trending ” right now. Forgotten and laid to waist on the side of the road just like yesterday’s Walkman by Sony. No different.

  9. ERG
    Jul 8, 2015 at 12:22 pm

    When you add a microchip to a typewriter (invented 1873) and a cathode ray tube (invented 1897) you get a PC.

    When you add a microchip to a watch (invented 1868) you get…

    …a watch.

  10. Vespa P200E
    Jul 8, 2015 at 12:57 pm

    Wolf – check out what our local newspaper said about iWatch today:

    http://www.sfgate.com/technology/businessinsider/article/It-looks-like-Apple-Watch-sales-are-tanking-AAPL-6371615.php

    Guess Mossberg left WSJ?

    When Re/code’s Walt Mossberg asked Apple’s Jeff Williams how many watches have been sold, Williams replied: “A lot, but not enough. The only number I’ll give you is that demand divided by supply is greater than one, and so that’s all I’ve got for you, Walt. It’s a lot.”

  11. David in Texas
    Jul 8, 2015 at 4:02 pm

    The trouble for these companies is that the marginal benefit of a new purchase of any of these products is essentially zero. I bought a new laptop last year (which I use extensively in my business), but only because my old one ran XP. My new PC boots up a bit faster and has an internal numeric keyboard, but doesn’t really do anything my old machine didn’t. Same with the iPhone. I have a 4s that I am happy with and see no reason to replace.

    And speaking of Apple, has anyone else noticed how their customer service has fallen? I went into the Dallas store to check on my battery. There were the usual trendy blue-shirt wearing crowd – about 25 of them – but none of these people actually knew anything. Instead they told me I had to make an appointment with one of their Genius Bar people, with a time window almost as bad as the old cable companies.

  12. Cocoabean
    Jul 8, 2015 at 6:53 pm

    The economy, flooded with overcapacity, crummy margins (if any), peak consumer debt and stagnant to falling real incomes, is a shell of its former self. There is little to no REAL economic growth taking place and yields have disappeared. Desperate yield-seekers speculate from asset class to asset class, increasing their leveraged bets each time in the casino. No one really wants to actually innovate, take risks, or invest in this economy.

    Is it any wonder that stocks that can show even the most miniscule actual growth are vastly overpriced today? As is a lot of junk too…

  13. Praedor
    Jul 9, 2015 at 7:54 am

    Well, duh. Phones just wont keep up the rampant expansion of yesterday. This is what happens when the market is largely saturated. Once you’ve gotten yourself into every nook and cranny with your computer (1990s) or smartphones (2000s) then you just can’t push more into the saturated market. You do that and you merely form a precipitate that falls out of solution. Sorry, but minor tweaks and changes in colors will only drive the most idiotic fanboys to buy the latest shiny. Most people have their phone and it works so why buy yet another one? Hell, I could have told Apple that their “smartwatch” was going to tank. Who needs that thing but a super-dweeb fanboy? I like my real watch, thank you. It does what I want it to do: tells me what time it is and can go with me when I scuba, where time is critically important. Smartwatch? Meh. Silly crap, wrist spyware, a trinket for people with more money (or love of credit debt) than sense. Those with Apple smartwatches I put into the same basket as people who always jump into line to overpay for the latest iPhone: “OOOOH, but look at it! New case color! And it’s even bigger than the last version so it wont fit in my pocket anymore! I WANT IT!”

    Idiots.

    • Xheesie
      Jul 12, 2015 at 3:36 pm

      “Silly crap, wrist spyware, a trinket for people with more money (or love of credit debt) than sense.”

      Thank you for this Island of Sanity in a near-totally insane world gone mad with Love of Money and all the stooopid little gadgets that too many just “have to” buy in order to somehow feel okay about themselves.

      If I read the writing on the wall here, Apple and similar tech companies will tank if, in their frenzied attempt at keeping up with the electronic Joneses, they just keep putting their eggs in the “Ephemerals” basket– and it’s aaaaall been looking pretty ephemeral to me, pretty much the entire time.

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