The coronavirus pandemic has truly shocked the world and has had a significant impact on almost every aspect of our lives. The tragic impact it has had on the families that have lost loved ones is immeasurable, and it has created economic uncertainty and caused stock markets around the world to crash. It has also affected how we work: Almost every company has introduced remote working to keep employees safe. Finally, it has had a profound effect on how we interact with our friends, families and loved ones. Video calling has become a lifeline during this time. Perhaps for the first time in history, people have had to make a choice between working and staying alive.
More than ever, mobile devices have been an essential tool in keeping us close at a time when we are physically distant. But just like many industries, the mobile device market has also been impacted by the virus because it is reliant on Chinese production lines. In fact, 70% of all smartphones sold globally are produced in China.
Chinese companies including Huawei, Xiaomi and Oppo have all been impacted by the virus. Original equipment manufacturers (OEMs), such as Apple, have also felt the impact, given that all iPhones are produced in China. South Korea’s Samsung and LG were also forced to shut down factories.
It comes as no surprise that shipments of new devices in February fell by 38% year on year, according to research firm Strategy Analytics (as reported by the BBC). Even with production ramping back up, retail stores across the U.S. and in many other parts of the world are not open to foot traffic. In early April, Samsung revealed its quarterly profit projection is near its lowest level in five years.
While there is no doubt that the market is feeling the effects now, history tends to repeat itself, and after both the 2001 recession and the 2008 financial crisis, the smartphone market came back with double-digit growth the following year. Therefore, it's safe to believe that the market will find its feet once again.
The Secondary Device Market: Supply And Dependency
But the coronavirus pandemic isn’t only affecting the global device market. It’s disrupting the secondary device market too.
Asia is one of the biggest markets for pre-owned mobile devices, and there is a strong demand for high-quality and affordable used devices because many people are unable to afford brand-new devices. But as device manufacturing and shipments have declined, repair and refurbishment facilities have either closed or are operating in a limited capacity, limiting the availability of pre-owned devices.
Operators, OEMs and mobile device insurance providers rely on a steady stream of pre-owned devices to supply their warranty and device protection programs. Typically, these pre-owned devices are collected through buyback and trade-in programs. These programs allow consumers to trade in their old devices, and the latent value is used as credit to offset the cost of a brand-new one. For the operators, OEMs and insurance providers using these programs, they can have these old devices refurbished and use them to honor their device protection or insurance policies. However, if new phones aren’t being sold, pre-owned ones aren’t becoming available, and programs cannot be fulfilled effectively.
With a shortage of refurbished devices in the market, operators and OEMs will be left with no option but to use brand-new devices to fulfill device protection and warranty programs. This is a costly and unsustainable process and can quickly have an impact on the profitability of warranty and protection programs, given the high price tag of new devices.
Adapt, Overcome, Trade In
In the short term, operators, OEMs and retailers will need to promote trade-in programs to bolster the sale of new devices and restore the supply of pre-owned devices. In doing so, not only will operators, OEMs and retailers meet their short-term need for new revenue; they will be able to collect pre-owned devices to meet the needs of their protection programs and maintain the profitability of these programs. Devices that are traded in are also sold into the secondary market. Despite market uncertainty, pre-owned devices have held their value during this time, and this is good news for operators, retailers and OEMs, who can incentivize consumers to upgrade and trade in their old devices by offering a strong trade-in value.
While the coronavirus has severely impacted the smartphone and secondary device markets, we are starting to come out on the other side. Although OEMs, carriers and retailers have had to temporarily close their brick-and-mortar stores, shifting customers to online purchases, not only are suppliers in China reopening their factories, but we are also seeing their stores beginning to reopen.
In the U.S, we will once again be able to spend time in person with family and friends, head back to our place of employment, and frequent our favorite shops and restaurants. And, without a doubt, we will also see demand surge for new devices as retail stores open again. But, for right now, it is more important than ever for operators, retailers and OEMs to continue to support consumers during this time through promotions and special offers, including trade-in programs, until the market finds its feet again.
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May 19, 2020 at 06:20PM
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How The Decline In New Smartphone Sales Is Impacting The Pre-Owned Device Market - Forbes
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