In Smartphone Market, It’s Luxury or Rock Bottom

Xiaomi became the world’s most valuable tech startup, worth $46 billion. And the recent blowout quarterly results for Apple were credited to just about everything -- from consumers’ lust for big phones to Chief Executive Tim Cook ’s steady hand on the tiller -- except for the most important factor of all. Apple and Xiaomi’s successes reflect the world’s growing income inequality. It demonstrates a trend that has damaged the fortunes of just about every smartphone maker other than Apple, Xiaomi and a couple of other companies at the low end of the market: a hollowing out of demand for smartphones priced in the middle range.

If current macroeconomic trends continue, two things will happen. The first is that, as long as it can maintain its luxury brand, Apple should continue to show strong revenue, if not growth. Analysts say there are about 350 million iPhones in use in the world, which means Apple has already captured nearly 5 percent of the world’s population. The second thing that will happen is that the average selling price of Android phones will continue to drop, as manufacturers battle each other to offer the most value at the lowest price. The good news in this fight is that hundreds of millions of people gaining access to the cheap but serviceable smartphones made by Xiaomi is hardly a Dickensian outcome.