iphone 6Worldwide smartphone shipments will increase 26.3 percent year-over-year in 2014, reaching nearly 1.3 billion units, according to the latest IDC Worldwide Quarterly Mobile Phone Tracker market data service.

Looking ahead to 2015, IDC expects worldwide smartphone shipments will increase another 12.2 percent as global shipments grow to 1.4 billion units. The annual growth rate will decelerate in ensuing years, with unit shipments approaching 1.9 billion units in 2018 – a compound annual growth rate (CAGR) of 9.8 percent for the 2014-2018 period, IDC says.

Turning to smartphone market revenues over the period, IDC says these will be hard hit by the increasingly cutthroat nature of pricing, resulting in a 4.2 percent CAGR. “The impact of upstart Chinese players in the global market will be reflected in a race to the bottom when it comes to price,” Melissa Chau, senior research manager for IDC’s Worldwide Quarterly Mobile Phone Tracker, was quoted in a press release.

“While premium phones aren’t going anywhere, we are seeing increasingly better specs in more affordable smartphones. Consumers no longer have to go with a top-of-the-line handset to guarantee decent hardware quality or experience. The biggest question now is how much lower can prices go?”

Globally, average selling prices (ASPs) for smartphones will come in at $297 this year and drop to $241 by 2018, according to IDC — although those in mature markets won’t change significantly. Overall, however, “modestly higher shipment volumes will not drive up overall revenues as each generation of flagship phones shows less and less differentiation from its predecessors,” IDC says.

Smartphone Shipments Vs. Revenues
Holding true to form out to 2018, Android smartphones will drive growth in shipment volumes while iOS smartphones drive revenues, IDC highlights. Android will capture 80 percent of the global smartphone market by device and 61 percent by revenues, the market research company predicts. Apple’s iOS smartphone operating system (OS) will account for 13 percent of shipments and 34 percent of revenues.

The extent of Android’s domination in terms of smartphone device numbers means that any new mobile OS, such as Tizen and Firefox, can’t afford to compete solely on price, IDC adds. “Any underdog OS must bring a radically different appeal to gain any significant traction,” IDC states in its press release.

“As shipment volume slows, we expect greater attention to shift toward value trends,” Ramon Llamas, research manager with IDC’s Mobile Phones team, said. “Apple’s approach with premium pricing ensures a growing portion of overall revenues despite its declining market share.

“Meanwhile, Android’s multifaceted approach – with forked versions and low-cost Android One strategy – will produce mixed results, yet it allows deeper penetration into emerging markets. That can lead to additional pressure on its vendor partners, who will need to seek greater differentiation in terms of devices and experiences in the hyper-competitive smartphone market.”