I've got a bad feeling about this...
Yes, it's fun reading all the shiny happy news from #CES this week. But the news from Samsung and LG this morning may actually be the most important thing going on in the tech world this week, this month, or even this year.
The #1, #3 and #7 global smartphone makers have now all preannounced significant (double digit) declines in revenues and profits compared to last year.
I estimate the total consumer tech industry in 2018 will end up being about $930 billion globally, but smartphones represented nearly 60% of that total: see chart below. Basically, as smartphones go...so goes the global consumer tech industry.
In the last few years, smartphone volumes (units per year) have been more or less flat at around 1.55 billion, but the average selling price (ASP) kept going up, both in 2016 and 2017, and reached $363 in early 2018. Some of that was because the phones were new and improved in various ways...but some of it (most of it in my view) was that the price of memory was unusually high and stayed high.
Memory prices have been going up and down for over 40 years now. Most recently we have been in a "super cycle" where prices went up more than usual (up 76% in 2017, for example), and stayed up longer than usual. Despite naive hopes from some investors that "this time is different" and prices would stay high forever, they haven't. They peaked in January and have kept dropping throughout 2018, steepening recently. (Part of the Samsung revenue and earnings miss announced this morning is due to this collapse in memory prices.)
How much does memory matter for phones? When I look at the cost (bill of materials) of a high end phone in Sept 2018, memory is a big chunk. For the iPhone XS Max, the screen was the single most expensive component, at an estimated $120, then the physical case was next at over $70. Memory was third at around $40...for 64GB. For a 256GB version it would be around $120, while a 512GB device would be around $200 for the memory alone. Those are the costs for the manufacturer. At retail, that $200 memory might represent $500 of cost for the consumer.
If memory prices continue to fall, we could see smartphone ASPs fall this year, and fall sharply. Unit volumes may also decline. If I use a 2-3% unit decline, and a 10% ASP decline, the dollar value of the global smartphone market would decline by $60-75 billion. That is not a small number, and would mean that the dollar value of the total global consumer tech hardware would be down about 8% year over year.
All the cool products at CES won't even come close to offsetting that decline.