Investors Don't Believe the Smartphone Hype

The first six months of 2013 have been surprisingly tough for the shares of major smartphone manufacturers. Given the hype surrounding smartphones, tablets and how they're displacing traditional computers, one would have thought that the companies making smartphones would be every investor's dream. That is not the case however: the shares of every smartphone vendor in our sample are down since the beginning of the year, most of them significantly. On average, the shares dropped 14 percent, HTC being hit hardest with a 32 percent decline in market value.

So why is it that investors aren't buying into the smartphone hype?
Well, for some of the companies the explanation is quite simple: they are losing the smartphone game. Companies such as Nokia and BlackBerry were late to the game and never quite found the formula to build a smartphone that consumers actually want. But even those who did, namely market leaders Samsung and Apple, are currently struggling to keep investors happy. Both companies have created incredibly high expectations which they are now struggling to meet. The demand for high-end smartphones is slowly waning and future growth will probably occur mainly in the lower-end segment of the market, in which profit margins are much lower.

While Samsung is already strong in that segment of the market, it still makes most of its money selling high-end Galaxy smartphones. Apple on the other hand, has often made a point of not selling a lower-priced iPhone, because it would require compromises in design and build quality. The lackluster demand for the full-priced iPhone may have caused Apple's management to rethink, however, as rumours about the launch of a cheaper iPhone have been pretty consistent in the past few months.