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How many smartphones does the world need?

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If you've "bumped" your Samsung smartphone against another to share photos you'll know how cool it is. The action, called S-beam, looks like a geeky high five. But a look at the share prices of the biggest phonemakers (down, year to date) doesn't inspire a celebratory gesture – only a question: how many smartphones does the world need?

The number already out there is easy enough to track. This year there will be 2.1 billion mobile broadband subscriptions worldwide, the equivalent of 30 per cent of the global population, according to the International Telecommunications Union. That is a decent proxy for smartphone usage. The 30 per cent is spread unevenly. Three quarters of the developed world having a smartphone, but only a fifth of the far larger emerging markets. Carriers think 85 per cent of the population to be peak penetration, according to Citi. Not every grandma or five-year-old will have one, after all. Taking recent growth rates and that 85 per cent, then the developed world will be saturated by next year, and emerging markets by 2016. There is potential, but it is not endless.

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Since 2007, subscriptions have risen at an annual rate of 40 per cent globally. Any sign of a slowdown is bad news for phonemakers. And there is another, equally serious problem: prices, which are falling and will fall further, pressuring margins, even at mighty Apple. Average phone prices have dropped from more than $500 (U.S.) when the iPhone took off to about $350, according to Citi, which sees prices below $300 in two years' time. Then there is the cost of selling the things. Samsung sold a whopping 10 million units of its Galaxy S4 phone in its first month on the market. But the associated marketing cost helped produce a 3 per cent decline in the mobile segment's operating margin for the latest quarter.

Samsung's S-beam is indicative of another trend. The latest smartphone features are marginal improvements. Emailing shares photos perfectly well. Short of another killer use for phones, makers are drifting towards sluggish, unsexy replacement cycles. Geeks will watch for the latest models, while shareholders' eyes stick to those thinning margins.

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