Is Facebook Stock The Best Mega Cap Tech Play?

Both smartphone market leaders Apple (NASDAQ:AAPL) and Samsung Electronics (OTC:SSNLF) released their latest smartphone devices and received cold reactions from the media, the public, and investors. The latest iPhone 6S and Samsung Galaxy S7 offered smaller technological leaps and fewer innovative value-added features than did the previous generations, which is a sign of a maturing market. In every consumer electronics segment, the first devices present most of the innovative technologies related to the new devices and the marginal improvement gen-over-gen slowly reduces until it reaches a point at which changes are so tiny that consumers have no incentive to upgrade or purchase a new one.

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When the market reaches that point at which consumers don’t find a reason to upgrade, it widens the refresh cycles for a product. The PC market experienced that a few years ago when it slowed down rapidly until it started to stabilize at a much lower level than before; the tablet market is going through that right now, and it seems that the smartphone market is on the verge of being a victim of that trend too. This is a clear sign of a market peak and an indicator of a decline in sales volume.

According to an IDC report, smartphone sales growth is expected to drop from 5.7% YoY growth in 2016 to 4.3% YoY growth in 2020. This decline in growth rates is mainly driven by a continuous decline in smartphone sales in China and North America.

Both Apple and Samsung are well aware of this trend, and they address it differently. Apple launched an iPhone upgrade program in which customers pay $32 to $45 per month to have a brand new iPhone every year with an AppleCare+ subscription and with no carrier obligations. This is a short-term resolution to the refresh cycle problem. However, in the long run, Apple addresses the concern of reduced iPhone revenues by focusing on adjacent segments, services, and autonomous cars. While revenues from smartwatches, tablets, and Apple Pay will probably not compensate the company for the revenues lost in the iPhone segment, the Apple Car is intended to replace the iPhone dominance in the company’s financials.