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Originally published March 23, 2014 at 8:00 PM | Page modified March 24, 2014 at 6:52 AM

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HP, Intel may be too late to profit from smartphone boom

Although smartphones remain wildly popular, their sales — about $338 billion last year — are growing at a slower pace and their prices are dropping fast, making it harder to wring a profit from them.

San Jose Mercury News

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The smartphone business has generated staggering wealth for companies such as Apple and triggered a recent scramble by Hewlett-Packard and Intel to try for a piece of the action.

But it now looks like its best days may be behind it, a troubling trend for companies that have hitched their fortunes to the smartphone juggernaut.

Although smartphones remain wildly popular, their sales — about $338 billion last year — are growing at a slower pace and their prices are dropping fast, making it harder to wring a profit from them.

That comes at the worst possible time for Intel, HP and other tech companies whose businesses heavily depend upon the personal computer. With PC sales dwindling, they’ve been urgently seeking ways to tap into the smartphone boom, but some analysts think they may be too late. Even mighty Apple is considered at risk because it gets the vast majority of its revenue from the iPhone.

“It’s a huge problem for Apple” and “too little, too late” for HP, which recently introduced two smartphones, said Bill Whyman of the International Strategy and Investment Group. For months, he has been predicting what he calls “the end of the great smartphone boom.”

Some also worry about Intel, which makes most of its money selling chips for PCs and is trying to expand into smartphones.

“By the time they gain meaningful traction” in the phones, said Mark Li, an analyst for Bernstein Research, “the market might have become so mature and low-margin that it isn’t worth entering.”

Smartphones have been around in various forms since the 1990s, but their popularity soared with Apple’s iPhone launch in January 2007.

Today, about 55 percent of adults in the U.S. own a smartphone, compared with 37 percent in China, 21 percent in Mexico and 11 percent in Indonesia, according to Pew Research Center.

The greatest growth is in relatively poor nations, where most of the demand is for inexpensive gadgets. That is driving down their price and “creating challenging environments in which to turn a profit,” market researcher IDC reported in February. It predicted the average smartphone price of $335 in 2013 will drop to $260 by 2018.

The trend also could prove worrisome for Samsung, the world’s biggest smartphone seller, and for Google, whose Android operating system is used by most smartphones.

It also raises questions about HP’s timing.

Several years ago, HP had briefly dipped a toe in the phone business, using technology obtained from its 2010 purchase of Palm. But it stopped promoting the devices after they flopped with consumers.

“Unfortunately, people with decision-making power screwed it up,” said Ryan Reith, an IDC program director. Now that HP has decided to give the segment another try, he added, “they figure if we have to be playing catch-up, it’s better than nothing at all.”

Other companies that could be hurt by the global trend toward less expensive phones include suppliers of components for the devices, such as chipmakers, since less costly phones typically use fewer circuits than more advanced versions.

ARM Holdings, a British company whose chip designs are used for the vast majority of smartphones, disclosed last month that it has suffered a slowdown in chip sales for high-end phones.

That would seem to bode ill for Intel, which only recently started getting its chips into smartphones.

“Cost decreases in computing devices are, and have always been, a fact,” Intel company spokeswoman Cara Walker said. “This is a good thing for consumers and for us as a manufacturing leader. We focus on what we can control, and that’s innovating and leveraging our manufacturing advantage.”

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