App-laden, Web-surfing phones have surged in popularity over the past half-decade and generated $293.9 billion in sales last year alone. They are now used by more than 1 billion people around the world. With more than half of mobile users in the U.S. and developed countries owning a smartphone, and consumers in emerging markets including China and India gravitating toward cheaper models, demand is slowing for high-end devices.

The average price of a smartphone has plunged to $375 from $450 since the beginning of 2012, IDC estimates. That drop has already threatened revenue growth and profit margins at Apple Inc. (AAPL) and Samsung Electronics Co. (005930), and could further squeeze companies like Nokia Oyj (NOK1V) and BlackBerry that were counting on new products to revive sales. Beneficiaries include up-and-comers, such as Huawei Technologies Co. and Lenovo Group Ltd. (992), which specialize in low-priced gear.

“The days of great growth in the high end of the market are gone,” said Michael Morgan, an analyst at ABI Research. “It’s the Chinese companies who know how to survive on tiny margins that are ready for the fight that’s about to ensue.”

The decline in average smartphone prices is akin to what happened in the personal-computer industry in the late 1990s, according to former EMachines Inc. Chief Executive Officer Stephen Dukker. Back then, millions of people who wanted to get online for the first time snapped up cheap new PCs from EMachines and other low-cost providers, dragging down once-stable PC prices to $1,026 in 2002 from $1,898 in 1996, according to IDC.

By: DocMemory
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