Market Forecast: Rugged Mobile Phones Worldwide 2018-2022

September 2018 Update Rugged Market Segmentation and Definitions

. Rugged feature phone – Typically a bar handset with a standard 12-button keypad. – Housed in a ruggedized body running proprietary software. Rugged feature . Smart consumer rugged phones phones – Retain characteristics of a conventional smartphone, but clearly designed and marketed as a rugged device. – Usually meet IP Code certification of IP68. Drop-tested from a Smart consumer Rugged phones minimum of 1.2 metres (typically support rugged phones MIL-STD-810G standard). . Smart ultrarugged phones – Specifically designed for industrial use or extreme ruggedness. Smart ultrarugged – Commonly targeted at vertical market segments such phones as construction, industrial environments, retail, transportation, retail, forestry, emergency services. . Life-proofed smartphones – Consumer smartphones that have an IP68 certification Life-proofed smartphones or a shatter-proof screen.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 2 Scope and Further Definitions

. Scope of the forecast – Sell-in volume of rugged mobile phones at a regional level, with some country-level numbers. – Split according to a market-driven segmentation: rugged feature phones, smart consumer rugged phones and smart ultrarugged phones. – The forecast presents two scenarios for rugged phone shipments, high and low, with an explanation of the different sets of assumptions that drive the two scenarios. – Sell-in volume of life-proofed smartphones — worldwide only.

. Further definitions – Installed base of mobile phones refers to actively used mobile handsets. . Excludes inactive SIMs and other connected cellular-enabled devices (tablets, PCs, wearables). . A dual-SIM handset is counted as one device. – A smartphone is a mobile phone that runs an operating system featuring its own native application environment. Examples include Android, iOS and Windows Phone. This includes all form factors, for example, a fold (clamshell) phone running Android is considered a smartphone. – A feature phone (or non-smartphone) is a mobile phone that falls outside the definition above. It has no application extensibility — in the case of a low-cost entry-level device — or is reliant on the Java ME environment. A KaiOS phone is considered a feature phone.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 3 Methodology

. Very limited hard data is available about sales of rugged phones.

. This forecast is therefore produced on the basis of close collaboration with manufacturers of rugged phones, which have shared their views on market size, drivers of growth and expectations for the near and long term.

. CCS Insight held discussions with major players on the market and a few smaller companies, as well as with distribution channels.

. We have built this forecast using our deep understanding of the mobile phone market, including its size and growth rates, coupled with detailed knowledge of rugged devices on the market.

. All regional numbers are modelled "from the bottom up". Country-level numbers for three leading European markets, the US and Canada, are developed "from the top down", meaning they are split from the larger region.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 4 Confidence in the Forecast

. Our overall confidence in the mobile phone forecast is reasonably high. The trends on the market are established, and we check the market sentiment with all key players.

. Some splits and cuts in which we have moderate confidence are marked with a yellow traffic light. This applies to both scenarios.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 5 Changes from the Previous Forecast

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 6 Changes from the Previous Forecast

. The new forecast is revised down for 2018 to 2022; both the low and the high scenarios project shipments below the previous forecast published in July 2017. . The main reasons for this change are: – Reassessment of the market size in North America, Eastern Europe and Latin America in 2016, based on improved knowledge of the market, and better bottom-up assessment (that is, by volume of main manufacturer). – Lower than expected shipments in 2017, especially in North America, where Kyocera experienced major problems and is now about to exit the market. Further to that, we assessed markets to have been smaller than previously expected in Eastern Europe and Latin America (from a lower base in 2016), and in Western Europe (slightly smaller than expected). – Changed expectations about the speed at which mainstream mobile phone makers push into the rugged phone space. . Huawei, Lenovo, ZTE, TCL were among the companies we expected to attack the rugged market in 2018. . However, Lenovo, ZTE and TCL are currently focussing on the core smartphone business, which they struggle to grow, especially in the context of high component costs. . Huawei getting into the rugged segment is still a very likely possibility and it forms the basis of the high forecast scenario. – We have reassessed growth in China up, based on more, although still limited, information. . We continue to see established and new rugged device players increasing distribution and opening up new or underpenetrated territories. As a result, we continue to expect the rugged phone market to grow, only not as quickly as we previously projected.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 7 Changes from the Previous Forecast (July 2017): Total Rugged Phones

Total rugged mobile phone shipments, worldwide

Shipments (M) 70

0 2016 2017 2018 2019 2020 2021 2022

New forecast (low scenario) Previous forecast (July 2017) New forecast (high scenario)

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 8 Rugged Mobile Phone Market

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 12 Rugged Phone Market: Main Drivers of Growth

. High-end smartphones continue to move toward large displays without a bezel that are perceived as more fragile. . There is growing adoption of smartphones in many industry sectors. – Examples include construction, forestry, industrial environments, retail, transportation, forestry and emergency services. . Growing acceptance of Android in enterprises is positively affecting demand for rugged smartphones. . Improvements to the design of smart consumer rugged phones has made these devices more attractive without compromising their ruggedness. – This makes the devices more acceptable for business and personal use. . In the current "sea of smartphone sameness", there is growing consumer demand for devices that are clearly differentiated from mainstream products. – In this context, the "weekend adventurers" segment will find rugged devices particularly appealing. These are users who have an active lifestyle and who are keen to have a device that reflects this. . Improved efforts by main distribution channels has led to growth in sales in recent years. We believe this trend will continue, and expect further growth in underpenetrated channels and territories as distribution improves. . In the long term, we see a major opportunity to replace proprietary, private radio networks, such as the land mobile radio (LMR) system in the US and Airwave in the UK). Users of these networks, such as emergency services, often require rugged devices, although not necessarily phones. – Deployments in this area are often large. Examples include a single LMR roll-out in the US that will comprise more than 100,000 units. Airwave currently has 300,000 users in the UK.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 13 Smart Consumer Rugged Phones Will Generate Most Growth

Rugged phone shipments by type, worldwide (low scenario) Rugged phone shipments by type, worldwide (high scenario)

Shipments (M) Shipments (M)

70 70 64 2.9 Smart ultrarugged 60 60 54 48 2.7 50 50 45 43 2.9 Smart consumer 2.5 40 37 2.7 rugged 40 37 33 2.5 2.2 29 Rugged feature 29 57.5 30 26 2.2 30 26 23 1.7 phones 23 1.7 47.2 1.4 41.6 1.4 1.3 35.9 1.3 37.3 20 30.2 20 29.0 20.8 25.1 20.8 14.7 17.4 14.7 17.4 10 10 7.0 6.9 6.5 5.7 4.7 7.0 6.9 6.5 5.7 4.7 4.1 0 4.1 3.7 0 3.7 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022

. Smart consumer rugged phones will account for 72% of total rugged shipments in 2018. In 2022, this will grow to 87% in the low scenario and 90% in the high scenario. . Shipments of rugged feature phones will decline over the next few years, following the trend in the broader mobile phone market of smartphones displacing feature phones. . Smart ultrarugged phones will see good growth, but will remain a small part of the total rugged phone market owing to their high prices and very specific design and positioning.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 16 Rugged Feature Phones

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 21 Rugged Feature Phones Will Be Gradually Displaced by Smart Rugged Phones

Rugged feature phone shipments, worldwide % of total Shipments (M) feature phones 8 5.0% 7.0 6.9 7 6.5 4.0% 6 5.7 5 4.7 4.1 3.0% 4 3.7 3 2.0% 2 1.0% 1 0 0.0% 2016 2017 2018 2019 2020 2021 2022

. The shipments of feature phones, mostly to enterprises, are the same in both scenarios. . Competition against feature phones has intensified as the cost of producing entry-level smartphones powered by Android has fallen considerably over the past years. . Sourcing components for feature phones will become more difficult and expensive. We expect rugged feature phones to follow the trend in the overall market of being displaced by low-end smartphones. . However, a small number of feature phones will remain on the market for a few years beyond the forecast period.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 26 In 2022, 37% of All Smartphones Sold Are Forecast to Be Life-Proofed

Life-proofed smartphone shipments, worldwide Shipments (M) % of total smartphones 800 60%

700 670 600 50% 600 40% 500 450 400 375 30%

300 267 214 20% 200 10% 100 69

0 0% 2016 2017 2018 2019 2020 2021 2022

. Life-proofed devices remain a major competitive threat to the rugged market. . Samsung's flagship Galaxy S series smartphones and mid-range Galaxy A series are life-proofed. . The new iPhones announced in September 2018 are life-proofed; we expect that future generations will be too. . Huawei has shied away from life-proofing its devices. However, we expect that it will introduce a life-proofed phone in 2019.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 28 Asia–Pacific Developed Markets: Potential for Solid Growth

Rugged phone shipments by type (low scenario) Rugged phone shipments by type (high scenario)

Shipments (M) Shipments (M) 10 10 9 9 Smart 8 8 ultrarugged 7.0 7 7 6.1 0.3 6 5.2 6 0.3 4.8 Smart 5.2 5 4.3 0.3 4.0 0.3 consumer 5 4.2 0.3 0.3 4 3.4 rugged 4 3.4 0.2 2.9 0.2 2.5 0.2 2.9 0.2 6.7 3 0.2 Feature 3 2.5 5.8 0.2 4.8 0.2 2 4.0 4.4 phones 0.2 4.8 3.1 3.6 2 3.9 2.2 2.6 2.6 3.1 1 1 2.2 0.1 0.1 0 0.1 0.1 0.1 0.1 0.1 0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022

. In the low scenario, we expect the developed markets of Asia–Pacific to exhibit growth, but at a decreasing rate thanks to market saturation. . In our high scenario, there is a solid upside potential of almost 2 million devices, driven by main consumer brands achieving better distribution and greater appeal to consumers with active outdoor lifestyles.

Market Forecast: Rugged Mobile Phones, Worldwide, 2018-2022 © CCS Insight 36 [email protected] ccsinsight.com @ccsinsight