RAPID GROWTH IN RUGGED PHONES SEPTEMBER 2017 Rapid Growth in Rugged Phones How the market for robust mobile devices is going from strength to strength August 2017, Bullitt Group Research 1. Market dynamics Recent shipment volume estimates for the rugged smartphone market, by independent industry analyst firm CCS Insight, show that 17.7 Growth in the global smartphone market has million rugged smartphones shipped in 2016, slowed significantly in recent years, and is globally. This is forecast to grow to 22.2 million forecast at 6.8% year-on-year for 2017, taking units in 2017, representing a year-on-year shipments for the year to 1.6 billion units.1 increase of 25%. Continued year-on-year Within this vast global market, numerous smaller increases are forecast at a compound annual niche segments exist, servicing the specific growth rate (CAGR) of 18.9% (2016-2021), with needs of their target customer groups with the market set to reach 54.5 million units by differentiated products. 2021.2 Smartphone market year-on-year growth rates The market comprises devices clearly positioned 41.4% as ‘rugged’, and incorporates two sub- categories: 29.6% Consumer rugged smartphones: these devices 12.2% 6.8% are consumer-oriented and retain key 3.3% characteristics of a conventional smartphone. But, they usually carry an ingress protection (IP) 2013 2014 2015 2016 2017(f) rating of 68, and are drop tested onto a hard Source: Strategy Analytics surface from a minimum of 1.2 metres (4ft) – usually as part of support for the MIL-STD-810G One such niche – the rugged smartphone standard. Vendors include Cat® phones, market – is growing rapidly, and is expected to Kyocera, Samsung (Galaxy Active and Xcover), see continued growth, substantially beyond the Evolveo, RugGear, Crosscall, MTT, and many macro smartphone market trend. others. The global rugged smartphone market Ultra rugged smartphones: these devices are (units, millions) specifically designed for industrial use or to survive extreme rugged testing. They are usually 2.7 considerably more expensive, and will often be engineered to be non-incendiary and Intrinsically Safe, making them suitable for use in 51.8 1.5 hazardous environments. They may also 1.3 incorporate specialised software or hardware 16.3 20.7 features to support key line-of-business use cases in targeted industrial verticals. Vendors 2016 2017(f) 2021(f) include Sonim, Motorola Solutions, and Bartec Ultra rugged smartphones Consumer rugged smartphones Pixavi among others. Source: CCS Insight 1 Strategy Analytics, smartphone estimates and forecasts 2 CCS Insight, rugged smartphone estimates and forecasts 1 Of these two segments, the largest by far is the The level of mobile phone breakage was consumer rugged market, which is set to more revealed clearly in a recent survey of 5,130 than double in volume terms over the next four Western European consumers, which showed years. 34% of consumers - or one in three – had damaged their mobile phone in the last three Behind this significant growth trajectory are a years, in a manner that would ultimately require number of interlinked factors, explored in detail repair or early replacement. below: 23% said they had suffered a cracked display, 2. Demand for fit-for-purpose 15% said their phone had suffered another significant type of physical damage, and 9% had products sustained liquid damage to their phone – with some users reporting multiple incidents or types Mass market devices have long been prone to of damage. The numbers increase for users of accidental breakages. Too many consumers are high-end devices, with 45% and 36% of Apple being left inconvenienced and out of pocket by and Samsung owners respectively having the failure of mobile products to withstand their damaged their phones in the last three years. use in everyday life and challenges for which they Similarly, for those working in industrial verticals were not designed or intended. With aesthetics (construction, agriculture, mining and quarrying, the core driver of flagship industrial designs, this engineering and manufacturing), the proportion issue is only set to become more acute. The of consumers that report having damaged their fragility of screens is a particularly substantial phone jumps to 42%.3 problem, exacerbated by design trends towards edge-to-edge displays with minimised bezels, In light of the prevalence of mobile phone and curved glass. For many customers (about damage in the mass market, that growing 60%)3, this necessitates an immediate numbers of customers are choosing to seek investment in an aftermarket protective case - a devices that are tougher and more fit for their fact that counter intuitively obscures the highly purposes should not be surprising. prized sleek design of the product itself. Yet others require a product that is fit-for-purpose; 3. Proposition relevance built to survive the knocks, drops and scuffs that their mobile device endures day-to-day. Consumer rugged devices from leading vendors Consumer rugged devices offer a compelling, offer relevant features that enhance their more hard-wearing alternative for such suitability for use in many scenarios. Such customers. features are rarely seen on mass market handsets. They include drop proofing, true water Proportion of consumers that have damaged and dust proofing, high capacity batteries that their mobile phone in the last 3 years in are too large for many ultra-thin mid and high- Western Europe end smartphones, bright touch-screen displays readable in sunlight and optimised for outdoor use, with thick tempered glass protection and 34% support for input with wet fingers or while wearing gloves. Source: Bullitt Group Research, with YouGov 3 Bullitt Group Research, Damage Report Survey with YouGov, 2017. 5,130 respondents across France, Germany and the United Kingdom. 2 4. Total cost of ownership (TCO) smartphones will often prove more economically prudent. Fundamentally, rugged devices are engineered and tested to be robust, and to break 5. The consumerisation of rugged substantially less often, despite regularly being used in significantly more demanding and rough Across information and communication conditions. While rugged devices often technology markets, consumerisation has been command a premium in the market, due chiefly evolving buying trends within the enterprise to the increased associated engineering costs, space for years now. In mobility, corporate they can often deliver dramatic total cost of device deployments today routinely involve roll- ownership (TCO) benefits to individuals and outs of mass market consumer-oriented organisations. For instance, a single screen products that either include sufficient enterprise repair on an Apple iPhone costs between $129 required features, or are adapted and secured and $149, while ‘other damage’ repairs can cost via Enterprise Mobility Management (EMM) or 4 up to $349 through Apple . Costs, though, Mobile Device Management (MDM) aftermarket extend beyond the monetary savings afforded software solutions. by fewer device repairs or replacement bills, into the costs and resource requirements associated In the rugged segment of the market, with the inconvenience of a mobile device being enterprise-grade ultra-rugged smartphones temporarily and unexpectedly unavailable. have been available for many years. However, the use of premium materials, the inclusion of An employee with a broken phone can easily find enterprise-grade security and other software themselves unable to complete their job until it features, and the incorporation of sometimes is replaced, or at least find themselves unable to redundant elements (e.g. barcode scanners, work efficiently. Meanwhile, where the device Intrinsically Safe certifications, etc.), render these has been deployed by a business, this will add to products prohibitively expensive for many the workload of the IT manager or coordinator businesses that nonetheless require tough, that must now arrange a repair or replacement, robust devices. In this context, a growing and perhaps provide and set up a temporary number of businesses are opting to purchase device for the employee. Dealing with isolated higher quantities of more affordable consumer incidents would be a significant inconvenience, rugged devices that fulfil their basic but the potential in some contexts for this to be requirements, rather than specifically enterprise- a regular issue affecting multiple staff members grade products with superfluous capabilities. constitutes a risk that some businesses are understandably eager to mitigate. 6. Bring Your Own Device (BYOD) A small study recently found that within the enterprise space, field staff are 18% more The opportunity for rugged devices to serve productive with rugged devices, and deploying professional customers in tough working rugged devices can be “upwards of 40% more environments is not constrained by the pace of cost effective” than consumer devices, with mass enterprise roll-outs either. 75% of Cat phone market products proving a false economy in customers are motivated to purchase their many circumstances due to hardware failure rugged smartphone, at least partially, by the rates.5 environment in which they work. Consumer rugged smartphones, sold through consumer- Where cost conscious individuals and facing channels, are finding their way into organisations reflect on TCO, rugged business, from micro and small organisations to large multinationals, as ‘personal liable’ or 4 Apple.com support pages 5 Rocket Consulting, ‘Why it