At this time last year, the global economy was deep in the doldrums. The COVID-19 pandemic was rapidly spreading, shuttering factories and closing down offices the world over. Demand in most American industries, including the smartphone industry, plummeted. But unlike the recovery following the recession of 2008-09, the US economy has come surging back to life. The unemployment rate has declined with the reopening of local economies and the start of vaccination drive in early spring. Unsurprisingly, the US smartphone market has largely recovered as well. But both of these recoveries have been uneven.

Commentators have been quick to note the different ways in which the pandemic impacted the US population. Many high earners were able to ride out the pandemic by working remotely. Mid- and low-earners, primarily consisting of factory and service workers, whose labor is more intimately tied to their place of work, were not so lucky. This resulted in unemployment rates that still exceed pre-pandemic levels.

The smartphone market has not been immune to these macroeconomic trends. According to our North America Channel Tracker, demand for premium devices (priced $600 or above) has increased by 20% so far in 2021 when compared with the same period in 2019 (2020 is a poor comparison due to the unusual situation of the pandemic). Sales of devices priced below $100 are down significantly, however. Sales should continue to pick up as service workers return to work and their bank accounts recover. But for now, the US smartphone market is significantly bifurcated.

This bifurcation between the premium and low-end segments of the smartphone market has been exacerbated by another factor: aggressive postpaid competition. As Verizon and AT&T prepare for their nationwide 5G buildouts, they have been looking for new sources of revenue. AT&T began offering up to $700 off the iPhone 12 (and up to $800 off the Galaxy S21 5G) for existing customers and switchers back in Q1, but only with a trade-in and subscription to a high-revenue unlimited plan. Verizon began a similar promotion for both existing customers and switchers in June, helping to upgrade its base to higher-revenue plans that will help offset the cost of its network buildout. All of these free or nearly free iPhones and Galaxy S21 devices are putting more premium devices into the hands of subscribers who can afford unlimited plans, even as low-wage earners struggle with the consequences of the pandemic, resulting in depressed low-end demand.

AT&T Trade-in Promotions

This bifurcation should gradually correct itself as low-wage workers reenter the US economy. But it is likely that premium demand will remain elevated for at least the rest of the year. The aggressive competition between Verizon and AT&T as they work to catch up with T-Mobile’s 5G advantage will not be going away anytime soon. It will keep promotions attractive and the iPhone 12 and Galaxy S21 coming hot off the shelf.