Dixons Carphone’s warning on the smartphone market prompted a second battering of the share price in a fortnight.

The company’s note on “challenging conditions” came less than two weeks after a double downgrade by Exane BNP Paribas. That downgrade now looks like a well-timed call.

None of the shifts in the smartphone market that Dixons Carphone noted this week should have caught it by surprise – not least that technical advances in the mobile category have become more incremental.

However, its lamentation on the paucity of innovation came almost on the eve of a potentially major new iPhone launch.

Despite imminent Apple and Samsung launches offering hope to the smartphone market, Dixons struck a pessimistic note on prospects for the rest of the year.

The company said “it is too early to say” whether new handsets will boost mobile sales and that it is working on the basis that “overall market demand will not correct itself this year”.

Upcoming phone launches

That may prove unduly cautious. Next month, Apple will likely release three new iPhone models: the 7S, 7S Plus and the 8, though the iPhone 8 will probably be available in limited quantities at first.

We see the 7S as just a speed bump that will look like the iPhone 6 and 7.

Retailers will be pinning their hopes on the iPhone 8. It is expected to feature a radical new design, likely with an edge-to-edge OLED display, wireless charging and facial recognition.

We expect there to be some pent-up demand for the iPhone 8, and some iPhone 6 and 7 owners will have been waiting to upgrade to a new form factor.

“In the UK, the major uncertainty lies in how many shoppers will be willing to trade up to these new models in the face of currency impacts on handset prices and the squeeze on their spending power”

The Samsung Galaxy Note 8 will hit stores in September, too, and this should prompt some Samsung-lovers to upgrade.

Those retailers with ample stock will gain from this glut of launches – though the question is by how much.

In the UK, the major uncertainty lies in how many shoppers will be willing to trade up to these new models in the face of currency impacts on handset prices and the squeeze on their spending power.

We wait to see if smartphone upgrades will be one expense shoppers are willing to kick down the road.

Even if UK shoppers prove willing to spend and the new handsets spur an improvement in Dixons Carphone’s smartphone sales, this latest warning highlights the company’s vulnerability to the smartphone upgrade cycle.

The long-term risk is that if handset developments become more incremental, fewer and fewer shoppers will see a reason to upgrade their phones, making the replacement cycle ever longer.

John Mercer

John Mercer is a senior analyst at Fung Global Retail & Technology