For its part, Apple is trying to offset declining iPhone sales with such services as iCloud, Apple Music and the App Store. Profit margins are fatter on these businesses and revenue from them grew 20 percent in the second quarter. Still services account for just 12 percent of sales.
Like many tech companies, Apple is exploring the automobile industry, where new automated-driving features and advanced entertainment and information systems are creating new opportunities to sell components and software now commonplace in smartphones. Still, an Apple car is probably years away, and some analysts wonder if it will hit the streets at all. The shares have fallen 26 percent in the last 12 months.
Samsung, despite reporting solid sales of the Galaxy S7 last week, is looking beyond the smartphone, too. With investors expressing concerns about its next hit, the company is touting virtual-reality gadgets and pushing hard into the Internet of Things.
In October, Flextronics International Ltd., a long-time assembler of smartphones for companies including Blackberry and Motorola, struck a deal with Nike. To augment its business making car components, medical devices and FitBit Inc. wearable gadgets, the company has started making clothes and shoes, some of which could have technology weaved into them.
The most aggressive diversification won’t necessarily protect companies from their exposure to smartphones. Texas Instruments Inc.’s first-quarter revenue fell 4.5 percent despite growing demand for components from makers of cars, phone networks and industrial equipment. It doesn’t help that TI’s biggest customer is Apple, according to Bloomberg supply chain analysis.
It’s hard to imagine one single thing replacing the smartphone, said Neil Mawston, an analyst at Strategy Analytics. So companies must dabble widely, he said, in the Internet of Things, drones, consumer robots, wearables, smart homes, cars and offices. “That cocktail is the next big wave beyond phones, rather than one big new segment.”
Is that cocktail big enough to keep the party going? Mawston is skeptical. Consider the Internet of Things. Strategy Analytics says there will be five billion connected “things” by 2020, compared with four billion smartphones. But most of IoT devices will cost $1 or $2 and won’t need replacing for five to 10 years -- hardly a replacement for smartphones that cost hundreds of dollars and are replaced every two or three.