Amid higher inflation and interest rates, a larger percentage of survey respondents are waiting to replace their device every five years or longer versus a year ago. Source: Geber86/E+ via Getty Images.

Feeling the dual pinch of inflation and interest rates, consumers are holding on to their existing technology devices longer than they did in the past.

While enthusiasm for consumer technology products like smartphones and laptops remains high, especially among younger consumers, survey data from S&P Global Market Intelligence 451 Research indicates that buyers overall are hitting pause before making their next big tech purchase. There are multiple reasons for this, including consumers opting to pay down debt and the impact of generative AI, but inflation is a primary driver.

Data from 451 Research's "Voice of the Customer: Macroeconomic Outlook, Consumer Spending, Post-Holiday Wrap-Up 2024" survey shows that 51% of all respondents delayed buying one or more consumer electronics devices over the past 90 days due to inflation/higher prices.

Though most consumers interested in smartphones and televisions will ultimately make a purchase, the replacement cycle may lengthen a bit in the current environment, said 451 Research analyst Malav Parekh, who is on the Voice of the Customer team. "People will take a little longer to upgrade."

A new cycle

Longer replacement cycles can be seen across device types, according to data from 451 Research's Digital Endpoint Tracker. Comparing survey data from the fourth quarter of 2023 against the prior-year period shows that for every device covered — smartphones, tablets, laptops, desktop computers, wearables and streaming devices — the percentage of respondents who said they normally replace their device every five years or longer increased significantly year over year.

For instance, less than one in five respondents said they replaced their smartphone every five years or longer at the end of 2022. A year later, that was up to almost one in three respondents, or 31.6%.

For laptops, the median response jumped from a four-year replacement cycle to five or more years. And for tablets, the median replacement cycle increased from three years to four years.

A four-year replacement cycle for laptops aligns with the four years since the World Health Organization declared COVID-19 a pandemic. Social distancing mandates imposed during the pandemic resulted in consumers spending heavily on tech to work, learn and watch movies from home, pulling forward demand into 2020 and 2021.

"The key across all demographics is we're beginning to see replacement cycles for products purchased during the pandemic," said Richard Kowalski, senior director of business intelligence at the Consumer Technology Association. The CTA is North America's largest technology trade group.

Gen Z still spending

Interestingly, older generations are primarily driving the longer replacement cycles. According to 451 Research's Digital Endpoint Tracker, 24.2% of Generation Z respondents said they intended to replace their smartphone every 12 months or sooner at the end of 2023. This was up from 17.5% at the end of 2022.

This may reflect the value that younger consumers put on smartphones.

The No. 1 tech product for Gen Z is the smartphone, said Jessica Boothe, director of market research at the CTA. "That is a necessity," Boothe said.

Research from the CTA found that 86% of Gen Z agree technology is essential to their lives and 94% own a smartphone. By comparison, only 59% say they personally own a television, significantly less than older generations.

The CTA expects Gen Z consumers to grow out of their willingness to splurge on tech as they grow older and take on additional financial responsibilities, Boothe said in an interview. She also expects more of them to buy televisions as they start their own households.

For now, however, Boothe said companies must adapt to meet Gen Z consumers where they are today — namely, on mobile.

The CTA is also monitoring new categories of technology that it expects to break out in 2024. In particular, the association is bullish on smart rings, which can monitor health stats and control other devices.

"Battery life is really important here too," said the CTA's Kowalski. While smartwatches might need to charge overnight, smart rings can have a week's worth of battery life, potentially boosting their appeal, he said.

All told, the CTA expects the US consumer technology industry to grow 2.8% in 2024 to $512 billion. This is the first time since 2021 that CTA is projecting a year-over-year increase, based on expectations of strong demand for smartphones, laptops, TVs, headsets and wearables.

Hurdles ahead

In terms of obstacles for the consumer technology industry in 2024, rising inflation and interest costs remain a key concern. Increased expenses have caused some manufacturers to delay price cuts for tech hardware, said S&P Global Market Intelligence Kagan analyst Neil Barbour, who leads video game coverage for the consumer technology team.

This dynamic appears to be playing out in gaming consoles, Barbour said. He noted that in 2023, the Xbox Series X and PlayStation 5 consoles showed signs of exiting their growth phases more quickly than expected.

"Normally, at this point in the console life cycle — two, three years in — there would be a pretty good cut to the suggested retail pricing of the console," Barbour said. "But due to inflation largely, the component costs have remained steady or grew over the lifetime of these consoles. So that's been a harder decision for the console vendors to make."

The consoles from Microsoft Corp. and Sony Corp., respectively, stayed close to their release price through 2023.

Game consoles bounce back in 2023, but vendors shaken by weak Q4 The disappointing final three months of 2023 sent shockwaves through Sony's PlayStation and Microsoft's Xbox business lines. Sony cut its hardware shipments forecast while Microsoft said it would publish more of its games on other consoles.

Beyond the impact of inflation, rising interest rates have Americans focused on paying down credit card debt, said 451's Parekh.

Spending on AI … or not

Notably, one of the hottest tech trends of 2023 and 2024 — generative AI — does not currently require consumers to spend on a new device. This is a major difference between the US enterprise and consumer market, said 451 Research Director and Head of Voice of the Enterprise Liam Eagle.

Eagle said this may explain why businesses seemed more intent on spending on tech than consumers in S&P Global Market Intelligence 451 Research's Tech Demand Indicator survey in the fourth quarter of 2023. The TDI is a survey-backed composite of US intent to spend on technology and typically predicts revenue performance for tech vendors by up to a few months.

While the business TDI score came in at 51.45, in positive territory, the consumer score came in at 47.70, in negative territory. Additionally, while the business score was up quarter over quarter, it was down for consumers over the same period.

For now, consumer users of generative AI are able to use their existing smartphones and laptops for applications like OpenAI LLC's ChatGPT or Dall-E. Meanwhile, the enterprises investing in generative AI applications and infrastructure — including Microsoft, Amazon.com Inc., Alphabet Inc., Meta Platforms Inc. and NVIDIA Corp. — are spending billions.

"Pretty much all the businesses are telling us, I need to figure out how this fits into my business, and that's going to cost me money," Eagle said. "If an individual needs to figure out how AI fits into their life, that doesn't necessarily cost them any money right now."

– Access the Tech Demand Indicator and the Digital Endpoint Tracker from 451 Research (subscription required). 451 Research is a technology research group within S&P Global Market Intelligence. For more about 451 Research, please contact 451ClientServices@spglobal.com.