“It was absolutely bias. We were doing it subjectively. It just depends on who the curator is and what time of day.” �Ian King and Adam Satariano

Smartphones Stumble

long the party could go,” says Wharton management professor David Hsu.

The industry says smartphone sales could revive, given that people will eventually need to replace their phones and most consumers will need new ones to enjoy the benefits of highspeed data; only 16 percent of smartphones can tap into these fast LTE connections. But don’t bet on a comeback, says Neil Campling, an analyst at Aviate Global, who expects smartphone makers to start squeezing component producers to shore up margins. “The end of the Apple supercycle is upon us,” he says.

As the market matures, phonemakers and their suppliers have reason to worry about the kind of yearslong decline facing the PC industry. This time, there isn’t an obvious successor in consumer electronics. Developers are hard at work on virtual-reality headsets, driverless cars, and the grab bag of connected gadgets and software known as the Internet of Things (IOT). Yet it may be years before these technologies enter the mainstream.

Sales at Qualcomm, the leading mobile chipmaker, fell 19 percent last quarter from the year before, to $5.5 billion. The company has been delving into drones, cars, and Internetconnected appliances—so-called adjacent businesses it predicts will generate more than $2.5 billion in sales this year. Those growth prospects, however, make up just 11 percent of the company’s total expected revenue. That explains in part why Qualcomm has lost 26 percent of its market value in the past year, compared with a 3 percent decline for the IT sector as a whole.

Apple is trying to offset declining iphone sales with revenue from services such as the App Store, icloud, and—as you may have read—apple Music. Profit margins are fatter in these businesses, and revenue from them grew 20 percent in the latest quarter. Still, services account for just 12 percent of sales at Apple, where shares have fallen 27 percent in the past 12 months.

Apple, too, is exploring the automobile industry. Automated-driving features and advanced entertainment and information systems are creating opportunities to sell components and software now commonplace in smartphones. Still, an Apple car is probably years away, and some analysts wonder whether it will hit the streets at all.

Samsung reported solid sales of the Galaxy S7 in its latest earnings, but it’s looking beyond the smartphone as investors worry whether they can expect another hit soon. “The lingering market question about what could replace smartphones has not been fully addressed,” says Lee Seung Woo, an analyst at IBK Securities. Samsung is selling VR gadgets and pushing hard into the Internet of Things, building Web-connected kitchens and cloud services to manage them.

Flex, a longtime assembler of smartphones for the likes of Blackberry and Motorola, is among the companies branching out the furthest. Along with car components, medical devices, and Fitbits, Flex has started making clothes and custom sneakers for Nike.

It’s hard to imagine one single thing replacing the smartphone, says Neil Mawston, an analyst at Strategy Analytics. His company estimates that by 2020 there will be 5 billion Internet of Things devices in use, compared with 4 billion smartphones. But most IOT devices will cost $1 or $2 and won’t need replacing for 5 to 10 years. So companies must dabble widely—in drones, consumer robots, wearables, smart homes, cars, and elsewhere. “That cocktail is the next big wave beyond phones, rather than one big new segment,” Mawston says.

In the short term, even aggressive diversification won’t necessarily protect smartphone suppliers. Texas Instruments’ first-quarter revenue fell 4.5 percent despite growing demand for components from makers of cars, industrial equipment, and phone networks. According to a Bloomberg supply-chain analysis, TI’S biggest customer is Apple.

Growth turned negative for the first time A day later, the Senate Commerce Committee sent Mark Zuckerberg a letter asking for details on the selection of trending topics A former editor of Facebook's trending news highlights, in a May 9 Gizmodo report alleging the staff buried right-wing stories. Facebook denies the charge. The bottom line With smartphone shipments falling for the first time, there's more urgency behind suppliers' diversification efforts.

books in the U.S., police and prosecutors require only a judge’s blessing on a warrant for a suspect’s fingerprints. So far they’ve used the power sparingly. But as the number of fingerprint scanners in hip pockets grows, district attorneys across the country say the technology is poised to become a major engine of evidence-gathering. “It is likely to be just a matter of time till this does become a primary gateway to accessing phones,” says Micheal O’connor, an Alameda County assistant district attorney in Oakland, Calif.

If a person has enabled Apple’s Touch ID, her fingerprint will unlock the phone for 48 hours after locking before the device requires a PIN. Systems on newish Samsung and LG phones work similarly. Los Angeles and Oakland are among the cities that have already granted or received warrants for the use of a finger to unlock a phone. The next step may be a lawsuit that determines whether a fingerprint is off-limits.

Legal scholars say law enforcement is likely to win that fight. Two years ago, authorities contended that a locked iphone 5S belonging to David Baust, a paramedic in Virginia Beach, Va., might contain video evidence of him in bed strangling his girlfriend, according to a court filing. Baust’s lawyers argued that unlocking the phone would violate his Fifth Amendment right to avoid incriminating himself. A state judge ruled that demanding Baust type in his pass code would entail a “mental process” leading to self-incrimination, but that asking for his fingerprint was more like drawing a blood sample and therefore OK.

Although the Virginia decision isn’t binding on other judges, it’s only a matter of time before a higher court weighs in and sets a precedent, says Rahul Gupta, a senior deputy district attorney in Orange County, Calif. He, too, is betting on police and prosecutors. “It’s just the same old evidence, blood or a mouth swab, being used in a different way,” he says.

Fingerprint-scanning phones will become the majority within about two years, estimates researcher IDC. As the pile of warrant requests grows, the pressure will be on magistrate judges to draw a line between genuine seizures and fishing expeditions, says Leslie Harris, a lecturer at the University of California at Berkeley’s School of Information. “They could be the last line of defense,” says Harris, who’s also president of the Harris Strategy Group, a think tank that advocates for privacy rights. “And they often get calls in the dead of night that force them to make immediate decisions. It’s not an ideal situation.” The fingerprint lock systems, as they stand, though, aren’t foolproof skeleton keys for law enforcement. When the phone is switched off and restarted, it requires a pass code. And it won’t take long for criminals to learn that the little scanner on the home button isn’t their friend. �Kartikay Mehrotra

The bottom line Fingerprint locks, which will be the norm in two years, give law enforcement an end run around smartphone encryption. Ebay Alphabet Alibaba Facebook Linkedin Yahoo! Amazon Twitter