The global demand for smartphones has maintained its downward trend during the first four months of 2022 and the industry forecast is that it will continue like this for the rest of the year. Global smartphone sales are estimated to fall by around 15% in 2022, which would be about 200 million units less than last year, which was about 1.35 billion. The drop in smartphone sales is especially acute in China, of the order of 30% between the months of January and April compared to those of 2021. Samsung and Apple will, however, maintain figures similar to those of last year, by not depending both from the Chinese market. The positive note of this lower demand for smartphones is that the entire global logistics chain will be relieved.
The main Chinese manufacturers, such as Xiaomi, Oppo and Vivo, are canceling 20% of the orders planned for this second and third quarters, in order to reduce the stocks accumulated during the first quarter and also anticipating the lower demand they estimate for the second half of the year. Xiaomi, one of the most affected by the legal problems it is having in India, has reduced its smartphone sales forecast to 160 million units for all of 2022, compared to 180 million a few weeks ago and 200 million at the beginning. of year. Honor, the company and brand now independent of Huawei, instead maintains its initial estimate for 2022, to sell between 70 and 80 million units.
Official Chinese sources reported last Monday that smartphone sales had fallen 34% in April in their domestic market, to 17.7 million units, and that between January and April the reduction had been of the order of 30%, until 86 million units, according to the China Academy of Information and Communications Technology, under the Chinese Ministry of Economy. SMIC, one of the big Chinese manufacturers of components and chips for smartphones, said last week that it estimates that 200 million fewer smartphones will be sold in the world during 2022.
Xiaomi, Oppo and Vivo, the three major Chinese smartphone manufacturers, are canceling about 20% of the orders placed at the beginning of the year, due to lower demand in the Chinese market
The main consultants had already calculated a drop in global demand for smartphones of between 9 and 12% during the first quarter. Although the Chinese government has decreed a lifting of the draconian confinement measures in Shanghai for next week and those in Beijing, which have lasted nearly two months, have already been lifted, the general demand and the economic situation are not expected to improve. normalize until well into this year, if that is the case.
In the lower graph of the consulting firm Omdia, it can be seen that all the major smartphone manufacturers lowered their sales in the first quarter compared to the same quarter of the previous year. The average drop was 9.4%, although the worst part was taken by the three major Chinese smartphone manufacturers (Xiaomi, Oppo and Vivo; the latter practically unknown until now in Europe).
The figures from other consultants, such as IDC, Canalys or CounterPoint, are slightly different in absolute figures, but the general trend is very similar. Accounting for the units that have not been dispatched to the final distributors and have remained in the wholesalers’ warehouses is a complicated process and not all consultants follow the same calculation procedure; hence the differences.
EVOLUTION OF THE GLOBAL SMARTPHONE MARKET, IN UNITS, SHARE AND ANNUAL CHANGE
Source: Omdia (29 abril 2022)
Apple’s downsizing was negligible, despite its cries of logistical problems, due to subsidies from US carriers. Samsung sales fell 4.2% in the first quarter, mainly due to lower European demand, since its presence in China is very small. The Korean company has reduced its smartphone production by 10% this quarter, to eliminate stocks, but estimates that it will sell between 270 and 275 million units in 2022, in line with 2021 sales. Apple expects to continue gaining share, especially in United States, now that the credit sale of the iPhone offered by the operators is going very well.
Although the European smartphone market is expected to decline slightly during the second half of the year, the main problem is focused on the Chinese market. To the supply problems of components for smartphones in recent months have been added the confinement of large Chinese cities, which has caused, on the one hand, an increase in prices due to rising costs and, on the other, uncertainty geopolitical and the deterioration of the Chinese economy, accustomed to two-digit sustained annual growth for decades.
Bad omens for the second half
It remains to be seen what will really happen in the second half of this year in terms of global smartphone sales, but the forecasts are not encouraging, especially in relation to the Chinese market. The demand for smartphones in China during 2020 and 2021 was very high, thanks to the promotion of 5G models and their relatively affordable price despite the novelty they represented. 5G smartphones have a longer design and manufacturing period than 4G ones, because they are more complex and there are still shortages of certain types of components, so it is assumed that the situation of the large Chinese manufacturers will not normalize until the first quarter of 2023.
The demand for cameras and their associated components for smartphones is estimated to fall between 20 and 30% during the third quarter, which is when there are more orders to cover the Christmas purchases. Smartphone processor makers are also cutting production: MediaTek estimates that its orders for the fourth quarter will fall between 30 and 35%, especially in mid-range and low-end models, while Qualcomm estimates that its demand in the second half of the year will be 10 to 15% lower.
A few weeks ago, Qualcomm was confident that its high-end SnapDragon processors would not be affected, but now it fears the worst: that is why it has just announced an improved very high-end model: the SnapDragon 8+ Gen1, which outperforms its predecessor, the 8 Gen1, by 20%, according to company measurements. The Taiwanese MediaTek has not been left behind either and during the recent Computex fair, held in the capital of its country, it has shown three new processors for 5G and 4G LTE smartphones: the Dimensity 930, for improved mid-range 5G smartphones; the Helio G99, for 4G with very low consumption and long life without recharging, and the Dimensity 1050, for very high-end 5G models, also capable of operating with millimeter waves. Everything, for the models of the next Christmas.
Global smartphone sales may fall by around 200 million units this year, about 15% of the total, if the negative trend of the first four months of the year continues
The supply of components for smartphones continues to be complicated and their prices high, but there is no doubt that the lower demand for the final product, together with the fact that the finished product warehouses are well stocked for now, is relieving the entire global logistics chain, because many more components can be allocated to other final products than smartphones, which until now have been preferred because they could pay better.
The demand for other types of products, however, is also falling, as is the case for personal computers and laptops. At the height of the pandemic and the work in case, its demand rose to levels never seen before, and with high-priced models because they were the easiest to find. Now, it goes back to the levels of yesteryear; therefore, the demand for computers in the first quarter contracted 5.1% worldwide, with 80.5 million units according to IDC. For all of 2022, the downward trend is expected to continue, with a drop of between 5 and 10% worldwide.
Apple seeks alternative to manufacture outside of China
Apple is exploring the possibility of having some of its iPhone components manufactured and assembled outside of mainland China, likely in India and Vietnam, it has told some of its contractors and was published in the Wall Street Journal, although the company has not has confirmed it.
Last April, in generic statements, Apple’s CEO, Tim Cook, assured that “our supply chain is truly global and products are made everywhere,” adding that “we will continue to optimize it.” The truth is that, according to analysts and verified by the Wall Street Journal, more than 90% of Apple products, including the iPhone, MacBook and iPad, are manufactured and assembled in China by local contractors.
Apple’s logistics chain is extremely well oiled and works perfectly, thanks to many years of fine-tuning and the efforts of its managers, with Cook at the helm. Having the entire chain concentrated in China has the advantage that it has thousands of highly qualified and submissive workers and gigantic contractors, such as Foxconn, Wistron or Pegatron, which in turn have thousands of subcontractors nearby, especially in the around Shenzhen, Shanghai or Kunshan.
Pandemic outbreaks, and especially the zero covid policy imposed by the president of China, have complicated logistics, but the same has happened in Taiwan and even in Japan. In India, with its abundant workforce, it would be possible to divert some of Apple’s current production to China, as well as to Vietnam, the only other Asian country with sufficient skilled labor, but in the very long term. Apple also sells many of its products manufactured in the country in China itself; it is estimated that 20% of its products are sold in China. Last year, an estimated 3.1% of iPhones were assembled in India and this year the proportion will be 6-7%.
Apple’s fear is that if the US government puts too many obstacles on the export of sophisticated products to China, the Chinese government will retaliate with Apple products. However, Apple has already had to give in with the construction of a macro data center that would centralize all iPhone communications within China and that its management would be controlled by a Chinese government official, as the New York Times published in its day. The concept of sovereignty in technology is very relative; especially now, that Europe, China or the United States have seen the inconveniences that it entails.
Xiaomi accounting problems in India
Xiaomi managed at the end of last year to be one of the three smartphone manufacturers with an installed base of more than 500 million users with its products, specifically with 509 million units at the end of December, according to data from the Chinese company. Until then, only Samsung and Apple had achieved it. This achievement has been the result of an ambitious export plan for Xiaomi products, both to Europe and to India and other Asian countries. In recent years, Xiaomi has managed to have a strong presence in the Spanish market.
Xiaomi’s expansion outside and inside China has benefited from the US embargo on smartphone processors designed by Huawei subsidiary HiSilicon and manufactured by TSMC. A little earlier, however, Xiaomi had already started its aggressive export plan, later imitated by Oppo, which is now beginning to make itself known in Europe. Honor, once Huawei’s youth brand and now spun off from the company to avoid the US embargo, is also making a comeback, both inside China and in other countries, including Europe.
Through alliances, including the Taiwanese Foxconn, a large part of Xiaomi’s smartphones have been manufactured in India, under the “Make in India” scheme. Since 2014, the visible face of Xiaomi in India was that of Manu Kumar Jain, who, thanks to a strong promotional campaign, managed to go from 6% of the Indian smartphone market in 2016 to 27% in 2019, surpassing brands in a few quarters. stores and to Samsung. Now, three-quarters of the Indian smartphone market is controlled by companies with Chinese capital.
According to an announcement published by Jain, Xiaomi has sold more than 200 million smartphones in India, in a $38 billion market. Such a spectacular figure has attracted the interest of the Treasury inspection, which has accused the company of fraudulently diverting 725 million dollars abroad. The case is being closely watched by competitors and may affect the future of China-India manufacturing relations.
Both countries are as immense as rivals. For starters, Xiaomi’s share price on the Hong Kong stock market has fallen 40% so far this year. Not everything, far from it, is attributable to the alleged diversion of funds, but the drop in Xiaomi sales due to the factors indicated above have contributed greatly to the stock market crash. One more sign that factory relocation is not as simple or as profitable as it seems at first glance.