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Fewer smartphones and telecommunications equipment are sold due to lack of components

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Component shortages and supply chain bottlenecks not only have a very negative impact on car manufacturing, but many industrial and consumer sectors are equally affected, including telecommunications equipment, smartphones and tablets. Ericsson, Nokia and Samsung have problems completing their radio equipment while Apple and Samsung have already announced that their supply of smartphones will be lower than expected demand this fourth quarter due to the lack of components, after having dropped the sales of smartphones last year. last quarter due to product shortage. The situation has also made the costs of the products much more expensive, which will inevitably result in an increase in final prices.

 

The average time that product assemblers must wait for the requested chips to reach them continues to grow month by month. Traditionally, the average wait time to receive an electronic component was nine to twelve weeks a couple of years ago, before the pandemic. But this average wait has not stopped growing month by month and, if at the beginning of the year it was thirteen weeks, now it is at 22 weeks, according to Susquehanna Financial Group, which monitors the supply of components globally.

 

These are, of course, averages, which means that some semiconductors arrive earlier and others later. It is common for equipment power management chips, a key component, to take 25 weeks on average and 38 weeks for a microcontroller. Cars, for example, have many types of microcontrollers and, in addition, they tend to be relatively specific for each car model, which explains why car manufacturers are desperate, because when they are not missing a certain component they are left without another equally important .

The supply of smartphones will continue to be stressed in the next twelve months, due to the shortage of components and rising costs, which will cause an increase in prices for the final consumer

The supply of components is far from normalized. A new report from Supplyframe suggests that stabilization of deliveries will not begin until the first half of 2023; that is, almost a year after previous reports, which predicted that a certain normality would return in the middle of next year. The consulting firm analyzes and extrapolates the data provided by more than 350 companies.

Component shortage affects more products

The shortage of components, far from being solved, also affects more types of products. If initially the most affected were the manufacturers of automobiles or of small and large electrical appliances, now the shortages are already generalized for all products, including electromedical equipment.

 

The problem is not only in the chip manufacturing stage, but the entire production chain, which is very extensive and requires that the components come from different suppliers and travel from one place to another many kilometers away, is it is easy for it to be interrupted in any of its stages, creating multiple bottlenecks, because the entire logistics system is very stressed.

 

Raw materials for chip making, be it the silicon ingots that will later be sliced ​​or the multiple necessary gases and elements of the periodic table needed, are also in short supply. Pat Gelsinger, head of Intel, said a couple of weeks ago that they could have much greater chip production capacity if they did not have supply problems with the raw materials they use. Chipmakers do their best to expedite orders, but they depend on many suppliers, he came to say.

Mobile phone equipment manufacturers are also affected by component supply and transportation problems, coupled with stiff competition in the market.

In addition, the wafers with the lithographed chips have to be cut, encapsulated and subsequently verified, a process that is generally carried out in several countries in Southeast Asia, apart from China, such as Malaysia or Vietnam, which have been greatly affected by the pandemic, with the consequent delay in deliveries.

 

Supplyframe estimates that the average delivery time of a standard logic device has increased by an average of 75% year-to-date and it is now common for a customer to take 52 weeks to receive the ordered product, which integrates several components. Vishay diodes now take ten weeks longer to deliver than a few months ago and the delay is about 40 weeks. Infineon’s Mosfet transistors ship within 52 weeks, and the common tantalum polymer capacitors arrive at the customer’s home within 45 weeks for Kemet and 34 weeks for Panasonic, Supplyframe says.

 

The prices of the components, of course, do not stop increasing and it is not strange that now they cost twice as much as a year ago, and you have to beg to receive them. Transport costs have also skyrocketed and orders are split more to send even a part of the total products ordered, which also explains the increase in prices.

More demand than supply of smartphones

During the first and second quarters of this year, it was thought that the smartphone assembly process was relatively immune and would not have major difficulties in supplying the multiple components involved, because generally assemblers work with supply contracts signed for several years, they can pay more because the margins allow it and also the physical volume of the components is small, so they can be shipped by plane from one site to another even if it is a more expensive system.

 

But in the third quarter of this year there have been many supply problems throughout the smartphone supply chain and in this fourth quarter, when deliveries of finished products are traditionally higher, is when the greatest shortage of supply and less product is expected. to supply the anticipated demand.

 

The CEO of Apple, Tim Cook, assured in the presentation of results for the last fiscal quarter, ended on September 25, that his company’s turnover had been lower than expected due to the global chip crisis and supply problems . For this last quarter of the year, Cook said, the cost to the company will be even higher. Luca Maestri, CFO, estimated the loss of revenue at about $ 6 billion last fiscal quarter and expects it to be higher this last quarter of the year.

 

Despite the fact that Apple has not had all the product that he wanted, the company’s global turnover grew 29% last fiscal quarter, to 83.4 billion dollars. IPhone smartphones accounted for the bulk of the turnover, 38.9 billion, with an increase of 47%. IPad tablet sales grew 21.4% to $ 8.3 billion, thanks to higher demand from students. In this quarter until December 24, however, Apple is scheduled to reduce the supply of iPads, up to 50%, to use the maximum of components in the iPhones, which have more profit margin.

 

Supply problems are relatively new to Apple. During the first two quarters of this year, the company weathered difficulties well, thanks to long-anticipated orders and well-oiled purchasing machinery. But in the third quarter it has already struggled, especially with the new iPhone 13 processor, which it could not have stored, and with the displays, two essential components.

 

Samsung is also struggling to supply some of the components it needs to make smartphones and consumer electronics products, obviously the ones it buys abroad. In the past quarter, smartphone sales fell 18% compared to the same period last year, from 80 million to 69 million units; nevertheless, it retained the first place, although Apple cut distances, going from 42.5 to 48 million units in the third quarter.

 

Xiaomi has also been very affected in the third quarter and has lost the second place in the sales of smartphones that it achieved in the second quarter of this year and in the third of last year, surpassing Apple. In this third quarter, Xiaomi sold 44 million units, compared to 47 million the previous year and 50 million in the second quarter of this year.

 

Oppo, on the other hand, has grown, reaching 38 million units in the third quarter compared to 31 million the previous year. Vivo, the fifth manufacturer in the world ranking, has grown slightly, selling 33.7 million compared to 31.5 million the previous year, in the third quarter. Far behind these top five smartphone makers is Huawei: the decline has been colossal, with 5.8 million units sold compared to 51 million the previous year.

Sales in the third quarter fall 10% in two years

Altogether, according to the data in the lower graph from Omdia, which may vary slightly with those of other consultancies, 342 million units were sold worldwide in the third quarter, when in the same period of the previous year they were 370 million and the previous quarter of this year 299 million compared to 370 million units in the second quarter of this year.

 

The drop has been 8%. Other consulting firms put it at 6%; In any case, it is a considerable drop, especially if one takes into account that those of the third quarter of last year were already 12 million lower than in the same period of 2019. In two years, the drop in unit sales of smartphones in the third quarter it was 10

It’s hard to attribute the global drop in smartphone sales to component supply problems that all manufacturers have experienced, but the impact has clearly been high. If there had been a fall in demand in times of normal supply, the prices of the products would have fallen and it would have been partially corrected. With the shortage it has been the other way around: prices have risen, which has caused demand to fall further, coupled with the lack of product in stores.

 

For this fourth quarter, the problem may be more serious because the consumer is aware of the shortage and will have to buy what he finds if he needs it; the wait until the situation is regularized can be very long, at least a year. This means that, in units, no one is clear about what will happen in the fourth quarter. In global billing, the problem may be less for manufacturers, because the prices of the products they have will rise and they will maintain margins in a certain way.

 

The evolution of smartphone sales in the third quarter was very different depending on the geographical area. In the United States, they have increased 1% in units, while in Europe they have fallen 1% in the third quarter compared to the previous year and 4% compared to the second quarter of this year, according to Counterpoint. Samsung remains prominent in first place in Europe in units, followed by Xiaomi, which surpasses Apple this quarter, as it did in the previous ones (not in turnover, since Apple is far ahead of Xiaomi due to its higher average price) .

Apple also grows 5% in Europe, when Samsung and Xiaomi each fall 6%. Oppo, Realme and Vivo continue to increase their share in Europe, as do Motorola and Nokia HMD, as seen in the graph below. Honor, which was Huawei’s second brand and now independent, does not lift its head, like Huawei, due to the well-known circumstances.

 

It is noteworthy that Samsung has recovered its spring positions in Europe, after its decline in early summer. The opposite has happened to Xiaomi than to Samsung: it has lost market share in Europe as of July, probably because it has focused more on its sales in the Asian market due to not having enough product. In September, Apple has come back in Europe, thanks to its new product IPhone 13.

Equipment manufacturers also suffer from shortages

If the lower sales of smartphones in the third quarter are attributable, in large part, to component sourcing problems that manufacturers have had, their detailed impact is more difficult to find in the case of telecommunications equipment manufacturers, because Other factors intervene, although all have complained about the lack of supply in the presentation of the results of the third quarter.

 

Ericsson CEO Börje Ekholm lamented to financial analysts the loss of orders in China, which he attributed to his government’s attitude of closing the doors to Huawei. Some analysts consider, however, that China’s retaliation against Ericsson would have also taken place, due to the hostile attitude or at least distant from the European operators at the request of their respective governments to give contracts to Huawei (in the last major competition, Chinese mobile operators have given all orders to their local suppliers Huawei and ZTE).

 

Ericsson’s sales in the third quarter are down only 2% and, if last year’s China sales are not taken into account, they have increased by 6%, as the Swedish firm has gained positions in the other markets, despite to intense competition from Samsung and Nokia, especially in the United States. Ericsson’s third-quarter earnings, on the other hand, were up. Regarding the forecast for fourth quarter sales, Ekholm noted that “it is highly unlikely that [the shortage of components] will not have an impact” on the results of the Swedish company.

 

In Nokia’s case, the attribution of missing components is even more complicated. Globally, Nokia sales grew 2% in the third quarter and operating profit rose 43%. But mobile phone sales, which account for 43% of the total, have fallen 5% in the third quarter. According to Pekka Lundmark, CEO of the company, the $ 6 billion contract that the US operator Verizon awarded to Samsung in September 2020 has been the main cause, because Verizon was a large Nokia customer.

 

Sales of Nokia mobile equipment in the United States have also been affected by the strong wind storms and fires that have ravaged the country. In any case, the operating margin of Nokia’s mobile networks has gone from 7.3% to 8.4% (not the gross margin, which has fallen from 37.8% to 35.6%). Sales of the other part of Nokia’s business, network infrastructure, have performed well, with a 6% increase in the third quarter and an improvement in both operating and gross margins.

 

For Lundmark, the improvement of the company’s costs in mobile networks, thanks to the abandonment of programmable logic networks (FPGA) and its replacement by custom chip systems (SoC), as well as the strong investments of R&D initiated Already with the previous CEO, they are paying off and the company is recovering from the wrong decision to bet on FPGA-based chips on the 5G principle. Still, Lundmark acknowledges that the market situation is very difficult, with strong competition, and the shortage of components further exacerbates it.

 

In the case of Samsung, the shortage of components has also affected its telecommunications networks division, although less than smartphones. According to Kim Sung-koo, vice president of mobile communications, component problems will persist this fourth quarter, although he is confident of increasing network equipment sales in North America and Southeast Asia this quarter. At the group level, Samsung has no problems, because its memory division is going from strength to strength. Samsung sales grew 10% in the third quarter and net profit 41%.

 

The situation of what is still the world’s leading telecommunications equipment manufacturer, Huawei, is partly unknown, because the company does not break down the results of its different divisions more than once a year, after the close of the annual financial year in December. Its turnover in the first nine months of the year, until the end of September, fell 38%. According to Guo Ping, Huawei’s acting president, the company has been significantly affected by its consumer products this year, although, he assured in a brief statement, that the turnover of network equipment and company products is stable, in line with expectations.

 

From all this, it can be concluded that this fourth quarter, of which a good part has already elapsed although the decisive final stretch remains, will be especially difficult for product suppliers. And also for consumers, who will surely notice an increase in prices and a lower offer when they go to stores. Unless they prefer to wait for better times in about a year and make do with what they already have.