The global demand for smartphones will grow in the order of 5.5% in 2021, according to the most recent forecast of the consultancy IDC, thanks to the strong pull in demand already experienced at the end of last year and during the first months of 2021, especially from 5G models, which are expected to remain in the future. The sale of smartphones will increase, apart from the technological change from 4G to 5G, due to the substantial fall in the average price of the devices in the coming years. A destabilizing factor in this trend, however, may be the current shortage of semiconductors, which is not expected to normalize until well into this year.
Smartphone sales started to take off in the last quarter of 2020, driven by high demand for mid-priced 5G models and by the excellent reception of Apple’s iPhone 12, especially in the United States. According to the consultancy IDC, the demand for smartphones worldwide in the fourth quarter was 386 million units, 4.3% more than the same quarter of the previous year.
This IDC data is in line with the estimates of other consulting firms, such as Omdia, Counterpoint and Canalys. Omdia sets Q4 2020 sales at 381 million units, Counterpoint at 396 million and Canalys at 360 million. This relative disparity is common, because it depends on the calculation of the units delivered to the commercial channel by the manufacturers, the direct ones to the operators and those that were left in the stores without selling, which are always difficult to measure exactly.
For this year, IDC forecasts that 1.37 billion smartphones will be sold, an increase of 5.5% compared to 2020 and similar to that of 2019, which Digitimes increases to 1.400 million units
The high growth in sales in the fourth quarter, however, did not offset the very weak first three quarters of last year, mainly due to the closure of stores and factories due to the pandemic. IDC estimates that the global smartphone market fell, in units, by 5.9% for the year as a whole, reaching a figure of 1.3 billion units, some 82 million less than in 2019.
Of these 1,300 million smartphones sold in 2020, around 220 million were 5G models and practically all the rest were 4G, because the demand for 3G models was residual already last year, with about 30 million units. As the graph below indicates, in the yellow dashed lines, the average selling price (ASP) of the 5G models was close to $ 650 for the whole of 2020, while the 4G models sold, on average, a little. above $ 250, much more than half the price of 5G.
For this year, some 1.37 billion smartphones are expected to be sold, according to IDC, which would mean an increase of 5.5% compared to the 2020 market, some 70 million more smartphones than last year and very similar to that achieved in 2019, which was about 1.38 billion units. Taiwanese consultancy Digitimes is a bit more optimistic and expects 1.4 billion smartphones to be sold worldwide this year.
IDC estimates that the barrier of 1.4 billion units would be reached in 2022 and then the market would continue to grow in the coming years at a slightly lower rate than this year, with an average annual growth between 2020 and 2025 of 3.6% , as you can see in the graphic above.
5G smartphones start to dominate sales
Although the forecasts of selling this year approximately the same number of smartphones as in 2019 are fulfilled, their composition will be radically different. In 2019, the number of 5G smartphones was a very minority, around 25 million units (12 million only in South Korea and almost all the rest in China in the last quarter), while this year around 40% of the smartphones sold will be 5G, about 550 million, which Digitimes raises to 600 million. This proportion of 5G smartphones with respect to 4G will increase, as can be seen in the graph: in 2022 it will be approximately half and half and by 2025 the proportion will be more than inverted, with 69% of the 5G type.
Both the higher proportion of 5G smartphones compared to 4G and the fall in the average sale price of all models will be the dominant note during this year and the next. The global average price of smartphones will be $ 363 in 2021, according to IDC, a little above the average price of $ 349 last year, but keep in mind that the ratio of 5G to 4G smartphones will have doubled this year compared to 2020.
The average price of smartphones will continue to plummet this year and the next. In mid-2019, with the introduction of the first commercial 5G networks, the smartphone market for this technology was monopolized by Samsung’s Galaxy S12 5G, practically the only one available in large quantities, above $ 1,200.
40% of the smartphones that will be sold this year will be 5G and their average price will fall substantially, although the shortage of chips and the technological conflict between the United States and China may ruin these forecasts
The massive influx of 5G smartphones manufactured in China by Chinese brands caused their average price to rise to 650 dollars in the middle of last year, and this thanks to the popularity of the iPhone 12 5G introduced by Apple in the last quarter of last year, because the average price of the 5G Android models was significantly lower. The median price of 5G smartphones is expected to be around $ 550 by the end of this year. Even stronger will be the price drop for 4G smartphones: from $ 250 at the end of last year to less than $ 200 at the end of 2021.
The downward trend in the price of smartphones will continue in the coming years, because it is not expected that there will be any essential factor that will drive the price up, nor the quality of the cameras, which is already more than high, nor the size and brightness of the screens, which is the one that is considered the most suitable, nor of technological change, because 5G has just started and 6G has yet to be defined. Form factors such as the dual-screen or wristband smartphone don’t seem likely to attract the attention of a significant audience.
Thus, the average price in the middle of this decade of a typical 5G smartphone will be around 400 dollars, with the range of 200 to 600 dollars, like the 4G currently sold, while the 4G will average slightly above the 100 dollars. In Europe, these average prices will be similar but in euros instead of dollars, because they will include VAT.
Manufacturers in different positions
Last quarter there was already a substantial change in position among the five major manufacturers. Apple went on to occupy the first place, thanks to the strong demand for its first 5G model, the iPhone 12, with which it managed to sell a total of 90.1 million iPhones, mainly model 12. Samsung, which had always been placed Leader except for a brief period when it was overtaken by Huawei, it lagged behind Apple with 73.9 million units. Samsung’s best-selling model was not the Galaxy series but the A series, at a more affordable price and with a good price-performance ratio.
Huawei plummeted in the fourth quarter, being overtaken by its Chinese compatriots Xiaomi and Oppo. Xiaomi placed 43.3 million smartphones on the market, Oppo 33.8 million and Huawei slightly less, 32.2 million, fully affected by the United States sanctions, which have prohibited TSMC from supplying Kirin processors, which until September had been manufacturing the Taiwanese company to the mainland China.
In the first three months of this year, the forecast is that smartphone sales will increase 13.9% compared to the same period of the previous year, which was exceptionally weak, especially in China, due to the pandemic. This growth rate is not expected to be as high during the second and third quarters, far from it, and even less in the fourth, which already grew much more than normal last year. Hence, most consulting firms estimate a growth of the order of 5.5% for the whole of this year.
The smartphone sales channel is also expected to change this year. If in 2020 online sales accounted for 20% of the total, for this year, now that the consumer has become accustomed to buying online, IDC estimates that they will be 27%. The two big smartphone markets, China and the United States, are expected to grow 5% and 3.5%, respectively. Europe’s growth would be in the middle.
Apple is expected to place around 60 million iPhones during this first quarter that is about to end, while consultants estimate that Samsung will sell between 60 and 65 million smartphones this first quarter. If so, Samsung would once again top the list of the main world manufacturers of smarthones, although with lower turnover than Apple, because the average price of the iPhone is higher than the average of the Samsung models.
Xiaomi would maintain the third position, with about 90 million units sold throughout the first six months of 2021 and with an increase of around 80% compared to the same period of the previous year. Xiaomi is expected to lead the growth, although Oppo sales will not be far behind either. Huawei could thus be in fifth position, although it is not ruled out that it will be ousted by Realme, Oppo’s low-price brand, or even by Vivo, another very popular Chinese manufacturer, especially in its country.
Uncertainty due to the shortage of semiconductors
Huawei’s position in the global smartphone market will depend on how the US-led embargo evolves and whether in the end it can count on the ample supply of processors from MediaTek and Qualcomm, because it is clear that the stocks of their flagship processors, the Kirin, are already exhausted or about to exhaust. Until last year, the sales of Honor, a subsidiary of Huawei and with a low-priced brand, were included in those of Huawei.
A few months ago, however, Huawei sold the Honor brand and all its assets to a Chinese investment fund, completely disassociating itself from Huawei. In theory, Honor would not have Huawei’s supply problems and could thus increase market share at the expense of the loss by Huawei, because the prestige of the Honor brand a year ago was high and any Chinese consumer knows it perfectly. In any case, it is evident that its sales will not be able to compensate for the losses by Huawei, although the company is firmly determined to continue selling smartphones, along with other consumer telecommunications devices, according to the company without further details.
Qualcomm CEO Steve Mollenkopf was very optimistic last week when he presented the company’s last fiscal quarter results. Qualcomm expects a total of 3.8 billion 5G smartphones to be sold between 2020 and 2025, based on data from consulting firms CCS Insight, Counterpoint, IDC and Strategy Analytics, as seen in the chart below. For this fiscal year, Qualcomm forecasts that between 450 and 550 million units will be sold and for the next more than 750 million 5G smartphones, a range so wide that it clarifies little. The next one will be the fourth and last fiscal quarter that Mollenkopf presents, because he will give the witness to the Brazilian Cristiano Amon.
In any case, the next few months are presumed uncertain due to the continuation of the commercial pressure of the United States against China in terms of technology with President Joe Biden and, especially, due to the current shortage of semiconductors. A week ago, Scott Zhang, head of Oppo’s international business, told the Japanese newspaper Nikkei that the current shortage of semiconductors will continue for the next few years, because demand is “explosive” and chip production is continuously lagging, especially because the new 5G networks consume much more data, which in turn requires more chips.
However, Zhang expects the situation to normalize a bit more during the second half of this year. This is not to say, many analysts argue, that chip supply difficulties at all levels are conducive to a widespread rise in chip prices, which would inevitably lead to a rise in the price of smartphones. We must also think that the pandemic is far from being defeated, with continuing problems in the supply of vaccines, even in the richest countries.
The US pressure against China also does not stop. Last January, the Pentagon designated Xiaomi as a company with ties to the Chinese military but last Friday a federal judge, Rudolph Contreras, questioned the veracity of the Pentagon’s claims and blocked the ban on Xiaomi. of continuing to be listed on the United States stock market, which had caused the value of its shares to fall. Contreras believes that the Pentagon’s justification, that the company’s founder, Lei Jun, had received a medal in 2019 for his ambitious investment plans in artificial intelligence and 5G, was not proof that the company had ties to the military, among other reasons because another 500 Chinese entrepreneurs had received a similar award.
Xiaomi, logically, has praised the judge’s decision and the company’s shares rose last Monday. The order against Xiaomi was one of the last issued by Donald Trump, but the latest movements by new president Joe Biden predict that the technological conflict between the United States and China will continue to escalate, with unpredictable consequences not only for the semiconductor and smartphone markets. but for the world economy as a whole.