This analysis is by Bloomberg Intelligence Senior Industry Analyst Woo Jin Ho. It appeared first on the Bloomberg Terminal.
Smartphone providers Apple, Samsung, Oppo and Vivo are likely to see improving demand later this year after a slump through 1H. We expect the smartphone market to drop 4% in 2023 to $480 billion, due largely to early weakness, but China’s reopening, the Apple iPhone 15 refresh cycle and the need to upgrade older devices could be leading catalysts for a rebound later this year and a stronger 2024 recovery.
Anticipating momentum into 2024
The smartphone market appears poised to bottom by mid-2023, with a path to growth in 2H, we believe. Since our last update, demand has been much weaker than anticipated, and we cut our annual forecast by 7% to $480 billion, which implies a 4% drop. Volume may continue to shrink as customers delay upgrades due to rising recession concerns, with lower average prices as smartphone providers try to aggressively clear excess inventory. This may set up a better 2H, catalyzed by Apple’s iPhone 15 launch and China’s reopening that will help drive a healthier refresh cycle for regional companies.
We expect sustained growth into 2024, with sales up 6% to $510 billion, driven by volume expansion from the need to upgrade and a greater 5G mix that will stabilize prices.
No longer a growth catalyst, but 5G cushions downside
The favorable revenue impact from the shift to 5G devices has diminished, as this segment now represents over half of industry shipments. We expect 5G shipments to grow 15% in 2023 and account for 62% of the total in 2023. Though these smartphones carry higher average selling prices (ASPs), the premium segment priced at $800 or more from Apple, Samsung, Xiaomi and Oppo is fully penetrated. Further inroads will be fueled by the midtier ($400-$800) products. Additionally, discounting to clear excess inventory in 1H has added incremental downward pricing pressure, which drives our 3% industry ASP drop for the year.
Still, 5G smartphones are at a 3x premium to 4G devices, which could help stabilize pricing in 2024 as more vendors shrink 4G offerings.
Upgrades could strengthen 2024 cycle
The inevitable need to replace outmoded equipment may be the catalyst to drive the smartphone recovery later this year and into 2024. We partially attribute the decline in global shipments from 2019-22 to consumers holding on to their devices longer through pandemic shutdowns. The length of the smartphone replacement cycle is roughly 40-45 months, which would imply that those who have had their units since 2019 are ready to upgrade. Importantly, essentially all of the devices shipped in 2019 were either 3G or 4G. Pricing may be less of of a gating factor to make the jump to 5G for these customers due to the growing availability of $300-$500 midtier 5G offerings.
The 4G ASP was $338 in 2019, and we expect that to be roughly $530 for 5G by 2024.
Xiaomi, Honor, Oppo could see biggest gains on China
China’s reopening economy may help stimulate regional smartphone demand, which would aid Honor, Oppo, Vivo and Xiaomi the most since they account for 82% of the total 4G/5G unit share. Easy comparisons assist a return to unit volume growth in China by 3Q, with IDC expecting shipments to rise 1% to 72 million and to climb 7% to 78 million in 4Q. But there’s room for upside to IDC’s 150 million regional target for 2H, since it’s 19% below 2H19 and 9% below 2H21 levels.
Midtier devices might be the largest opportunity in a China rebound, as shipments for phones in the $200-$600 range fell 17% in 2022 to 155 million units and 31% from the 2017 peak. This doesn’t necessarily help Apple, which has dominated the $1,000-plus category, with 80% market share.
US, Asia, Japan, China could return to growth first
Regional exposure matters for smartphone providers, as companies with greater exposure to the US, Asia, Japan and China could see a healthier rebound. As noted, China’s reopening could play a role in driving a return to unit growth 3Q. We believe that dynamic could also be a broader tailwind in Asia-Pacific including Japan, as the region accounts for 25%-plus of global shipments and are forecast to expand 13% in 2H, according to IDC. 5G penetration is below 50% in Asia-Pacific, which should lead to more pronounced sales growth from the uptake of higher-priced 5G devices.
The US smartphone market will likely bottom by 2Q, with the iPhone 15 launch fueling 7% growth in 2H volume. An updated form factor could help spark demand, especially from users that bypassed the iPhone 13 and 14 upgrades.
Bloomberg
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