TAYLOR, Texas —The Commerce Department is on track to dole out all of the $39 billion in grant money allocated under the CHIPS Act by year-end, Commerce Secretary Gina Raimondo told CNBC on Monday.
The Commerce Department is providing the money to semiconductor companies to incentivize them to build out manufacturing production capabilities in the U.S. The Biden administration announced earlier Monday that it would be providing Samsung with up to $6.4 billion in grants to expand two chip plants in central Texas — leaving roughly $16 billion left in subsidies to be distributed before the end of 2024.
“We’re on a roll. We’ve done three of these in the past month. We’ll be doing more in the coming weeks,” Raimondo said in an interview on the sidelines of Samsung’s award announcement event at its Taylor facility. “I expect all of the money in the CHIPS Act will be allocated by the end of this year.”
The award announcements so far have focused primarily on leading-edge chips, the most advanced type of semiconductors. Intel will receive up $8.5 billion in incentives to invest in projects in Arizona, New Mexico, Ohio and Oregon, while Taiwan Semiconductor is due to receive up to $6.6 billion in grants for projects in Arizona.
Now that the biggest grants have been doled out, future award packages will focus on memory chips and investments in suppliers, wafers, and chemicals, Raimondo said.
The Samsung award announced Monday will help the company create what officials call an “advanced manufacturing ecosystem” in central Texas, where multiple steps in the chip production process will all be done on a single campus. The Taylor facility will be twice as big as Samsung’s signature facility in South Korea, Raimondo said.
“It’s a little city of manufacturing, and around it will come suppliers,” she continued. “So when I say the whole ecosystem, it’s research and development, packaging, manufacturing, job training, and all of the upstream suppliers which will make America stronger and more secure.”
Apple CEO Tim Cook holds a new iPhone 15 Pro during the Wonderlust project launch event at the company’s headquarters in Cupertino, California, Sept. 12, 2023.
Loren Elliott | Reuters
Shipments of iPhones are likely to take a hit this year due largely to the growing popularity of foldable phones and Huawei’s resurgence in the Chinese market, says top Apple analyst Ming-Chi Kuo of TF International Securities.
Apple, which became the top smartphone vendor in China last year for the first time, trimmed shipments of “key upstream semiconductor components” to around 200 million units, translating to a 15% year-over-year drop in iPhone shipments, according to Kuo’s blog post on Tuesday about his latest supply chain survey.
Kuo wrote that Apple’s weekly shipments in China have dropped by 30% to 40% from a year earlier in recent weeks, “and this downward trend is expected to continue.”
“Apple may have the most significant decline among the major global mobile phone brands in 2024,” Kuo wrote.
Huawei’s comeback as a leading smartphone maker coupled with the “increasing preference for foldable phones among high-end users as their first choice” in the Chinese market are key reasons for the iPhone’s potential decline, Kuo wrote. New phone designs integrating generative artificial intelligence are also altering the market.
Apple didn’t immediately respond to a request for comment.
Samsung has upped shipments of its new Galaxy S24 series this year by 5% to 10% as it sees “higher-than-expected” demand thanks to its AI-powered features, Kuo wrote. Apple, meanwhile, has lowered its shipment forecast for the iPhone 15 in the first half of 2024, he added.
With no major changes to the iPhone’s designs expected until 2025 “at the earliest,” Kuo wrote, Apple’s “shipment momentum and ecosystem growth” are poised to diminish in the meantime.
Apple is scheduled to report quarterly results on Thursday. Analysts are expecting to see revenue growth of just 0.6% from a year earlier to $117.91 billion, according to LSEG, formerly Refinitiv. And average projections show Apple recording single-digit growth for the rest of the calendar year.
When Apple announced the iPhone in 2007, Steve Jobs called it a “revolutionary product” in a handset category that he said needed to be reinvented.
Now, nearly two decades and 42 models later, the iPhone is one of the world’s most popular phones. Apple has sold over 2.3 billion units of the iPhone and has over 1.5 billion active users, according to research from Demand Sage.
The original iPhone was released in June 2007 and exclusively sold with AT&T for $499.
The late Apple CEO Steve Jobs unveiling the first iPhone in 2007.
David Paul Morris | Getty Images News | Getty Images
“Investors were optimistic about the impact that it could have with Apple,” said Deepwater Asset’s Gene Munster. “The initial data that came out from AT&T was a disappointment from that first few days of sales. I remember talking to investors after that first weekend, and the general sense was that this product, in one investor’s words, was dead on arrival.”
Apple sold 1.4 million iPhones in 2007 with 80% of the sales coming in Q4. In the same year Nokia, the maker of the iconic Nokia 3310, sold 7.4 million mobile phones in Q4 alone.
“Nokia was seen as unstoppable, unbeatable,” said CNBC technology reporter Kif Leswing.
JAPAN – FEBRUARY 15: The Nokia 3310 Launched on the 1st September 2000
Science & Society Picture Library | SSPL| Getty Images
“The investing community largely took this as something that is going to be a much more difficult market for Apple to really crack,” said Munster.
Things started to shift for Apple in 2008 when it launched the App Store. This helped spur a new wave of modern tech companies like Uber and put Apple ahead of its competitors.
“The App Store allowed your phone to become a lot more,” said Munster. “That was the piece, that insight, other phone manufacturers didn’t see that coming.”
Apple saw increased iPhone unit sales in the years following the App Store. The company hit a major milestone — more than 50 million units sold — in 2011, with the help of the iPhone 4s. The company sold 72 million units that year. By 2015, Apple was selling over 200 million iPhone units yearly.
“I don’t think there’s any question the iPhone set the standard that really almost all phones have followed since then,” said Computer History Museum’s Marc Weber. “The App Store was a huge thing and Android basically followed that model with the Play Store.”
Apple recently surpassed Samsung, one of its biggest competitors, as the world’s smartphone leader for the first time. According to data from the International Data Corp., Apple holds just over 20% of the global market share, a spot that Samsung held since 2010.
“There was a period from 2008 to 2015 where Apple needed to worry about what Samsung was going to do with Android. Their market share was actually declining globally,” said Munster. “But, what Apple has been the master at is building the ecosystem. I can’t imagine a scenario where Samsung can build a suite of products that is going to disrupt the Apple ecosystem.”
“AI is going to be critical to humanity, and it’s going to be a critical feature inside of iPhones,” said Munster. “Apple uses AI to make the products work better with organizing photos, with helping organize emails, and potentially doing things around text organization. But for the most part is that the iPhone doesn’t capture, doesn’t really capture the full opportunity. Far from it when it comes to AI.”
Morgan Stanley has revealed a list of global stocks it likes, with four of them providing parts for Tesla ‘s supercomputer system. Called Dojo, the system has revolutionized the AI chip industry, the analysts said in a Sept. 12 note, and is said to result in “significant efficiencies and 6x cost savings.” Morgan Stanley says its list of tech stocks are “well-positioned for US hyperscalers’ acceleration of custom chip design,” especially since custom chips are expected to outgrow the AI graphics processing units in the long term. More aggressive AI custom chip designs are supposedly being developed by big technology companies to improve the performance and efficiency of running large neural networks. Powering Tesla’s Dojo In its research note, Morgan Stanley pointed out that Taiwan Semiconductor Manufacturing Company is the wafer foundry vendor for Tesla’s Dojo 1 (D1) and Dojo 2 (D2). The analysts reiterated their overweight position on TSMC at 718 Taiwanese dollars ($22.47), giving it a 32% upside from its price on Sept. 12. Morgan Stanley raised their price target on AIchip to 2,880 Taiwanese dollars, a 14% upside from its Sept. 12 price. The company “provides part of the design service [for] Dojo 1 and generates 5% of its revenue from this project,” the analysts wrote. Korean electronics manufacturer Samsung received an overweight rating from the bank for “winning projects in HBM (high bandwidth memory)” and being “the key foundry supplier for Tesla’s FSD (full self-driving) chip”. Samsung supplies 32GB of high-bandwidth memory to work with the Dojo interface processor, the analysts said. They have priced the stock at 95,000 Korean won ($71.45), giving it a 35% upside from its Sept. 12 price. Morgan Stanley also likes Nvidia since “Tesla still expects Dojo to operate alongside NVIDIA GPUs – and there are also non-hyperscalers customers needing AI GPU”. The bank is overweight on the stock and has given it a price target of $630 – a 39% upside from its $451.78 price on Sept. 12. New stock on the radar Taiwanese semiconductor company MediaTek was also added to Morgan Stanley’s list of global technology stocks, with an upgrade to “overweight” from “neutral.” The analysts pointed out that the company “should leverage sufficient and cheaper engineering resources to secure one of Google’s TPU (tensor processing units projects, which should contribute 2% of its (forecast) 2025 revenue and trigger a stock re-rating as the company diversifies away from its smartphone-centric business to AI.” The company was given a target price of 888 Taiwanese dollars, giving it a 21% upside from its price of 728 on Sept. 12. — CNBC’s Michael Bloom contributed to this report.
People check Apple Macbook laptops at the new Apple Inc. store in New Delhi, India on April 20, 2023.
Nurphoto | Nurphoto | Getty Images
India’s consumer market is set to become the world’s third largest by 2027 as the number of middle to high-income households rise, according to a report by BMI.
The country currently ranks fifth, but the Fitch Solutions company predicts a 29% increase in real household spending will push India up two spots.
In fact, the report forecast that the growth in India’s household spending per capita will outpace that of other developing Asian economies like Indonesia, the Philippines and Thailand at 7.8% year-on-year.
“Overall, the gap between total household spending across ASEAN and India will also almost triple,” the report said.
BMI estimates India’s household spending will exceed $3 trillion as disposable income rises by a compounded 14.6% annually until 2027. By then, a projected 25.8% of Indian households will reach $10,000 in annual disposable income.
“The majority of these households will be located in the economic centres, such as New Delhi, Mumbai and Bengaluru. The wealthier households are mainly located in urban areas, making it easy for retailers to target their key target markets,” BMI said.
India’s large youth population is also a driving force for increased consumer spending.
Approximately 33% of the country’s population is estimated to be between 20 and 33 years old, and BMI expects this group to spend big on electronics.
The report predicts communications spending will grow by an average of 11.1% annually to $76.2 billion by 2027 due to a “technology-literate, urban middle class with increasing amounts of disposable income that would encourage expenditure on aspirational products such as consumer electronics.”
The country’s ongoing urbanization will also help boost consumer spending as companies can more easily access consumers and open more physical retail stores to cater to them.
In April, Apple opened two retail stores in Delhi and Mumbai. Samsung announced in the same month that it will set up 15 premium experience stores across India by the end of the year in major cities like Delhi, Mumbai and Chennai.
BMI also noted that global investors such as Blackstone Group and APG Asset Management have injected more money into the country’s shopping mall business to capitalize on consumer spending growth.
SMIC has been hit with U.S. sanctions but its business has continued to grow. However, China’s biggest chipmaker still faces a challenge catching up with rivals such as TSMC.
Qilai Shen | Bloomberg | Getty Images
China’s biggest semiconductor manufacturing firm SMIC on Friday posted its first decline in quarterly revenue in more than three years as a glut in chips and lack of demand continues to hit the industry.
SMIC or Semiconductor Manufacturing International Co., posted revenue of $1.46 billion in the first quarter of the year, down 20.6% year-on-year. The last time the company saw a sales decline was in the third quarter of 2019.
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Net profit fell to $231.1 million, down 48% year-on-year.
SMIC Is China’s most important chipmaking company and seen as a key hope to Beijing’s ambitions to boost its domestic semiconductor industry and catch up with rivals like Taiwan’s TSMC and South Korea’s Samsung.
However, the company’s technology is still years behind those leading companies. In 2020, SMIC was put on a U.S. trade blacklist called the Entity List. And last year, Washington introduced sweeping export restrictions aimed at cutting China off from advanced chip tech and equipment. Indeed, these curbs have cut SMIC off from the key tools required to make more advanced chips.
But the latest business slump comes amid a difficult chip market with a glut of supply and lack of demand that has hit companies across the industry. Over 50% of SMIC’s revenue comes from making chips that go into smartphones and other consumer electronics. Both smartphone and PC shipments declined in the first quarter.
However, SMIC forecast its second-quarter revenue to recover and rise between 5% and 7% quarter-on-quarter. Many other chipmakers have forecast a recovery in the second half of the year.
“For 2Q, it also guided its sales to recover earlier than its peers,” Sze Ho Ng, analyst at investment bank China Renaissance, told CNBC. “The domestic market recovery is happening earlier than overseas,” Ng said.
Samsung is facing a testing time with profit slumping due to weak demand for its memory chips.
SeongJoon Cho | Bloomberg | Getty Images
An influential Samsung Electronics workers union on Thursday warned that its members could walk out over a wage dispute in what could be the South Korean tech giant’s first strike in its history.
The National Samsung Electronics Union claims that Samsung management has cut the union out of wage negotiations.
The NSEU, which says it represents around 10,000 staff, or around 9% of employees, staged a press conference outside one of Samsung’s buildings in Seoul and demanded the tech giant’s Chairman Lee Jae-yong join the discussions.
Lee Hyun-kuk, a representative of the union, said it would go on strike after a consultation with its members but said it depends on the “attitude” of Samsung Chair Lee, and his willingness to negotiate, according to local media reports that were posted on the union’s website.
“It depends on the attitude of chairman Lee Jae-yong. We sincerely ask him to come to the table for talks,” the NSEU’s Lee said, according to Bloomberg.
Samsung was not immediately available for comment when contacted by CNBC.
If the walkout goes ahead, it would be the first strike since the founding of Samsung Electronics in 1969. Samsung Electronics encompasses Samsung’s consumer hardware, semiconductor, display and mobile carrier businesses.
Tension with workers comes at a sensitive time for the world’s biggest smartphone and memory chip maker, after its operating profit in the first quarter plunged to its lowest level since 2009. Samsung has been hurt by falling prices and demand for its memory chips, which is its biggest profit driver.
The union is asking for a 6% wage increase for workers. Samsung management said last month it would increase wages by around 4%, according to the union.
China’s largest chipmaker SMIC won’t be able to produce cutting-edge chips competitively if it continues to be cut off from advanced equipment, analysts told CNBC.
Vcg | Visual China Group | Getty Images
China’s largest chipmaker SMIC won’t be able to produce cutting-edge chips competitively if it continues to be cut off from advanced equipment, analysts told CNBC.
However, SMIC has been the target of U.S. sanctions since 2020 when it was put on a U.S. trade blacklist which restricts its access to certain technology. It has also been unable to obtain the extreme ultraviolet (EUV) lithography machines — which only Dutch firm ASML is capable of making.
“It’s just not commercially profitable for SMIC to make those chips with less advanced equipment,” said Phelix Lee, equity analyst for Morningstar Asia.
Following the 2020 sanctions, the U.S. last year introduced sweeping export restrictions aimed at cutting China off from advanced chip tech and equipment. Washington is concerned that China could use these advanced semiconductors in artificial intelligence and military applications.
“Can SMIC produce in a commercially viable way scaled by the hundreds of thousands or tens of millions in some cases? That’s what the most advanced tools let you do,” Chris Miller, author of “Chip War” told CNBC.
SMIC did not respond to CNBC’s request for comment.
The world’s most advanced chip facilities — such as Taiwan Semiconductor Manufacturing Company and South Korean electronics giant Samsung — rely on tools from just a small number of companies largely in the U.S., Japan and the Netherlands.
TSMC and Samsung began mass producing 7-nanometer chips in 2018. Both firms use ASML’s EUV machines.
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“Nanometer” in chips refers to the size of individual transistors on a chip. The smaller the size of the transistor, the more of them can be packed onto a single semiconductor. As such, smaller nanometer sizes typically yield more powerful and efficient chips.
“So far I don’t see domestic players being able to provide those machines to SMIC,” said Morningstar’s Lee.
At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad.
Chris Miller
Author of ‘Chip War’
While some Chinese firms are trying to build equivalent tools domestically, they remain fairly far behind, said Miller.
In February, ASML said that a former employee in China had stolen data about its proprietary technology.
“It will likely take some time before China begins to replicate the capabilities that these important tools have,” said Miller, who is also an international history professor at Tufts University.
“At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad,” the professor said.
Lee said it is “quite unlikely, at least in the next five years” for SMIC to be able to produce the latest generation of chips such as 5 or 3-nanometer chips. “If we want to close the gap [between SMIC and TSMC], we should be looking at a 10-year horizon,” said Lee.
But with SMIC being the key to China’s chip ambitions, analysts expect the government to step up support for the chipmaker. SMIC already benefits from government subsidies and state-backed research projects.
“I see a lot of financing to happen for SMIC. These can come from bank loans, issuing new shares, or setting up operating companies with the help of government funding,” said Lee.
The Chinese government has made it clear they want to get as close as possible to the cutting edge…
“The Chinese government has made it clear they want to get as close as possible to the cutting edge and so a lot of the funds will be devoted towards trying to produce close to cutting edge chips,” said Miller.
“SMIC is going to benefit from a new level of support from the Chinese government which doesn’t want to see it fail and wants to see it, if possible, continue to make progress technologically,” he added.
— CNBC’s Arjun Kharpal contributed to this report.
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets because of fears reignited by First Republic.
First Republic Bank has a plan to save itself, CNBC learned from sources. Advisors to First Republic are persuading big U.S. banks to buy bonds from First Republic at above-market prices. Though those big banks will lose money on the purchase, their losses would be much lower than the Federal Deposit Insurance Corp. fees banks would have to pay if First Republic fails.
Meanwhile, First Republic’s stock continued its freefall. It plummeted 29.75% Wednesday to hit an all-time low of $5.69, giving the bank a market value below $1 billion.
Still, the global banking sector looks mostly solid, at least for big banks. Deutsche Bank reported a net profit attributable to shareholders of 1.158 billion euros, which was a 9.2% increase from a year earlier. That’s the 11th straight quarter of profit for the German bank — though it’s joining other companies in laying off workers because of falling revenue.
U.S. stocks ended Wednesday mixed as First Republic’s troubles overshadowed excitement about Big Tech earnings. Asia-Pacific markets traded higher Thursday. Singapore’s Straits Times Index lost 0.39%, weighed down by real estate stocks, as the country increased stamp duties on property purchases.
PRO First-quarter economic growth in the U.S. is likely to hit at least 2% year on year, according to analysts’ projections. Despite that solid number, there are signals that a recession is still coming.
Big Tech continues its winning streak, but it wasn’t enough to ignite a broader rally in markets.
On Wednesday, Microsoft rallied 7.24% on the back of a strong earnings report that was boosted by a jump in revenue from its Intelligent Cloud business segment. The tech company’s stock hit a 52-week high, putting it within a hair’s breadth of $300 per share. Amazon climbed 2.35% as investors hoped the e-commerce giant, which is the market leader in cloud services, would post strong numbers Thursday too.
Still, the tech-heavy Nasdaq Composite finished the day only 0.47% higher. (Meta, which also had an excellent first quarter, posted earnings after markets closed.)
Why didn’t the Nasdaq rise more from Big Tech’s better-than-expected first-quarter results? Probably because tech stocks were already doing so well.
“There was such a rally into their earnings season that I think you needed earnings to really clear a high bar to actually catalyze another leg higher,” said Ross Mayfield, investment strategy analyst at Baird. “That just hasn’t been the case, especially when you have other headwinds pressing down on the market.”
Indeed, fears around First Republic induced losses in other major indexes. The Dow Jones Industrial Average lost 0.68% and the S&P slipped 0.38%.
Banks might not be as exciting as technology companies. But banks are so fundamental to the health of the economy that any sign of weakness in one is enough to send waves of fear throughout investors and make them forget, if only temporarily, the promises of Big Tech. What use is there, after all, in building a skyscraper if the foundation is shaky?
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The collapse of Silicon Valley Bank has added to volatility in the tech sector, coming hot on the heels of expectations that interest rates are likely to remain high for some time. The tech-heavy Nasdaq Composite closed 0.45% higher on Monday. That’s after sliding 1.76% on Friday following the closure of Silicon Valley Bank . Crypto-focused Signature Bank was also shut down. Meanwhile, Fed Chairman Jerome Powell said last week that interest rates are likely to remain “higher than previously anticipated” — usually viewed as bad news for the tech sector. Earnings misses and a series of layoffs at tech giants, including a planned second round of redundancies at Meta , have further compounded nervousness in the sector. But some market pros see the volatility as an opportunity to snap up growth stocks at bargain prices. “We think that for medium- and long-term investors, the recent bout of volatility that you’ve seen represents a buying opportunity,” Anthony Doyle, head of investment strategy at Firetrail Investments, told CNBC on Monday. He said some tech firms’ valuations have been “absolutely hammered.” Meanwhile Phillip Wool, managing director of Rayliant Global Advisors, added: “The upshot is that we’re bearish on U.S. stocks generally, though this will give way to bargain hunting as lagged damage from Fed policy shows up and greed turns to fear.” Big Tech stock picks Speaking last week, before the sell-off, Sylvia Jablonski, chief investment officer at Defiance ETFs, urged investors to watch for pullbacks. “Through the last several decades, the top days in the markets have occurred during some sort of recession, crisis or pullback,” she said in emailed notes to CNBC. “If you’re an investor, and you’re in it for beyond 2024, where we’ll have a little more certainty at that point, we would think there is a really high chance that you’re going to be buying [at] lower levels today than you will be in that timeframe and certainly a decade from now,” she added. Meanwhile, Barbara Doran, CIO at BD8 Capital Partners, believes tech has “really been on a roll” and is “holding up,” despite concerns around higher interest rates. She said she’s refocusing on big-cap tech names given the promise of artificial intelligence — the hottest tech theme this year — and “historically attractive” valuations. She is bullish on Meta , giving the stock upside of between 15% to 35%. That’s despite a gain of about 50% in its stock price this year. Meta’s users and engagement have continued to increase across all platforms, according to Doran, with the company also growing monetization of its Reels platform and increasing financial discipline. Apple is another stock that she likes, citing its growing market share in high-end smartphones outside the U.S., as well as its ability to take market share from major competitor Samsung . Defiance’s Jablonski highlighted that the top stock picks from major Wall Street banks tie to AI and machine learning. “Looking at a basket of stocks ranging from semiconductors, quantum computing, AI and machine learning, stocks in the lead in this space may pay off in the long term,” she said. AI is expected to grow at a compounded rate of 37% by 2026, Jablonski added, citing research by global market intelligence firm International Data Corporation. “That’s not so far off.” Jablonski identified Microsoft , Nvidia , Advanced Micro Devices , Alphabet and Amazon as likely leaders in the space and believes now is a “great opportunity” to add exposure given that they are trading at “double digits from their 52-week highs.” Defiance ETFs manages The Next Generation Quantum Computing & Machine Learning ETF . The exchange-traded fund is up more than 11% as of the end of February. Amy Kong, chief investment officer at CI Barrett Private Wealth, favors Microsoft, calling it a “stellar company” with a good business model. She added that the company is generating a lot of free cash flow, has “a lot more growth engines” relative to Alphabet, and is expected to grow its cloud computing business by about 30% over the next quarter. Firetrail Investments’ Anthony Doyle also identified Microsoft as a tech stock he’s bullish on , despite the volatility.
Xiaomi is trying to push into the high end of the smartphone market with the Xiaomi 13 Pro. It will pit the Chinese giant against rivals Apple and Samsung.
CFOTO | Future Publishing | Getty Images
Xiaomi launched its flagship smartphone globally on Sunday as the Chinese electronics giant attempts to take a slice of the high-end market and challenge Apple and Samsung.
The Xiaomi 13 and 13 Pro were originally launched in China in December, but now the Beijing, China-headquartered company is bringing the devices to markets overseas.
The Xiaomi 13 Pro device sports a 6.73-inch display and the latest Snapdragon 8 Gen 2 chipset from U.S. firm Qualcomm. It has a triple-lens camera and other premium features like ultra-fast charging. The company talked up the capabilities of its camera that it “co-engineered” with German firm Leica.
The Xiaomi 13 starts at 999 euros ($1,053) while the 13 Pro starts at 1,299 euros.
Xiaomi had a rough year in 2022 with its smartphone shipments declining 26% year-on-year, according to research firm IDC, the biggest fall among the top five biggest handset vendors. The company swung to a loss in the September quarter, the latest financial results available.
Xiaomi has faced a number of headwinds, in particular a more difficult macroeconomic environment with a slowing economy in China. A total of 1.21 billion smartphones were shipped in 2022, which represents the lowest annual shipment total since 2013, according to IDC.
“Xiaomi is facing multiple headwinds inside China from an ever-popular Apple iPhone, a surprisingly strong Honor, and fickle Chinese consumers who often switch between Android hardware brands in a flash,” Neil Mawston, an analyst at TechInsights, told CNBC via email.
Honor is the Chinese smartphone brand that was spun off from Huawei.
Xiaomi has turned into one of the biggest smartphone makers over the years via a strategy of bringing out high-spec devices at very competitive price points. It began pushing into overseas markets around seven years ago, pursuing a similar strategy. But it is now looking to push into the higher end of the market, where margins are higher and the market is still growing.
High-end smartphones, those that cost over $800, accounted for 18% of the total handset market in 2022, up from 11% in 2020, Canalys data shows. Xiaomi’s push into the premium tier will pit it against Apple and Samsung, which will be a challenge for the Chinese rival. Samsung and Apple devices accounted for 92% of the high-end market in 2022, according to Canalys.
“Competing with Apple and Samsung is incredibly difficult. Not just matching market leading products, but particularly going up against enormous companies with exceptional brand awareness, high-end perceptions, experience focused solutions and product ecosystems with high user-stickiness,” Runar Bjørhovde, research analyst at Canalys, told CNBC via email.
Xiaomi is the latest Chinese smartphone player that is trying to crack the high-end of the market. Oppo launched its first foldable phone for the overseas market this month that costs more than $1,000.
Apple maintained its position as the world’s largest smartphone maker by shipments in the fourth quarter of 2022, according to IDC. However, iPhone shipments declined 14.9% year-on-year.
Stanislav Kogiku | SOPA Images | Lightrocket | Getty Images
Global smartphone shipments plunged in the fourth quarter of 2022 — usually a big holiday shopping period — thanks to macroeconomic weakness and soft consumer demand, according to market research firm IDC.
Electronics firms shipped 300.3 million smartphones in the October to December quarter, an 18.3% year-over-year fall, IDC said in a report published late Wednesday. The drop marks the largest-ever decline in a single quarter.
A total of 1.21 billion smartphones were shipped in 2022, which represents the lowest annual shipment total since 2013 “due to significantly dampened consumer demand, inflation, and economic uncertainties,” IDC said.
“We have never seen shipments in the holiday quarter come in lower than the previous quarter. However, weakened demand and high inventory caused vendors to cut back drastically on shipments,” said Nabila Popal, research director at IDC.
Shipments represent the devices that companies like Apple and Samsung send to retailers and mobile carriers. They do not equal sales but they do give an indication of demand.
IDC said that the “tough close to the year puts the 2.8% recovery expected for 2023 in serious jeopardy with heavy downward risk to the forecast.”
Apple maintained its position as the number one smartphone maker in the world. The U.S. tech giant shipped 72.3 million iPhones in the fourth quarter, down 14.9% year on year, IDC said. Apple had a 24.1% market share. The decline came although Apple launched its latest models — the iPhone 14 series — ahead of the crucial holiday quarter.
Samsung, the second-largest smartphone player, saw shipments decline 15.6% year on year to 58.2 million units. Samsung did not release a brand new flagship smartphone for the fourth quarter but is holding an event on Feb. 1 at which it is likely to show off its new device.
Chinese electronics maker Xiaomi, which came in third, shipped 33.2 million units in the fourth quarter of the year, down 26.3% year on year. That was the biggest decline among the top five smartphone players, which also include Chinese smartphone makers Oppo and Vivo.
“With 2022 declining more than 11% for the year, 2023 is set up to be a year of caution as vendors will rethink their portfolio of devices while channels will think twice before taking on excess inventory,” said Anthony Scarsella, research director at IDC.
Samsung has faced pressure from plunging memory prices which has impacted its key profit driving DRAM and NAND business.
Josep Lago | AFP | Getty Images
Samsung’s profit could nosedive when it reports fourth-quarter earnings guidance this week as prices for key memory chips continue to plunge amid weak demand.
Analysts expect Samsung to report 7.18 trillion South Korean won ($5.64 billion) in operating profit in the December quarter, according to Refinitiv consensus estimates. That would be a near 50% fall versus the fourth quarter of 2021.
However, some analysts are more bearish than the consensus.
Analysts at Macquarie Research forecast Samsung to report fourth-quarter operating profit of 5.5 trillion won, which would be the lowest since the third quarter of 2016. Daiwa Capital Markets analysts see operating profit at 4.9 trillion won, a 65% year-on-year plunge and would be the lowest since the fourth quarter of 2015.
The pessimism stems from a rapid fall in memory prices. Samsung is the world’s biggest player in so-called NAND and DRAM chips which are used in devices such as laptops and smartphones, through to data centers.
NAND and DRAM prices fell sharply in the fourth quarter due to a lack of demand for the products they eventually go into, such as PCs. This has led to electronics manufacturers and other companies that use such chips holding onto their inventory, further lowering demand for Samsung’s chips.
Samsung is not exempt from the “memory market carnage,” Macquarie analysts said in a note published Tuesday.
“The magnitude and speed of the memory price decline is parallel to the global financial crisis in 2008,” Macquarie said.
“A toxic combination of an end demand slump and excessive channel inventory led to a high inventory level not seen in a decade,” it added.
The analysts said they expect Samsung’s NAND business to be loss making in the fourth quarter while DRAM is “likely to have a razor thin profit margin” in the first half of 2023.
Samsung’s semiconductor business, which includes NAND and DRAM, accounts for nearly 50% of the company’s operating profit. Therefore, any hit to the memory division will have a big impact on the overall profit the company reports.
Analysts also expect weakness in other parts of Samsung’s business including smartphones, which could weigh on earnings.
Samsung will release fourth-quarter earnings and revenue guidance on Friday before its full financial report, likely later this month.
Analysts at Macquarie and Daiwa think the first half of the year will be tough for Samsung due to continued pressure on memory prices.
But earnings could bottom in the second quarter of 2023, according to Refinitiv consensus estimates.
Daiwa analysts said there will be a rebound in earnings in the second half of 2023 “along with an improving memory cycle and recovery in mobile demand.”
Macquarie analysts said a downturn in memory prices “tends to provide an opportunity for the memory leader came back stronger in a new cycle.”
“History has also shown that investors should not wait until the cyclical turnaround has already begun. For these reasons, we recommend investors hold onto SEC (Samsung Electronics), despite the negative near-term news.”
U.K.-based consumer tech company Nothing is setting its sights on the U.S., with ambitions of taking on Apple’s iPhone.
The startup, the hardware venture of Carl Pei — co-founder of Chinese mobile phone maker OnePlus — is in early conversations with American carriers about launching a new smartphone in the U.S., Pei told CNBC, without naming any of the carriers.
In July, Nothing launched Phone (1), a mid-range device with a design, price and specs similar to Apple’s entry-level iPhone SE.
The company, which is backed by iPod creator Tony Fadell and Alphabet’s VC arm GV, has only launched its smartphone in Europe, the Middle East and Asia so far — not the U.S. or Canada.
“The reason why we didn’t launch in the U.S. is because you need a lot of additional technical support, to support all the carriers and their unique customizations that they need to make on top of Android,” Pei explained in an interview with CNBC. “We felt that we weren’t ready before.”
“Now we are in discussions with some carriers in the U.S. to potentially launch a future product there,” said the Chinese-Swedish entrepreneur.
The likes of Apple and Samsung already have established relationships with large U.S. carriers, making it harder for smaller firms to compete.
But a third of the sales of its recently launched Ear (stick) headphones currently come from the U.S., Pei added.
“It’s definitely a market where there’s already a lot of interest for our products. And if we launch our smartphones there, I’m sure we could obtain significant growth,” he said.
The company expects its revenues to jump more than tenfold in 2022 — from about $20 million in 2021 to an estimated $250 million this year, according to figures shared with CNBC exclusively. It has also more than doubled its employees to more than 400. However, the firm is still losing money.
“The goal is to be profitable in 2024,” Pei said. “We are not profitable right now. And this year was made even harder due to the foreign currency exchange. We pay a lot of our COGS [cost of goods sold] in USD but we make money in pounds, in euros, in Indian rupees — so everything devalued against the USD.”
The U.S. dollar has rallied this year; the dollar index — which measures the greenback against a basket of major currencies — is up over 8.5% year-to-date.
Pei wants to challenge Apple’s iPhone in the U.S. But it’s a steep hill to climb.
“There’s a challenge with Android where iOS is just becoming more and more dominant. They have very strong lock-in with iMessage, with AirDrop, especially among Gen Z. So that’s a rising concern for me,” he said.
“There might be a time where Apple is like 80% of the overall market and that just does not leave enough space for Android-based manufacturers to keep playing,” he said.
Apple’s active installed base, which takes into account people who bought phones second-hand, surpassed 50% in the U.S. in the second quarter, surpassing Android, according to data from Counterpoint Research.
Apple was not immediately available for comment when contacted by CNBC.
Pei said his firm has faced a plethora of challenges in bringing its products to market. One of the major setbacks it faced was when it approached Foxconn, Apple’s largest iPhone supplier, to manufacture its phones.
According to Pei, Foxconn refused to do business with Nothing, citing past failures in the smartphone industry.
“Every startup manufacturer has worked with Foxconn,” Pei said. “But when it was our turn, they said no because every startup that worked with them failed. And every time a startup failed, Foxconn lost money on it, they were not able to recoup their costs.”
Foxconn was not immediately available for comment when contacted by CNBC.
Covid restrictions around the globe also presented a significant hurdle for the company. In India, where Nothing produces its phones, the company was unable to fly out engineers due to travel restrictions, with Pei saying the company had to manage its factory on the ground remotely.
“We really had to hustle to create this,” he said of Nothing’s smartphone.
In Shenzhen, China, where officials have imposed strict lockdowns, Nothing’s engineers had to discuss component designs and mechanics during mandated 45-minute periods when it was acceptable for people to go outside to buy groceries.
Nothing has sold over 1 million products to date globally, with its Ear (1) and Ear (stick) earbuds selling 600,000 units and the Phone (1) reaching 500,000 shipments.
Still, the startup is a tiny player, and it faces a bleak economic outlook where people are being forced to limit their spending drastically.
In Europe, smartphone shipments sank 16% in the third quarter year-over-year, per Counterpoint Research data — although they were up slightly from the previous quarter on the back of the iPhone 14’s strong launch.
Samsung is Europe’s largest smartphone maker with 35% market share, followed by China’s Xiaomi’s 23% and Apple’s 21%.
Samsung said it will begin making chips with a 2 nanometer process in 2025 and 1.4 nanometer process in 2027. These would be some of the most advanced semiconductors in the world. Samsung is in a race to catch up with market leader TSMC.
SeongJoon Cho | Bloomberg | Getty Images
Samsung said Tuesday it aims to make some of the most advanced semiconductors in the world in five years’ time, as the race between the South Korean electronics giant and the world’s largest chip maker TSMC heats up.
The company laid out a roadmap for its chip production plans, and said it will begin making chips with a 2 nanometer process in 2025 and 1.4 nanometer process in 2027.
The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.
For comparison, the processor in Apple‘s latest iPhone 14 Pro and Pro Max models is a 4 nanometer chip.
Samsung began producing 3 nanometer chips earlier this year.
Shares of Samsung in South Korea closed nearly 4% higher on Tuesday.
The South Korean firm, known for consumer electronics and memory chips, is looking to ramp up its contract chipmaking, or foundry business, in a bid to catch up with Taiwan’s TSMC.
Samsung is the second-biggest foundry globally by revenue, with a 17.3% market share compared to 52.9% for TSMC, according to TrendForce.
For its part, TSMC expects to begin 3nm chip production this year with production of 2nm set to begin in 2025. However, the company has not officially announced plans to mass produce 1.4nm chips.
Samsung’s ambitious plans come amid global economic headwinds and signs of a slowdown in semiconductor demand. Global chip industry sales fell 3.4% in August compared to July, according to the U.S.-based Semiconductor Industry Association.
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Despite this, Samsung said it plans to expand its production capacity for the most advanced chips by more than three times by 2027 compared to this year, highlighting its bullishness on future demand.
These include its factories in the U.S. Samsung has a plant in Austin, Texas, and is currently building a $17 billion facility in Taylor in the same state.
While Samsung has put a big focus on cutting edge chips, the company also said semiconductors for high-performance computing, automotive and 5G uses will make up more than 50% of its foundry business by 2027. These are usually less advanced chips.
