Skip to main content

Production of global smartphones to plunge 11.3% to 1.24b units this year

(Image credit: Pexels)

The global spread of Covid-19 is expected to deal a major blow to smartphone production in 2020, registering an 11.3% decline year on year to 1.24b units.

In the second quarter, smartphone production is expected to see the largest decline on record for a given quarter, falling 16.5% year on year to 287m units compared to 280m units in the first quarter.

There are now improvements to both the supply chain and the work resumption statuses of manufacturing and assembly lines in the second quarter but the pandemic is now making its effects felt on the demand side of the smartphone market by tanking major economies worldwide.

In the first quarter, the year on year decline fell to 10%, the lowest in five years, due to pandemic-induced disruptions across the supply chain, such as delayed work resumption and labour/material shortages, which caused low factory capacity utilization rates, according to research firm TrendForce.

In addition to the saturation of the market, Chinese brands are exerting continuous pressure on Samsung’s presence in the Southeast Asian and Indian markets by the day.

Most of Samsung’s smartphone assembly lines are located in Vietnam and India, and the company possesses about only 2% of the market share for smartphones in China. “Its production was thus not significantly affected by issues related to the disease during the initial phase of the outbreak in China. Nevertheless, the rapid spread of the disease across North America and Europe in the latter part of the first quarter compelled Samsung to lower its device output even as its factories were running as usual,” the report said.

(Image credit: Future)

Huawei focuses on 5G phones

Samsung’s production volume for the first quarter came to 65.3m units, showing a year on year drop of 9.9%. Moving into the second quarter, India’s smartphone assembly lines have been suspended since late March due to the imposition of a national lockdown. Furthermore, the global economy has gone into a recession.

TrendForce estimates that Samsung’s smartphone production for the second quarter will fall by 10.7% quarter on quarter to 58.3m units.

Huawei, which took second place in the production ranking for the first quarter, was able to have its device assembly lines resume work soon after the Lunar New Year holiday. It has seen a steep decline in overseas sales due to its new devices being excluded from Google Mobile Services.

Nevertheless, demand from China, which is its primary market, has started to recover. With the support of domestic demand, Huawei’s smartphone production for the first quarter came to 46m units, in line with TrendForce’s earlier projection.

If China’s economy continues to improve, Huawei’s production for the second quarter may register a quarter-on-quarter growth and reach approximately 48m units.

Huawei is sticking with its plan of making a push for its 5G smartphones this year, but 4G models will still account for most of it’s the first half smartphone output, and Huawei is also holding a significant inventory of 4G models.

Therefore, Huawei’s greatest challenge at the present is to simultaneously develop an effective campaign to promote the latest 5G smartphones and sell off the existing stock of 4G smartphones.

However, Apple fell victim to the influence of the coronavirus pandemic, resulting in the reduced production of its iPhone lineups this year.

The production of iPhones fell by 8.7% year on year to reach 37.9m units, due to labour and material shortages following the post-Lunar New Year work resumption, in turn, ranking Apple in the third place.

As the company releases the new iPhone SE with a consumer-friendly price tag in the second quarter, quarterly iPhone production is expected to stay relatively close to first-quarter figures, reaching 36m units.

“Apple is still planning to release four new 5G handsets in the second half, but whether the pandemic’s influence will weaken the demand for iPhones going forward remains a noteworthy concern, since iPhones sell at a relatively high retail price, and the iPhone’s primary sales regions are the European and US markets, which are dealing with Covid-19,” TrendForce said.

Xiaomi eyes Chinese market

For Xiaomi, overseas markets account for over 70% of its sales. As these markets were unaffected by the Lunar New Year, Xiaomi rapidly expanded its production capacity, following its domestic work resumption, to meet the demand from overseas channels. 

But Xiaomi also had to contend with industry-wide issues of labour and material shortages, resulting in lower than expected capacity utilisation of its production lines. The company produced 24.5m units in the first quarter, which kept flat with the figures a year ago.

TrendForce expects the second quarter acceleration of Covid-19 in India and Indonesia, both of which are major sales regions for Xiaomi, to impact their quarterly smartphone demand and lead to a 10.7% decrease YoY in Xiaomi’s second-quarter production, totalling 27.5m units; the pandemic is projected to have a greater impact on Xiaomi relative to other Chinese brands that rely primarily on domestic sales.

TrendForce expects Xiaomi will aim to gain a competitive advantage by pricing its 5G handsets for low gross margins, to capture a greater share of the Chinese market, in turn making up for the shortfall in overseas sales.

Oppo (including OnePlus, Oppo, and Realme) and Vivo, ranked fifth and sixth respectively, benefitted from increased overseas orders, but their capacity utilisation rates have been sluggish following post-Lunar New Year work resumption.

Oppo produced a volume of 24m units in the first quarter, a 10.4% year-on-year decrease. On the other hand, Vivo had traditionally maintained conservative production plans during past first quarters, meaning the base period for the year on year comparisons with the first quarter is relatively low; Vivo’s year-on-year production volume grew by 5.5% in the first quarter, reaching 23m units, placing it as the only smartphone brand in the top six exhibiting a growth, against the overall trend of declines.

Looking to second-quarter TrendForce has lowered its production forecast for the quarter in light of national lockdowns in Southeast Asia and India starting in March: 30 million and 24.5m units for Oppo and Vivo, respectively, with each brand undergoing more than 14% year-on-year decrease.

5G smartphone production to reach 200m

The pandemic’s impact prompted governments to prioritise disease prevention and stabilisation; furthermore, consumers generally have a speculative attitude towards purchasing 5G handsets.

These two factors diminished the smartphone market’s momentum of transitioning from 4G into 5G in the first half. In the second half, if the Chinese government stays the course in commercialising 5G, and mid-range 5G chips are successfully supplied to the market, the Chinese smartphone market will then see increased incentive to transition into 5G, while also resulting in 5G handsets’ consumer-friendly retail prices.

At the moment, as brands fight over 5G market shares, the yearly forecast of 5G smartphone production volume remains around the 200m unit mark, with a 16% penetration rate in the overall smartphone market.

In particular, Chinese brands occupy over 60% of 5G smartphone market share, with the domestic Chinese market as their primary sales region. This means the penetration rate of 5G handsets in the overall smartphone market will depend heavily on feedback from the Chinese market. However, the penetration rate of 5G smartphones does not reflect the availability of 5G networks, which will depend on the construction of 5G base stations.