The total smartphone production has hit 286 million units in the second quarter of the current year representing a 16.7% year-over-year (YoY) decline, TrendForce said in a report on Tuesday. The company engaged in the market intelligence reports said that the dip in the smartphone production was the “largest quarterly YoY drop in history.” However, TrendForce said that the smartphone production sequentially had a “slight” quarter-over-quarter (QoQ) 2.2% rebound. The company said that the dip in smartphone production was largely down to the COVID-19 pandemic that resulted in governments across the world to impose border closures and regional lockdown. TrendForce said that the lockdowns have led to the “significant declines” in gross domestic product (GDP) of various countries.
COVID-19 Lockdowns “Severely Damaged” Smartphone Industry
The company said that the easing of the COVID-19 restrictions and the economic stimulus policies offered in certain countries will aid the smartphone market’s potential rebound into the second half of 2020. TrendForce said that the total smartphone production in the third quarter of the current year is expected to hit 335 million units, representing 10.1% YoY decline but an 17.2% QoQ increase.
Samsung is said to have been the most affected due to the COVID-19 pandemic as compared to the other brands. TrendForce said that the US, Europe and India are the major markets for Samsung smartphones but that the “very severe” COVID-19 outbreaks hurt the sales of the Samsung devices. Samsung is said to have continued to lead the industry in terms of smartphone production with 55 million units in the 2020 second quarter. However, TrendForce said that the South Koran major is the only brand among the top six leading brands to have posted close to 16% QoQ decline in smartphone production.
TrendForce said that Samsung's production volume is likely to increase in the third quarter of 2020 as the South Korean company will seek to offset its “poor performance” in the previous quarter.
“As China-U.S. tensions intensify due to the latter's sanctions against Huawei, and China-India relations continue to destabilise, Samsung has been building up its inventories as it targets the entry-level and mid-range segments in order to compensate for its poor performances in the previous quarter,” TrendForce said in a report.
Huawei, the second largest smartphone maker is said to continue to “heavily rely” on the Chinese market. It was said that Huawei increased its smartphone production by 13% QoQ to around 52 million units in the second quarter of 2020. TrendForce highlighted that the smartphone sales of Huawei in the overseas markets have been “falling sharply” since the end of last year due to the effect of trade sanctions by the US government.
“These measures will make the R&D of in-house mobile processors and sourcing of components much more difficult for this Chinese smartphone brand,” TrendForce said. “Given that Huawei depends on China for smartphone sales, other Chinese brands, including Xiaomi, Oppo, and Vivo, are expected to cut into Huawei’s market share.”
Meanwhile, Apple is said to have increased its iPhone production by 8% in the second quarter of 2020 to 41 million units “thanks to above-expected sales of the iPhone SE and the iPhone 11.” TrendForce said that the demand for the iPhone SE and iPhone 11 is “expected to remain strong” in the third quarter of 2020. Further, Apple is also expected to mass produce its four new models scheduled to be launched as the iPhone 12 series, resulting in an increase in its smartphone production.
“The BOM costs of the iPhone 12 models are significantly higher compared with the models in the previous series because of the 5G support,” TrendForce said. “To cut costs and stabilize retail pricing, Apple has decided to sell the upcoming iPhones without accessories such as wired earphones, power adapter, etc.”
Crucially, TrendForce highlighted that the recent orders from the Trump administration on TikTok, WeChat and their parent companies ByteDance and Tencent “may have an impact” on Apple’s performance in the Chinese market.
Border Tensions Between India and China Puts Pressure on Chinese Brands
Xiaomi is said to be the fourth largest smartphone marker with the company hitting 29.5 million units in the second quarter of 2020 followed by Oppo with 27.5 million. TrendForce highlights that the numbers of Oppo includes Oppo, OnePlus and Realme. Further, Vivo is said to made 26.5 million units in the second quarter of 2020.
TrendForce said that the three Chinese brands namely Xiaomi, Oppo and Vivo “benefitted from the recent recovery” in the Chinese market.
“Furthermore, they also took advantage of the precautionary inventory building in the overseas retail channels during the first half of the year,” TrendForce said. “Retailers stocked up aggressively during that time in fear of pandemic-related disruptions.”
TrendForce said that the growth in the Chinese market coupled with the inventory build up at the overseas retailers resulted in Xiaomi, Oppo and Vivo to post an 10% QoQ increase.
“Recent border tensions between India and China have placed considerable pressure on the three brands’ sales efforts since they all count on India as one of their major foreign markets,” TrendForce said. “On the other hand, they have been cultivating their presence in the country for a long time.”
However, TrendForce said that the price competitiveness “may be enough” for the Chinese brands to power them through the “difficult period” with the companies retaining its market share.
“Nevertheless, Chinese smartphone brands will be very constrained in terms of growth if the relationship between their home country and India remains tense,” TrendForce said.
Looking ahead, TrendForce predicts yearly smartphone production to hit 1.24 billion units for 2020, representing an 11.3% YoY decrease.
“Assuming the pandemic can be brought under control in 2021, total smartphone production is likely to make a rebound next year,” TrendForce said. “Smartphone brands are pushing out 5G models this year to maintain their market shares in the face of the recent demand slump.”
TrendForce said that the share of 5G models in the annual total smartphone production is expected to rise to 19.2% for 2020.