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According to investigations by TrendForce, smartphone demand has already made it out of the gloomy offseason of 2Q19, with production volume coming to 344 million units, a 10.5% QoQ growth. Yet the many uncertainties circulating in the international market still caused smartphone production volume to weaken by 2.4% YoY in 2Q19, with the top six being Samsung, Huawei, Apple, OPPO, Xiaomi and Vivo in descending order.
Influential factors such as the US-China trade dispute and the Japan-South Korea trade frictions still linger in 3Q19 looking forward. And with the arrival of the 5G era, the transition into which the on-looking smartphone market witnesses with anticipation, customers will be holding on to their phones for longer. This will whittle down peak season performance in 2H19, and smartphone production volume for 3Q19 is forecast to lie around 363 million units. Despite growing over 2Q19 by 5.8%, this is still a 4.4% decline YoY compared to the figure of 380 million units for the same period last year. Total smartphone production volume is expected to arrive at 1.38 billion units, a YoY decline 5%.
Both Huawei and Apple Suffered Setbacks in Production Volume Due to the Trade War
Looking at the 2Q19 rankings for smartphones, we see Samsung steadily taking first place yet again, with production volume coming to 76.5 million units, a 3% growth YoY, registering the best performance in a single quarter since 2018. This is due to Huawei's loss in European and American market share as an effect of the ban. Contrarily, Samsung reaped a harvest after having cultivated its presence in European and South American markets in the past. TrendForce forecasts that production volume in 3Q19 will trend flat from 2Q19 and come to 76 million units.
However, though the throne seems safely guarded by Samsung phones, the loss of market share remains to be an underlying risk for Samsung. Thus, Samsung will be working on its product portfolio and replace the mid-range J series with the mid-high A series, which will become Samsung's mainstream product. Samsung will also be using the A series' existing place in the market to reshape the image of the brand and compete with Chinese brands, who place an emphasis on high specs. Samsung will also be releasing the M series, which boasts long battery life, and target online customers such as those in India and Indonesia.
Second place Huawei has been active in R&D in recent years, which is starting to pay off. Besides being well received by domestic Chinese consumers, it has also seen rocketing results in overseas markets. Yet the ban in mid-May has impacted Huawei’s overseas sales, causing production volume to fall by over 13% in 2Q19 over 1Q19, coming to 52.5 million units, ending the five-quarter-long growth streak in production volume.
Looking at 3Q19, though the US government has delayed the tariff, originally applied to US$300 billion worth of goods and scheduled to come into effect in September, until December 15th for smartphones and various other products, which will seemingly benefit many in the market, we have yet to see Huawei be removed from the Entity List, and overseas sales will continue to be impacted. The Mate 30 series, which has the next generation Kirin chip implemented, is expected to be released at the end of 3Q as scheduled. If they are unable to remedy the Android system restriction situation until then, Huawei’s production performance in 3Q19 may be affected. As for the release of new 5G devices, that will have to wait until 4Q19.
Apple’s production volume for 2Q19 came to about 38.8 million units, a new low since 2015, putting Apple at a global third place. Looking at its 2Q19 performance, we see that apart from the high prices of new devices, which is of no help in motivating customers to reach for their wallets, the effects of the US-China trade dispute on sales in China markets and the relatively long periods of time for which Apple clients hold on to their phones compared to Android clients all formed the major reasons for the lack of purchases.
Previously, the US government declared a tariff on US$300 billion worth of Chinese imports, which will come into effect in two stages in September 1st and December 15th respectively. Since smartphones belong to the second group of items to be taxed, the impact on them is forecast to be limited this year. But judging from future developments, China will remain the major location for the production of Apple phones, which may face difficulties in relocation for the short-term. Once the tariffs come into effect, it will not only impact Apple’s profits but chip away at Apple’s competitive edge in the smartphone market. The three new devices to be announced won’t be seeing much innovation in 3Q19 looking forward, and since Apple is unlikely to concede much in prices as per its pricing strategy, its production volume for 3Q19 is forecast to reach about 42 million units, a 10% decline YoY.
OPPO, Xiaomi and Vivo to Resort to Differentiation as Competition Intensifies in Chinese and Overseas Markets
OPPO, Xiaomi and Vivo take global fourth, fifth and sixth place respectively. The three major brands all saw a compression in profits for domestic markets due to Huawei’s continual surge, which impacted their sales performance, and the intensive competition seen in overseas markets. It is the common goal of the trio to guard their domestic market share and make breakthroughs in markets overseas.
OPPO enjoyed a boost in Southeast Asian market penetration rate 2Q, with production volume coming to 35 million units, a 15% growth YoY. Apart from the sales under OPPO’s own brand, OPPO stood steady in India’s online markets with the founding of Realme. OPPO also added to Realme’s price advantage by outsourcing production to ODMs. Realme is expected to register a production performance of 20 million units this year.
Fifth place Xiaomi totaled 30.8 million units in total production volume in 2Q19, trending flat YoY, with sale shipments equally divided among the China market, the India market and overseas markets apart from India. It is expected that, under the sway of the peak season 3Q, Xiaomi may get a chance to trend flat YoY and register a production volume of 31.5 million units. Product plans will center around the flagship Xiaomi series, the Redmi series, which is of good value, and the Meitu series, the brand-licensed beautification phone. Coming in sixth place is Vivo, which had seen a greater market penetration rate in China and was thus more heavily impacted by Huawei than OPPO and Xiaomi were. Vivo’s production volume dropped by 4% YoY in 2Q19, registering 28.7 million units, and its production volume for 3Q19 is expected to come near that of 2Q19.
2020 to Usher in the Era of 5G Smartphones, with China Brands to Take Over Half in 5G Smartphone Market Share
The smartphone market requires the help of hot topics to motivate demand in 2020 looking forward. Aggressive R&D on the part of brands and the China government's proactive push for 5G commercialization will both accelerate the arrival of the 5G era. The penetration rate of 5G smartphones next year may get a chance to arrive above 15%, with China brands to make up over half of total 5G production volume.