Coronavirus impact: Global smartphone market dips 13% - fastest decline ever

Key Highlights:

• Shipments fell below 300 million units in Q1 2020 - first time since Q1 2014
• 5G smartphone shipment share increased to 8 per cent

The outbreak of COVID-19 has had a strong bearing on the global smartphone market as it registered its fastest decline ever. In Q1 2020, the smartphone market declined by 13 per cent year-on-year compared to the same quarter last year. The latest research from Counterpoint's Market Monitor service reports that for the first time since Q1 2014, the smartphone market has fallen below 300 million units in a quarter. COVID-19 pandemic has disrupted any signs of recovery that the market had started showing since Q4 2019.

Overall, the market share of China in the global smartphone market, in Q1 2020 reduced to 22 per cent from 26 per cent a year ago.  The first-quarter decline was mainly driven by 27 per cent YoY shipment decline in China. Some of the decline was offset by sales shifting to online channels. It also impacted the supply of handsets and components for some OEMs, impacting global shipments. This has led to OEMs rethink their dependence on China and expanding its supply chain across different regions and countries. Counterpoint believes this could be a silver lining for countries like India and Vietnam.

However, the impact is going to be worst in the second quarter of the year, especially on OEMS as a lot will depend on the markets, channels, and price bands they operate in.

On the demand side, the recovery in a certain market could take much longer. Even though China is recovering from the pandemic, other countries continue to be in lockdown. Going forward, brands with a larger share in China, like Huawei, will be in a better position than brands like Samsung, for which almost all its major markets remain under lockdown. On the supply side, in Q1 2020, OEMs with components and factories in the worst-hit areas of China were exposed the most. In the second quarter, the trend will be reversed, as China's manufacturing recovers, but many other manufacturing centres are closed. On the sales front, brands with higher online presence are likely to remain more immune than offline ones. Some offline demand is shifting online. The report also suggests that the entry-level segment is likely to get hit the most, especially in the emerging economies, driven by the impact on the people's income in the unorganised labour sector and higher offline purchase tendency. The mid-segment will continue to drive volumes. Whereas the premium segment is least likely to be directly affected by the economic meltdown. As the consumers would adjust to the new normal, the sales in the segment are likely to rebound.

Tarun Pathak, Associate Director at Counterpoint Research noted, "From the consumer standpoint, unless replacing a broken phone, smartphones are mostly a discretionary purchase. Consumers, under these uncertain times, are likely to withhold making many significant discretionary purchases. This means the replacement cycles are likely to become longer. Lockdowns in most parts of the world will be lifted in a staggered way, which will mean it could take time before the retail activity completely resumes. Even after the lockdown ends, there will likely be changes in consumer spending patterns. Online channels are likely to be preferred and there will likely be shifts in the price band distribution with some consumers opting for a cheaper device, which could lead to a decrease in overall ASPs."

On the OEMs front, they will have to embrace a more omnichannel strategy. Retailers will also have to find ways to reach their consumers digitally. This could increase the adoption of O2O channels and hyper-local delivery services in smartphones. However, users staying home are engaging on their smartphone more than ever. This provides opportunities for services like mobile gaming and OTT services.

According to the report, the combined market share of the top 10 brands has increased to 83 per cent, from 80 per cent in Q1 2019. Smaller brands with higher offline distribution are likely to be affected due to the pandemic. While the market share of major OEMs declined during the quarter, Xioami (7 per cent YoY) and Realme (157 per cent YoY) registered growth mainly because the lockdown was implemented in India in the last week of March. Apple remained resilient even during the COVID-19 as iPhone shipments declined only 5 per cent YoY during the quarter. The iPhone revenues were down 7 per cent YoY for the same period. The impact on some European and Asian countries was mild.

COVID-19 has also impacted the pace of 5G rollouts in some countries with auctions being postponed in markets like Spain and India. However, led by Huawei, the growth of 5G in China remains as expected. As the situation returns to normal, the 5G sales will be further driven by OEMs including Samsung, Oppo, Vivo, Xiaomi and Realme launching devices in the sub $300 price band. "This is likely to be complemented by SoC players launching cheaper 5G-capable chipsets. The share of 5G smartphones increased to 8 per cent in Q1 2020, compared to 1 per cent in Q4 2019. 5G is likely to help rate of recovery during the second half of 2020," says Varun Mishra, Research Analyst at Counterpoint Research.

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