Quarter after quarter, familiar stories have appeared. The smartphone market, once seemingly bulletproof, has suffered. The list of factors is long, and I’ve written about them ad nauseam here, but the CliffsNotes version is: costs are too high, innovation is too incremental and most people already own a device that will be plenty good for the next few years.
But 2020 was going to be different. Smartphone makers were set to finally give consumers a reason to upgrade in the form of 5G. The first handsets appeared in earnest last year, but between a much wider carrier roll out, lower-cost 5G radios from Qualcomm and the arrival of a 5G iPhone, this was going to be the year the next-gen wireless technology helped reverse the smartphone slide.
And then COVID-19 disrupted everything. For many of us, life is on hold — and will likely continue to be for months. I’m writing this from my home in Queens, N.Y., the hardest-hit county in the hardest-hit country in the world. It still feels strange to type that, even though it’s been a reality for a month and half now.
Purchasing a smartphone is most likely the last thing on anyone’s mind during what is shaping up to be the worst global pandemic since the 1918 flu pandemic. With a number of key manufacturers reporting quarterly earnings this week, the numbers are starting to bear out this disconnect. Earlier this week, both Samsung and LG reported weak mobile numbers. Yesterday, Apple reported revenue of $28.96 billion, down from $31.1 billion the same time last year.
More troubling, all three companies appeared to be united in suggesting that the worst might be yet to come. Samsung suggested that both mobile and TV demand would “decline significantly” in the following quarter. LG used virtually the same exact wording, stating that, “market demand is expected to decline significantly YoY due to COVID-19 pandemic.” For its part, Apple simply didn’t issue guidance for the next quarter, a surefire indication of uncertainty in these uncertain times — to borrow a phrase from every commercial airing currently.
Apple was, however, quick to warn about the pandemic back in February. In an update on guidance for Q2, the company noted that sales in China would take a sizable hit from the growing threat of COVID. After all, the virus was discovered in the country, with cases dating back as far as mid-November. China’s lockdown measures were among the most stringent to date.
There remain some questions regarding the accuracy of the country’s total number of cases, but China’s draconian measures do appear to have been effective in slowing the spread of the novel coronavirus. “Demand for our products within China has been affected,” Apple wrote, “All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic.”
The impact on consumers in the world’s largest smartphone market would set the stage for what was to come. But equally — or perhaps even more — key to the China lockdown was the effect it would have on the supply chain. Apple again, from the same release:
[W]orldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated. The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues. These iPhone supply shortages will temporarily affect revenues worldwide.
Component manufacturing market research firm TrendForce recently noted the sizable hit manufacturing has taken amid COVID-19 related shutdowns:
[T]he global spread of COVID-19 in 2020 has brought about the greatest magnitude of declines in the smartphone market in recent years. Global smartphone production for 1Q20 fell by 10% YoY to around 280 million units, the lowest in five years, due to pandemic-induced disruptions across the supply chain, such as delayed work resumption and labor/material shortages, which caused low factory capacity utilization rates.
All told, China’s smartphone shipments were down 18% for the first quarter of this year, according to new numbers from Canalys. The 72.6 million units shipped in Q1 mark the lowest number since 2013. The firm believes that the main thing stopping the figure from sliding even further is the “essential” status of handsets among consumers.
When the initial wave slowed down, China began to open back up, but, as Apple notes, the ramp was slower than expected, continuing to have a lingering impact on the supply chain. Canalys, too, notes that it is “cautious” about China’s ability to rebound next quarter.
The ramp up also conceded with other nations beginning to enact stay at home orders, as COVID-19 spread first to Europe and then North America. Subsequent countries, including Italy, the U.K., France, Spain, Germany and the U.S., have all eclipsed China in the number of COVID-19 deaths.
The overall hit to global market was slightly below that of China alone in Q1. Canalys’ figures have the worldwide market taking a 13% hit in sales for the quarter. But while some of the supply chain rebounded, it’s important to note that we’re far from out of the woods here.
New reports suggest that the first 5G iPhone could be delayed by a month, pushing it to around a November release. Here in the States, shelter in place orders are expected to continue to mid-May or into the summer in some places — all that’s assuming a second wave of the virus isn’t as bad or worse than the first. As Canalys’ Ben Stanton notes in the firm’s study, “Most smartphone companies expect Q2 to represent the peak of the coronavirus’ impact.”
The worse could well be ahead of many smartphone manufacturers. The industry had already been on shaky ground, and this sort of hit could do irreparable damage for those who don’t have a diverse enough portfolio to weather the storm.
