25 February 2020
Q1 smartphone production forecast revised to 12% drop year-on-year due to coronavirus outbreak’s impact on supply chain
Market research firm TrendForce has lowered its forecast for global smartphone production in first-quarter 2020 to a 12% decline year-on-year, to 275 million units (a five-year low) due to several factors: (1) the labor-intensive nature of the smartphone industry; (2) China’s delay in work resumption until 10 February and population movement control; and (3) the reduction in the public’s willingness to buy.
Delayed work resumption and uncertainties in employees’ returns caused the monthly delivery of key components to be postponed, affecting the progress of smartphone production. Fortunately, first quarters have historically been weak seasons for smartphone production. Also, manufacturers typically maintain a healthy inventory before the Chinese New Year. Therefore, the outbreak was not expected to cause an immediate break in the supply chain after work resumed at smartphone assembly vendors’ production bases on 10 February. Future developments depend on the work resumption status of upstream supply chains and the import/export of goods through customs, notes TrendForce. In particular, the shortage of active/passive components and camera modules, which began even before Chinese New Year, exacerbates the problem of smartphone component shortage because of their low inventory levels or labor-intensiveness.
Out of the top six smartphone brands globally, the main production base of market leader Samsung is in Vietnam. In addition, the Korean giant’s smartphones account for only 2% of the domestic market in China. As a result, Samsung has suffered the least damage from the outbreak. However, because it sources some of its components from China, Samsung’s Q1/2020 production forecast has been reduced by 3% compared to TrendForce’s previous forecast, registering 71.5 million units.
Huawei, which ranks second in quarterly production volume, was placed on the US Department of Commerce’s ‘Entity List’ and subsequently prevented from installing GMS on their newer models, lowering their overseas sales. Turning to a business model that focuses heavily on the Chinese market, Huawei sustained major losses from stagnant Chinese New Year sales numbers. Due to losses in both domestic and overseas markets, Huawei is now projected to produce 42.5 million units in Q1/2020, a 15% decrease from TrendForce’s previous forecast.
Third-place Apple made arrangements for its employees to work from home in an effort to reduce risks of infection, but this has the side effect of slowing down the development of new iPhones in second-half 2020, with component certification coming to a near halt. In the short term, Apple faces uncertainties in its labor force’s work resumption, and the supply of certain key components involved in the production of new iPhones cannot be properly delivered. These setbacks will directly affect the upcoming release of iPhone SE2 (also known as iPhone 9) and lower TrendForce’s forecast of Q1/2020 iPhone production by about 10%, from 45.5 million to 41 million units.
Fourth-ranked Xiaomi relies primarily on online sales, with a relatively low market share in China (at about 9%). Compared to China’s OPPO and Vivo, which have a domestically focused sales model, Xiaomi is not as affected by the outbreak. So, TrendForce is revising its Q1/2020 production forecast to 10% lower than its previous projection, to 2.47 million units (essentially unchanged from Q1/2019). Also, TrendForce is lowering Oppo and Vivo’s production forecasts by 14% and 15%, to 2.4 million and 1.7 million units, respectively (ranking fifth and sixth globally in Q1/2020).
On the whole, the impact of the coronavirus outbreak has led to a weakened Q1/2020 smartphone production outlook, while Q2/2020 numbers will depend on the status of outbreak control as well as the degree of supply chain recovery, says TrendForce. In terms of yearly outlook, as long as the outbreak can be controlled and a basic level of demand can be supported by the overall global economy, TrendForce believes that most demand is deferred rather than eliminated and therefore the firm does not have an overly pessimistic outlook towards smartphone production in 2020.