The smartphone market showed remarkable resilience in the second quarter, dropping by single digits or only low double digits in many markets that went through weeks of comprehensive lockdowns.
Globally the second quarter wholesale shipment data from the IDC Worldwide Quarterly Mobile Phone Tracker shows that smartphone markets dropped 16.6% year on year.
As I mentioned in this column here at the outset of the crisis, forecasting during this unprecedented period has been very difficult. At the beginning of the second quarter, it seemed best to be guided by the economic implications of the lockdowns which had begun in Europe and then North America.
Now, in hindsight, we can see that drops in GDP were not in fact such good indicators of how many devices in markets would perform. There were surprises in regional variations and in the timing of trends.
In Q2 big drops were recorded in the Americas, but the market drop in the U.S., which was the hardest hit by the virus initially, was much less than the fall in Latin America, where the crisis built mainly later in the quarter. Even steeper were falls in Asia Pacific outside China. The deepest trough was in India, where the market fell by half. Indian consumer sentiment turned against Chinese products due to the clash in the mountains of Kashmir, but this took place in the middle of June, almost at the end of Q2, so the drop in the smartphone market had much more to do with the coronavirus crisis and the local production constraints it caused. Bangladesh and Indonesia also saw big market falls.
Europe relatively unscathed
In Europe however, where the lockdowns started early in the quarter and the monthly drops in GDP were very severe, the market did relatively well and was down less than a tenth overall.
A similar picture was to be seen in PCs, according to IDC figures, with the European market booming by nearly a third year on year in the second quarter, performing better than any other global region. A surge in corporate purchases of PCs was not surprising as employers got their staff equipped to work from home, and orders were made in education too, but the consumer market actually grew more. Consumer reaction to lockdown clearly had a major role; in smartphones, evidently, the need for each family member to have their own screen as viewing time boomed (by a third in the UK over the year before).
With electronics shop outlets closed in many countries under lockdown – though telco stores were often allowed to remain open – the buoyant European market points to the widespread success of online sales.
Apple rises, Samsung falls
Online purchasing appears to have favored Apple, which had a strong quarter, with unit sales up 10%. One theory behind this is that consumers, when they bought online, went for something they were familiar with. But if that was true, it did not favor Samsung, another brand with a well-known portfolio, which had a miserable quarter with shipments falling by nearly a third year on year.
Samsung was widely expected to be the main beneficiary of the decline of Huawei, but that didn't materialize for Samsung.
Huawei in China
Huawei sales continued to drop in export markets, but were very strong at home. Which brings me to another key feature of this quarter: China’s continuing 5G surge, with 5G models accounting for nearly a half of the smartphone market, according to IDC figures, and Huawei winning one in every two 5G sales there.
Under one measure the Chinese smartphone market is slowing, as units were down 11% on a year before, but in value it was 5% up as consumers were prepared to spend more to embrace 5G. Even so the 5G average selling price (ASP) dropped to $454, down nearly a hundred dollars in a quarter.
With this surge - of every eight 5G phones shipped in Q2, seven were sold in China - Huawei has come to dominate global 5G. Just at the end of last year Samsung had three-quarters of worldwide 5G shipments. Now it has only 8%, and Huawei has one half.
Without China this could easily have been a ‘gap year’ for 5G. Because of Covid, 5G is currently fizzling in lots of other places where it might have done quite well this year. Sales slumped in the U.S. in Q2 after a strong first three months.
The ramp up in Q2 in China to nearly half the market is as fast as that in South Korea between the second and third quarters last year. That in itself is quite remarkable as smartphone ASPs in China are still not that much more than half those in Korea.
But a word of caution here. The rapid rise also implies a rapid cooling, if Korea is anything to go by. After the third quarter 2019 5G shipments there dropped, and have yet to regain their peak. Moreover, industry reports from within China are that domestic smartphone shipments in general slumped in July. So the ongoing story on Chinese dominance in 5G for the rest of the year is likely to be more muted.
A time of reckoning to follow
As with China’s 5G boom, the feeling that the second quarter was a bit too good to be true pervades the whole smartphone market. So far this year global sales have defied economic gravity, or put another way, the gravity of the times. Furloughs and other similar schemes kicked the bucket of job losses down the road a few months, but economics will have its effect sooner or later.
The strong sales in the second quarter were no doubt buoyed by a slew of discounts and deals that emerged at the end of the quarter as retailers tried to lure shoppers back. In the U.S. the operators offered attractive trade-in deals, and both Samsung and Huawei were very active in many parts of the world offering big discounts on mid-level as well as premium models. It has been a good time to buy a smartphone.
The coronavirus infection rate has not yet clearly peaked. Despite a year of surprises, the discounts and deals will end, and something of a readjustment cannot be ruled out.
Simon Baker is program director for mobile phones and consumer devices at IDC EMEA and a coordinator of IDC global forecasting for the 5G smartphone market. He is a long-time analyst in the mobile phone arena. Please contact him at [email protected]
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