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Musing-Weekly Newsletter

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China’s May Phone Shipments Down 32.0% Y/Y
 
Shipments of Handsets in China fell again in May to 23m units.  This was down 16.4% sequentially and down 32.0% Y/Y, against a 5-year average increase of 0.9% for May, putting shipments only 5.5% above February, typically the low point for shipments historically.  This trend should continue through June/July/August, which are typically relatively weak months for handset shipments in China, and pick up again in September, although our expectations for the year are for 303.48m units shipped, which would be down 1.5% y/y, even against the weak year in 2020.  While the 1st quarter’s Y/Y comparison (up 100.2%) was due to the onset of COVID-19 in China, the 2nd quarter comparison will be the opposite, given the snapback seen in Q220 last year, and expect Q221 total handset shipments in China to be down 30.7% Y/Y at 72.2m units this year.
 
5G smartphone shipments declined to 16.7m units, down 22.0% m/m but up 6.8% Y/Y, although the share of 5G smartphones as a percentage of total handsets also declined to 72.6% from its peak of 77.8% last month, and the number of new 5G models released in May declined to its lowest level this year.  The release cycle for 5G smartphones in China is expected to account for the low number of 5G new models and weaker shipments, although component shortages might begin to slow the rate of 5G smartphone growth in the near-term.  5G share of total shipments in China this year should remain above 70% for the remainder of the year and new 5G model releases to pick up in September.
 
Domestic handset makers shipped around 19.249 million units during this month, marking a Y/Y decrease of 37.8 percent. Although the domestic brands have seen a decline, these vendors still account for 83.8 percent of all smartphones that were shipped in this period. This includes the launch of 25 new models last month. Interestingly, even the number of handset models being launched fell by 16.7 percent year on year. For the first five months of this year (from January to May), the local smartphone manufacturers in China shipped a total of 131 million units a rise of 16.7 percent. The domestic brands alone accounted for 88 percent of all handset shipments during these months. In this period, a total of 166 new smartphone models were also launched in the Chinese market, which marked an increase of 11.4 percent year on year. The data also showcased that the market in China grew rapidly during the first five months, which was especially true for 5G enabled handsets.
 
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​The iPhone did not follow the seasonal pattern. Sales increased substantially, sequentially.
  • As a result, iPhone sales in China in May 2021 showed visible (32-41%) growth over May 2020.
  • Q3 FY2021 iPhone sales in China should by flat Y/Y, and now it seems most likely that June will be good enough to take the whole quarter into visible growth.
  • This improvement happened in the context of a plunging smartphone market in China (-32% in May, -33% for the quarter so far). Hence, the Apple iPhone gained very substantial market share in May. Indeed, it nearly doubled its market share in May.
Apple is benefiting from many effects, including:
  • Apple’s continuing good execution on its SoCs, as well as an increased focus on photography (now with larger sensors).
  • Increased pricing for Android flagships, driven by 5G component prices and Qualcomm practices.
  • Android flagships even in China, due to restrictions put on TSMC (by US extraterritorial laws.
However, there are still some potential issues emerging. Android smartphone competitiveness is on the rise again. Entry level models continue to gain many more capacities and are perfectly usable now. A Xiaomi Redmi 9 using MediaTek’s G80 SoC is now comparable to an Android mid-tier phone from 2-3 years ago and can offer a satisfying experience for under $120. However, this is something that’s mostly available in China and EU, but not yet in the US. In the US, a OnePlus Nord N200 is set to offer a mid-tier “plus” experience at just ~$240.
  • At the same time, Android flagships remain expensive, but some Chinese brands are bringing near-flagship level performance at a large discount to typical Samsung and even OnePlus prices. These brands are now spreading in the EU, and at some point, some might find their way to the US - Xiaomi (which is further along with its Poco sub-brand), but also Oppo, Realme, Vivo, etc. These brands look set to replace Huawei in the competition sweepstakes.
  • MediaTek's competitiveness seems to be increasing again, which should allow for cheaper high-spec Android phones.
  • Qualcomm is set to bring out a large performance increase - beyond what ARM has been offering, but this is most likely a 2022/2023 event. This is set to happen because of its Nuvia acquisition.
 
Apple cannot rest on its laurels for long, as competition is probably heating up again. However, for the time being, the iPhone is once again performing well. At the same time, Apple’s extension of its SoCs to its entire range might provide a margin tailwind (outside of smartphones), though DRAM price pressures can provide a margin headwind. The overall smartphone market in China continues to post large drops, which could threaten the semiconductor boom / shortage. 

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