TrendForce’s latest investigation finds that several factors have negatively affected smartphone production: first, the labour-intensive nature of the smartphone industry; second, China’s delay in work resumption until February 10 and population movement control; finally, the reduction in the public’s willingness to buy. Due to the aforementioned factors, TrendForce is lowering its 1Q20 smartphone production forecast to a 12% decrease YoY, at 275 million units produced, which is a five-year low.
Delayed work resumption and uncertainties in employees’ returns will cause the monthly delivery of key components to be postponed, thus affecting the progress of smartphone production. Fortunately, 1Qs have historically been weak seasons for smartphone production; also, manufacturers typically maintain a healthy inventory before the Chinese New Year. Therefore, the outbreak is not expected to cause an immediate break in the supply chain, once work resumes at smartphone assembly vendors’ production bases on February 10. Future developments will depend on the work resumption status of upstream supply chains and the import/export of goods through customs. In particular, the shortage of active/passive components and camera modules, which began even before Chinese New Year, will exacerbate 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 located 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, but because it sources some of its components from China, Samsung’s 1Q20 production forecast has been reduced by 3% compared to our previous forecast, registering 71.5 million units. Huawei, which ranks second in terms of quarterly production volume, was placed on the U.S. Entity List and subsequently prevented from installing GMS on their newer models, lowering their overseas sales. Turning to a business model that heavily focuses on the Chinese market, Huawei sustained major losses under stagnant Chinese New Year sales numbers. Owing to losses in both domestic and overseas markets, Huawei is projected to produce 42.5 million units in 1Q20, a 15% decrease from our 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 2H20, with component certification coming to a near halt. In the short term, Apple faces uncertainties in its labour 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 our forecast of 1Q20 iPhone production by about 10%, from 45.5 million to 41 million units.
Fourth-ranked Xiaomi primarily relies on online sales, with a relatively low market share in China at about 9%. Compared to OPPO and Vivo, which have a domestically focused sales model, Xiaomi is not as affected by the outbreak; thus, TrendForce is revising its 1Q20 production forecast to 10% lower than our previous projection, with 2.47 million units produced in the quarter, essentially unchanged from 1Q19. Also, TrendForce is lowering Oppo and Vivo’s production forecasts by 14% and 15%, with 2.4 million and 1.7 million units produced, respectively. Oppo and Vivo rank fifth and sixth place globally in 1Q20.
On the whole, the impact of the coronavirus outbreak led to a weakened 1Q20 smartphone production outlook, while 2Q20 numbers will depend on the status of outbreak control as well as the degree of supply chain recovery. 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 does not have an overly pessimistic outlook towards smartphone production in 2020.