The coronavirus has taken another victim. According to research firm IDC, smartphone shipments from China will drop 30% this quarter, compared with the same period last year, and may weigh on the balance of the year. Smartphone sales cannot be underestimated as part of the consumer electronics sector worldwide.
The firm’s analysts wrote about the consequences of this expected sharp decline: “IDC expects China’s smartphone shipments to drop more than 30% year-on-year in 2020Q1, not to mention create uncertainty in product launch plans, the supply chain, and distribution channels, in the mid and long term.”
IDC also reports that smartphones shipped in China dropped 7.5% last year, compared to 2018. That brought the total down to 366.7 million. China is the world’s largest smartphone market by far. For the fourth quarter of last year, the drop was 15.6% to 86.2 million.
IDC pointed out that this was the 11th consecutive quarterly drop and the third consecutive year in which shipments fell. The smartphone market in China may well affect the health of local manufacturers and, to a lesser extent, Apple Inc. (NASDAQ: AAPL). Chinese consumers have pulled back on getting new phones. The Chinese smartphone market is no longer the engine of growth it used to be for global manufacturers.
The only company that posted success was market leader Huawei, which shipped 140.6 million units last year, a rise of 33.9% from 2018. Other local companies were decimated. Number two maker Vivo posted a 12.5% decline last year to 66.5 million. The next two companies did even worse. Oppo shipments dropped 20.4% to 62.8 million and Xiaomi shipments fell 21.2% to 40 million. The figures raise the question of the financial viability of these companies, at least at their current sizes.
Apple’s drop was less severe, but it does beg the question of how well it can do in the market so critical to iPhone sales. Apple shipped 32.8 million, down 9.7%. iPhone sales in China did seem to pick up in the fourth quarter. That means its market share in China rose. This could be because of traction in sales of the iPhone 11 Pro.
One reason for the decline in shipments, IDC reported, is that consumers have started to wait for 5G-enabled phones. 5G is a new standard that could improve wireless speed by as much as 10 times compared to 4G. The wait could drive up inventories of the old phones in manufacturers’ warehouses. Disposing of these may cut margins sharply.
IDC also commented that the competition for 5G smartphone market share could be cutthroat, another reason manufacturer margins could be undermined.