According to Canalys’ latest forecast, the worldwide smartphone market will grow 12% in 2021, with shipments reaching 1.4 billion units. This represents a strong recovery from 2020, when shipments fell 7% due to the key market constraints caused by the COVID-19 pandemic.
As vaccine rollouts continue across the globe and the pandemic subsides, component supply emerges as a new bottleneck for the smartphone industry.
“The resilience of the smartphone industry is quite extraordinary,” said Canalys Research Manager Ben Stanton.
“Smartphones are essential to keeping people connected and entertained, and they are just as important inside the home as they are outside. In some parts of the world, people have been unable to spend money on vacations and holidays in recent months, and many are spending their income on buying a new smartphone.”
“There is strong momentum behind 5G handsets, which accounted for 37% of global shipments in Q1, and are expected to account for 43% for the full year (610 million units). This will be driven by intense price competition between vendors, with many sacrificing other features, such as display or power, to accommodate 5G in the cheapest devices.”
“By the end of the year, 32% of all 5G devices shipped will cost less than US$300. It’s time for mass adoption.”
However, component supply bottlenecks will limit the potential growth in smartphone shipments this year.
“Initial orders are on the rise,” Stanton said. “The industry is fighting for semiconductors, and every brand will find it difficult.”
In recent months, vendors have shifted some allocations to other regions due to the COVID-19 outbreak in India, but this is unsustainable as the world returns to normal. Vendors will first shift to regional priorities, focusing unit flows into lucrative developed markets such as China, the US and Western Europe at the expense of Latin America and Africa.
But even in these better-served regions, they will still be constrained, and will then shift to priority channels, pushing a larger allocation of units to fast-activating channels, such as carriers, and less to distribution and the open market. This would have an interesting side effect and could open the door for a challenger brand to gain share in a major open market channel if incumbents are unable to fulfill it.
“Another angle to this is pricing,” said Nicole Peng, VP of Mobility Canalys. “As major components, such as chipsets and memory, increase in price, smartphone vendors must decide whether to subsidize those costs or pass them on to consumers.”
However, because there are major constraints around LTE chipsets, this will pose a challenge in the lower classes, where customers are very price sensitive. Smartphone vendors should look to improve their operational efficiencies while lowering margin expectations in low-end portfolios during times of constraint, or risk lowering market share to their competitors.”
The pandemic has caused permanent changes, which will establish a new normal for society, and the smartphone market.
“Retailers have to change or die during this pandemic, and this forced innovation,” added Stanton.
“Developed countries are seeing a surge online, forcing retailers to reassess their offline footprint. As a result, many stores will be closing this year, and for those that remain open, the goal will be reorganized for customer support and order fulfillment, as customers increasingly use multiple channels throughout the purchasing process.”
COVID-19-driven innovations, such as unified stock and delivery, are helping to steer retailers toward their consolidated omnichannel vision. And centralized procurement would also give the channel more negotiating power with smartphone brands and could lead some retailers to try to bypass distribution to establish new direct relationships.
“The new normal for the smartphone industry is just as ruthless and competitive as the old one,” said Stanton.