Coronavirus Attacks Mobile Phone Market

Mobile phone shipments forecast to slide 9% in 2020

On 18 February, we wrote about the impact of the coronavirus outbreak on the tech industry (see Assessing the Coronavirus Fallout for Tech). It feels like a lifetime ago as so much has happened since then. Covid-19 is now present in well over 100 countries, the number of cases and the death toll have more than doubled, and the lives of millions of people are severely disrupted.

This article focusses on our expectations for the global mobile phone market in 2020. It reflects our current thinking in a very dynamic situation. We are continuously monitoring developments and reviewing our assumptions, and will issue updates to our forecast as the situation demands.

A month ago, we reduced our global forecast for shipments by more than 100 million units. We have now made a new assessment, available to our clients here, and cut our expectations by another almost 100 million units, to 1.65 billion phones, 9% lower than in 2019. Of these, smartphones will account for 1.31 billion, down 7%.

In early February, it was clear that the coronavirus outbreak would create a double whammy for the mobile phone market in the short term.

• Demand in China was plummeting as stores closed, people stayed at home and faced huge uncertainty to their lives and economy.
• The supply of mobile phones outside China was going to be disrupted.

Now we’re looking at two new ways in which the pandemic will wreak havoc on the massive global mobile phone market, beyond just the next two or three months.

• Demand in other major markets will plunge, as people’s lives are disrupted by social distancing measures and huge uncertainty, in a way similar to China.
• The global economy is likely to suffer severely, leading to lower demand for mobile phones even after the massive disruption subsides.

Demand in China

China has reported that mobile phone shipments in the country sunk 39% in January and 56% in February from the same periods of 2019. The good news is that the overall situation in the country is improving every day: the number of confirmed cases is falling steadily, people are returning to work, transport links are open, factories are ramping up their manufacturing processes and shops are open for business.

But Chinese demand for phones won’t just bounce back after a difficult two and a half months. We expect it to remain sluggish in the rest of March, and to start improving steadily from April onward. However, it has a long way to go. Life will return to (a new) normal, but with the economy reeling, demand for new phones will be affected.

Supply chain disruption

The supply chain will also be out of rhythm for several weeks ahead. Foxconn expects to have 100% of its typical number of employees back to work by the end of March 2020. Some smaller companies will take longer, and the disruption in the Chinese province of Hubei — where Lenovo, for example, makes some of its mobile phones — is still significant.

Nonetheless, we expect that the supply chain for all technology products will start to function somewhat normally within the next eight to 10 weeks. This is based on the major assumption that there won’t be a major disruption in other important countries like Japan, South Korea, Taiwan and Vietnam, which provide components for the mobile phone industry. These countries appear to have a grip on the outbreak at present.

Demand outside China

The shortages of certain products that Western markets are experiencing — including, for example, some iPhone 11 series models — is not their biggest problem at the moment. A number of countries in Europe are in lockdown, in many parts of the continent schools are closed and people are asked to stay at home. There’s also huge uncertainty in countries at an earlier stage of the outbreak, with people rushing to buy essential items that don’t include new gadgets. Empty airports and falling financial markets send consumer confidence tumbling.

We have modelled the short-term impact of this major disruption to life in all major markets, using numbers from the Chinese mobile phone market in January to February as a benchmark, making reasonable adjustment for the specifics of the market and assumptions for the timing of the disruption in every major country. With this, we now expect mobile phone shipments worldwide to slip 14% over the year in the first quarter of 2020 and 15% in the second quarter.

Slow macroeconomic growth

The way China has managed to lower the curve of new Covid-19 cases gives us hope that Europe, North America and the Middle East will be able to do the same by the end of June 2020. So what do we expect for the mobile phone market in the second half of 2020?

Nobody is under the illusion that the world economy will remain unaffected. But many governments and central banks have pledged strong support and various stimuli for their economies, to at least guard them from plunging into a deep recession. We therefore assume that things will improve steadily in the second half of the year.

But the times when the mobile phone market grew despite macroeconomic weakness are long over. The recession of 2009 affected demand badly. Therefore, we expect that the state of the global economy will dent the mobile phone market in the second half of 2020. We project a drop of 5% in the third quarter and 3% in the fourth quarter, compared with the same periods of 2019.

Provided that the efforts to keep the major economies from plunging into recession are fruitful, we expect the market to return to its normal rhythm and logic by late 2020 or early 2021. As people spend time working, studying or isolating themselves at home this year, the value of reliable devices and connectivity to them is unquestionable.

5G remains a bright spot

It’s hard to be optimistic in the face of such bleak news and the threat of Covid-19, but our forecast for 5G phones strikes a positive tone, and for good reason: in January 2020, more than a quarter of the phones sold in China were 5G-enabled.

5G phones are reaching lower prices even faster than we expected three months ago. This trend will intensify in a weak mobile phone market this year: if the market indeed loses 200 million units of sales compared with 2019, competition will become cutthroat. In some countries, governments might choose to even help struggling technology players.

We expect more than 210 million 5G-enabled phones to be sold in 2020, with more than half of this volume in China.

Uncertainty remains high

We will continue to monitor the market and evaluate our assumptions constantly. We will keep you up to date with our thinking. Stay well!