Forecasts during Wartime

Events in Ukraine will have a global impact

As the crisis in Ukraine has turned into a dreaded war, a growing number of questions are being raised about what impact it will have on technology markets, and especially mobile phones.

In this fast-evolving situation of great uncertainty, here are a few thoughts on what probable high-level effects on supply and demand we can expect.

Concerns have already been raised about the supply of raw materials from Russia and Ukraine that go into the production of semiconductors and other components for mobile phones and other devices. For example, Russia produces almost half of the global supply of palladium. Neon, helium, scandium, copper and other elements have been mentioned as coming under threat of constrained supply and higher prices.

However, at present there doesn’t seem to be a common view of how badly, if at all, this will affect manufacturing of components, at least in the short term. Some parties seem to be more worried than others. This is a development we will be watching closely, especially as more details are revealed about the specific economic sanctions against Russia that the US, the EU and other major powers have imposed.

Although the limited supply of semiconductors has dampened smartphone production for the past few months and quarters, in the context of war in Ukraine we should also consider the effect on demand, especially if war drags on. It’s no good having a lot of products on the shelves if people and businesses can’t afford to buy them.

Firstly, when it comes to devices, in addition to higher prices for some raw materials, transport costs will be affected by higher fuel prices and potential disruption to transport corridors. Growing logistical costs have been troubling for device manufacturers, especially the smaller players, since the start of the Covid-19 pandemic, and the additional burden of recent events is likely to hit them further. This will result in higher costs for devices, which will affect sales, especially in the price tiers where demand has higher elasticity.

But there are wider implications that could hurt demand for mobile phones and other products for the rest of the year and beyond. Sales in the Ukrainian territories affected by military actions are likely to plummet. In addition, sanctions will hurt the Russian economy and create a ripple effect, especially for economies that have significant links to Russia; so we can expect to see demand under pressure in those markets too.

However, the rest of the global market will also be exposed as a result the economic damage of the war. Globally, higher petrol and gas prices will mean further increases in the consumer prices of many types of product. Furthermore, Russia and Ukraine are among the world’s biggest agricultural producers. Together they account for 29% of global wheat exports, and 80% of sunflower products. Food prices on global exchanges have already reacted, with wheat futures reaching a nine-year high.

Increases in energy and food prices have been a major contributor to inflation in the past few months, affecting consumers in emerging markets particularly badly, where food constitutes a high proportion of people’s spending. Further increases will mean that many people around the world will be left with even less purchasing power and with no choice other than to delay the purchase of a new, or even of their first, mobile phone.

As much as people highly value their connected devices, in the past 15 years macroeconomic hardships have led directly to a stagnation in demand for mobile phones, and we shouldn’t expect anything different this time.

There is still huge uncertainty about how this war will develop, and we’ll continue to monitor all the major factors driving demand and supply of tech products as the situation evolves.