Our primary 5G indicators, with a focus on device and smartphone growth, continued again in October, with both easily staying above trend lines.  Device growth was 5.2% m/m and up126.6% y/y, while 5G smartphone count was also up 5.2% and up 128.2% y/y, putting it up 1000% over a two year period, but the growth was not limited to phones, as 5G laptops grew 5.3% m/m to 122.2% y/y and 5G tablets grew 8.7% m/m to 257.1% y/y.  On an overall basis, 5G smartphone growth has slowed from last year’s aggressive pace, with an average m/m increase of 7.7% this year vs. 14.9% last year over the same period, with a 6.7% average for Q3.  We expect somewhat slower m/m growth in upcoming months as the denominator increases, with 1Q and 4Q 2022 seeing the strongest quarterly 5G smartphone growth.
 

​According to China, China is the leader in 5G based on the number of 5G base stations implemented across the country, and most would agree that China has been very aggressive building out its 5G infrastructure since it began carrying out its plan toward commercialization of 5G in June 2019.  But according to Japanese press, China has slowed down its build out due to the fact that Huawei (pvt) and ZTE (000063.CH), China’s largest 5G base station suppliers, have run out of components due to US trade sanctions placed on both companies that limit global suppliers from selling any product made in the US or produced using US software or hardware. 
The Nikkei Asian Review has stated that “China’s efforts to build 5th generation wireless communications infrastructure have lost momentum because equipment manufacturers have used up American-made parts and components, forcing relevant merchant suppliers to turn to the US and European markets.”  The article quoted Murata (6981.JP) chairman saying that Chinese companies’ demand for parts to prevent network interruptions has declined and another communications component manufacturer stating that since the summer of 2020 it is no longer supplying parts to Huawei.
According to the Chinese Ministry of Industry Information Technology the current number of 5G base stations in China (10/19/21) is 1.159m but the joint resolution of 10 departments focused on 5G development have set a goal of 18 base stations per 10,000 people by 2023, which would target the number of base stations at that time to be 2.52m based on a 1.4b population estimate.  In the first year of implementation (actually ½ year) 130,000 base stations were put into service.  Last year 600,000 were added, at a speed that was about 2x the 2019 rate and this year’s target for new 5G base station adds is 1m, however based on the MIIT numbers, the total installations for this year will be ~500,000 for a total of 1.23m units at year end..  This would imply 645,000 new 5G base station adds in both 2022 and 2023 to meet China’s goal, but does prove out that construction of new base stations has slowed from 2020 levels.
The bigger question is why has the rate of new 5G base station installation slowed?  Is it because Huawei and ZTE have run out of chip inventory and are unable to procure new silicon from suppliers who fear producing same would put them in the sights of US trade officials?  More than likely this is not the case, and while Huawei and ZTE have certainly been affected by the US trade sanctions in their smartphone businesses, early on Huawei stated that their biggest priority (this is all before the final portion of the trade sanctions were put in place) was making sure it had a stockpile of the silicon needed for its 5G base station products and began building such inventory through massive purchases from Taiwan Semiconductor (TSM) as far back as 4Q 2019.  Estimates that Huawei’s orders from TSM before the final sanctions were more than 2m units and Huawei has stated that its base station component inventory was sufficient to cover construction through this year and beyond and had eliminated other US components from their base station products early in 2020.
It all comes down to who you believe.  Japan (mostly Nikkei Asian Review) continues to tout the idea that Hauwei and ZTE are out of components, causing a slowdown in 5G roll-outs, while China says 2020 was the ‘big push’ year and is still on track to meet its goal.  Huawei does have the option of using locally produced communication silicon from SMIC (688981.CH) or other Chinese suppliers, which would be based on the same chip design developed by Huawei affiliate HiSilicon (pvt), although NAR says this could be inferior to TSM components.  Given that there is little chance we would be able to see and identify BOM sources for Huawei base stations placed on the Mainland, we have no way of confirming that Huawei is still using TSM silicon, nor do we take NAR’s view that blanket statements by Japanese suppliers hold weight, so it seems we will have to wait until the end of 2Q 2022 to see if MITT’s data indicates that China is still on track to meet its goal.  In the interim we watch peripheral data sources for any clues as to where Huawei’s base station inventory lies and whether the implementation slowdown is forced or in line with plan.
  

September saw an increase in almost all of the 5G indicators that we track.  Overall device offerings increased 7.0% m/m and 138.7% y/y, with a 2 year increase of 721.7%, while 5G smartphones increased 9.4% m/m and 161.5% y/y (1175.6% over two years).   5G CPE devices increased 6.2% m/m and 59.3% y/y and routers, laptops and tablets all increased m/m.  Only 5G in-vehicle routers remained flat m/m, but that is a product that tends to be based on vehicle model releases.
Despite the rather weak smartphone market, 5G smartphone offerings continue to grow, and in China, where even against easy comparisons, smartphone shipments are only up 12.3%, 5G smartphones made up 47.4% of new models in August and will likely reach over 50% into the holiday season.  In terms of 5G itself, the ratio between sub6 and mmWave phones remains consistent at ~55%/45%, with sub6 the leader, which is surprising given the far more extensive buildout of sub6 5G capacity.  We expect that the cost of dual modem and antenna systems has dropped to the point where the decision to offer both is the logical choice to satisfy as many customers as possible.
 

​China Mobile (601728.CH) is the world’s largest telco by subscribers (945.5m as of 6/2021).  As such, they let some of the biggest telecom projects globally, all of which are within China or Hong Kong.   Earlier this year China Mobile let an equipment contract for its 5G 700MHz network project worth a maximum of 7.5b yuan (~$1.16b US), which was won by Huawei (pvt), and strangely enough China Mobile has just awarded the service part of contract to, you guessed it, Huawei, which would total out the project at ~$2.32b US.  Huawei does have to share both contracts with local competitor ZTE (000063.CH) at a 50/50 split, but the totals are large enough that even 50% of the deal is a significant amount.
While the equipment part of the contract was open to competitive bidding, the service segment was only open to two bidders, Huawei and ZTE in order to maintain brand support service for the equipment, but there was likely a bit of a bias toward using Huawei and ZTE as they both remain on the US trade sanctions list and have seen their global telecom business severely limited by US pressure.  While open bidding procedures were used for the equipment part, it seems that unless Huawei and ZTE were going to low-ball bids, they were going to get the contracts, as while China Telecom has publicly trading shares, the company is actually state owned, and therefore directed by the government toward serving the good of the people, which in this case means keeping Huawei’s and ZTE’s telecom businesses strong despite US intervention.  It’s nice to have a population of 1.45b behind you, even if they don’t know they are.

The three mobile carriers in South Korea have worked together to complete the construction of a mmWave wireless 5G network in the subway.  Don’t get excited, we are not talking about the possibility of adding mmWave 5G to the 4/5 or the 1/2/3 in New York City, but a small segment of the Seoul, South Korea Subway line #2.  The network will give users Wi-Fi service that is ~10 times faster than the current 4G network, which averages download speeds around 71Mbps, with expectations that the system can be further optimized to provide download speed up to 1 Gbps.
The system has 26 base stations installed next to the track bed, 10 receivers which are mounted on the trains, and 20 Wi-Fi 6E routers in the passenger cars.  The receivers capture the signals from the base stations and convert it to Wi-Fi which is transmitted to the Wi-Fi routers in each passenger car via optical cable.  The track 5G signal is not accessible to 5G smartphones but only to those on the Wi-Fi network.
What makes this a bit unusual is that there has been considerable controversy over the use of mmWave frequencies in South Korea, with the government in 2020 said to be downplaying mmWave in lieu of low and mid-band 5G, which has a slower speed but a longer transmit range and therefore a less expensive buildout. The subway system, which is scheduled to begin next month, has been spearheaded by the Ministry of Science who coordinated the necessary cooperation between the country’s three major carriers.
 While the system in Seoul is a test bed, we would be happy to get a consistent 5G mobile signal for more than a few minutes anywhere in the US, and that would be at much slower sub6 frequency bands, but the bigger question would be do we really need mmWave 5G on the subway?  Looking at the collection of subway denizens below (just the tip of the iceberg), the necessity to livestream such content to Instagram (FB) followers seems a bit less than necessary…

​Yesterday we noted the growth of 5G smartphones in China during August and today we dig a bit further into the global 5G market for clues as to share and direction.  Based on data that breaks down 5G shipment share in 1Q and 2Q, it seems that global 5G smartphone shipments are moving from upper-tier priced models to lower-tier models as less expensive 5G chipsets find their way into lower priced phones, particularly the $200 - $400 tier (Figs. ½) and summarized in the table below.

Taking it one step further, again looking at the $200 - $400 price tier, we can see what brands have made share gains over the last year by comparing current 2Q share against last year.  While a number of vendors saw share increases y/y in 2Q, the most interesting change was from the ‘other’ category, which decreased from 32% to 11%.  This was likely a function of the inclusion of Huawei (pvt) in the category as the company faced very significant share loss due to US trade sanctions.  Only the Honor (pvt) brand lost share y/y, but this was likely a result of its spin-off from Huawei into an independent organization, so we believe the share loss that can be attributed to Huawei was captured almost completely by Chinese 5G smartphone brands, particularly Vivo (pvt), where 5G shipments increased from 28% of sales in 2Q last year to 80% this year.

​China’s smartphone shipments declined by 15.2% m/m and by 9.6% y/y in August.   Looking at the year thus far shipments have been 227m units, up 29.5% y/y but against the very weak early COVID-19 days last year.  The quarterly comparisons for this year are 1Q, up 100.2% y/y, 2Q down 26.9%, and thus far in 3Q up 7.7%.  But from a more qualitative point of view, the first four months of this year were volatile in the Chinese smartphone market, averaging 31.4m units/month and m/m swings between -45.6% and +65.6%, while the next four months have been relatively steady, averaging 25.4m units/month, with swings between -16.4% m/m and +11.8%.
There was a big jump in new models released in August, increasing from 26 in July to 57 in August, while this in itself is not unusual in that 3Q is usually the peak quarter during which new smartphones are released, but going back as far as 2017 September has always been the strongest month for new smartphone releases in China.  That would imply an even greater number of new models released on th Mainland in September (typically the increase of new models released in September on a m/m basis has been between 28.8% to 100%) unless the desire to anticipate the release of Apple’s (AAPL) iPhone 13 family pulled in many of those releases (we believe the former).
5G smartphone shipments in China were 17.69m units, down 22.5% m/m and up 9.4% y/y in August, a relatively weak month after a strong July, leading to a 72.8% share of total shipments.  While a bit on the low side in terms of absolute 5G shipments, 5G shipments have maintained a share above 70% since February of this year and we expect little change from that metric going forward, especially under the above assumption that September this year will see an increasing number of new model releases in China.  The share of 5G models out of all new models released in China this year has been averaging about 50%, which we also expect to stay consistent for the rest of the year.
 All in, shipments were as expected, to a bit lower, which reflects the increasing concerns over the economic effects of a resurgence of COVID-19 in China and a tight component market.  Based on our expectations for the remainder of the year, we expect total mobile shipments in China to be 333m units, up 8.1% over last year, but down from our original estimate (late 2020) of 364.3m units, which would have been up 18.3% y/y.    Based on our revised estimate, we expect 5G shipments in China to be between 248m and 255m units this year, which would be up between 53% and 56.7% y/y.

​Private Mobile Networks are just like public mobile networks but they are not accessible to individuals unless you are part of the organization that owns them.  Inherently they would be smaller and in many cases company specific, but they have characteristics similar to large public mobile networks, without many of the regulatory issues and requirements that public networks are burdened with.  There are lots of potential investors in private mobile networks, and by that we mean potential customers that could build such networks for themselves or others. 
Industry organization GSA (Global Mobile Suppliers Association) has identified 626 organizations in 55 countries or territories where private network deployments (4G or 5G) have been made or licenses granted for same have been issued, including 71 network operators.  As part of the same database there have been 187 active private mobile network projects identified and at least 50 vendors who are providing equipment for such networks and projects, so we see the segment as one that not only has its own cost/return characteristics but is not growth limited by competition.

​In most cases such private mobile networks are local, meaning single sites or campus locations, with 33% of those identified and an additional 21% assumed to be LANS, while city-wide or National private networks make up ~13% (33% unidentified), which is not surprising as these are in many cases, specific use networks, meaning attached to a particular company or type of organization, but when viewing the breakdown of industry segments (Fig. 2) that are deploying private mobile networks, there are some such as rail or O&G that would be candidates for WAN networks to maintain control over assets that are widely dispersed.  LTE (4G) is still the most common private mobile network technology but while we expect the share of WAN networks to remain relatively constant, we expect the share of 5G networks to continue to grow as new deployments would likely be 5G based or a combination of both.

Manufacturing is by far the sector with the most private network deployments, and factory or campus networks that allow personnel, autonomous vehicles, or stationary devices to utilize location data, IoT, and individual communications networks that are factory bound, are relatively commonplace, but there are many other industry sectors that have need, either for security reasons or for logistics, that need to be ensured that they will be able to communicate with critical infrastructure, be it local or otherwise.  Some can be critical, such as mining, where local nodes are in flux as locations change, or logistics, where a waste number of assets must be tracked, while others less so, such as government networks, which can be used for specialized announcements or notifications for a select group of members or constituents. 
Breaking down the manufacturing segment further, the automotive sector has been a strong proponent of private mobile networks, given what can be a vast facility such as the Volkswagen (VOW.GR) plant in Wolfsburg, Germany, that covers 6.5 square miles (3x the size of Monoco) and has ~60,000 employees (48% of the entire population of Wolfsburg), or the Hyundai (005380.KS) Motor plant in Ulsan, South Korea that covers ~5 square miles, employs ~34,000, and has its own fire station, hospital, sewage treatment plant, and roads.  However we see few limitations and progressively more opportunities for same as data networks evolve and the need to build out concurrent mobile networks increases proportionally.  Collecting lots of data is a good thing but the objective is to use that data to make meaningful improvements in operations.  Those improvements are made by management, engineers, and line works who must be informed as to how those changes are being manifested, and getting all interested parties in one place for a meeting can be quite difficult.  Getting information to the proper parties makes private mobile networks an obvious option.

​There are only a few places where data on Chinese smartphones is available, and fewer where the data is consistent and reliable, so we are always a bit hesitant when quoting statistics from unnamed or even named state organizations.  That said, the China Academy of Information & Communication, a well-known think tank that operates under the Ministry of Industry & Information Technology, the state-run organization that is responsible for regulating and developing almost anything involving communication, has been unusually consistent with both monthly smartphone unit volumes, and an occasional look into more detailed Chinese smartphone statistics.
A recent blurb from CAIC indicated how certain smartphone characteristics were broken down between 4G and 5G smartphone in 2Q, and while the data is certainly pointed toward presenting China’s 5G model in its best light, we were able to make some comparisons on a global rather than a regional basis to see how different the global metrics were from the CAICT data.
While 5” smartphones are not uncommon globally, looking at the 10 most popular smartphones on a global basis this year, we note that all are above 6.4” and as large as 6.78” (display size), so while China boasts that 76.9% of all smartphones shipped in 2Q were greater than 5” and 100% of all 5G smartphones were greater than 5”, we would have been more interested in 4G/5G smartphones 6” or greater, as the data would indicate more information about current consumer tastes, and when comparing the Chinese data to global data, 23.1% of all Chinese smartphones shipped in 2Q were under 5”, while only 7% of all global smartphones shipped were under 5”.  Looking at the global list of most popular smartphones, we were unable to find any smartphone (4G or 5G) under 5” within the top 70 most popular phones.
In the same way the Chinese data indicated that 74.4% of all smartphones shipped in 2Q had a resolution of 720 (HD) or better, while the global data indicated that 92.5% of all smartphones shipped globally were at least 720, although it seems that 5G smartphones in China are almost all (97.8%) 720p or greater while only 46.8% were 720 or greater on a global basis.  It is hard to reconcile that such a small number of global 5G smartphones would have 720 or greater resolution we are more suspect of the global data than the Chinese data in this case, as we expect few 5G smartphones would add much value to consumers at resolutions lower than 720.
Cameras are still a big deal to many smartphone buyers, although we wonder how many can actually tell the difference between an image taken with a 25MP camera and one taken on a 50MP camera, but according to the CAICT data all 5G smartphones shipped in China in 2Q had at least a 50MP main cameras, while on a global basis the data shows that only 42.6% of main smartphone cameras were at least 50MP.  Further, the CAICT data showed also that 100% of all 5G smartphones with selfie cameras had at least a 13MP selfie camera, while the global data showed that only 37.4% of 5G smartphones met the same criteria.  In this case we can see the possibility of inexpensive 5G smartphones that are more oriented toward high-speed data and voice than the necessity to take high quality photos, but again it remains hard to reconcile much of the Chinese and global data, but anyone who works with data, particularly big data, can tell you that how you present the data has as much to do with how it is perceived than the data itself, sort of the glass half full/half empty debate…

Despite shortages, plant closings, and higher prices for most CE products, 5G smartphones continue to grow with device count growth remaining above the trend line since April.  Of the three primary indicators we look at, only one, the number of new form factors, did not increase in August.  We see that of little concern given that number, which represents new potential CE devices that have yet to be ‘5G enabled’, has been steady at 22 since March and already includes smartphones, indoor & outdoor CPE devices, 5G modules, routers, gateways, laptops, hotspots, tablets, in-vehicle routers, USB modems, and a number of specialty 5G devices, such as robots, TVs, cameras, repeaters, vehicle OBUs, and a vending machine, so it is becoming a bit harder to increment that number, although it is still up 22.2% y/y.
More importantly the number of 5G vendors increased by 7.7% in August (65.6% y/y) and the number of devices grew by 5.7% (+147.1% y/y) and all categories (other than ‘Form Factors’) saw both m/m and y/y growth.  While the charts paint the picture, we put August 5G growth, y/y growth, and two-year growth in the table below for clarity.  We note that there were no 5G tablets available in 2019.

With the release of the iPhone 13 still scheduled for October, we expect 5G smartphone shipments to see substantial increases in the 4th quarter.  Last year, despite the October 2020 release, the iPhone 12 accounted for ~24% of 5G smartphones last year, and while the 5G smartphone market is a bit more diverse this year, both the iPhone 12 and the upcoming iPhone 13 are expected to account for ~1/3 of all 5G smartphone shipments this year.