In 2024 China shipped 314.6m mobile phones, up 8.7% y/y, marking the 2nd consecutive year that shipments have increased y/y.  86.4% of phones shipped were 5G models, the highest for any year (2023 was 82.2%), and 85.6% of shipments were domestic (Chinese) brands.  As can be seen in Figure 1 and Figure 2, after a dismal 2022 and 2023, China’s smartphone market has recovered, albeit modestly.
So far this year (Jan/Feb data only) January smartphone shipments were down 14.2% y/y, but February shipments were up 37.9% y/y and above the 5-year average by over 25%.  On January 20, the Chinese government added smartphones to its “New for Old” consumer product subsidy program, which we expect accounted for the strong February results.  While we expect continued strength in smartphone shipments in the domestic Chinese market, we expect consumers took advantage of the subsidy at the onset, and front-loaded February shipments.  March is  typically a strong shipment month, so we can see how much front-loading was done in February through the March shipments when they are released.
While the domestic situation for Chinese smartphone brands improves, the current trade war with the US, despite recent smartphone exceptions, still requires that Chinese smartphone brands entering the US pay an import tariff of between 20% and 25%, which, unless absorbed by the brand, will make them less attractive against other non-Chinese brands.  The most common Chinese brands entering the US are:

• One Plus (pvt) – Offered through all three major US carriers, although estimates for US sales are between 5% and 10% of company totals.
• TCL (000100.CH) – Typically sold unlocked.  Estimates are for between 10% and 15% of total sales to the US.
• Motorola – Owned by China’s Lenovo (992.HK) and sold through all US carriers and retailers.  Roughly 20% to 30% of total sales (estimated) are in the US.
• ZTE (000063.CH) – While most consumers believe ZTE smartphones are banned in the US (They were in 2018, but they paid a $1.4b fine and the ban was lifted), pre-paid phones from Metro (TMUS) are made by ZTE, but the numbers are small.

While other Chinese smartphone brand phones are sold in the US, the numbers are small and most have no official presence in the US.  However, even though  the recent exemptions  from additional tariffs have given the Chines smartphone brands shown above a bit of breathing room, the administration has promised to ‘investigate’ the matter further, essentially threatening new phone tariffs.  Chinese brands already work for very tight margins, so should any new smartphone tariffs be levied on Chinese brands, they will likely have to pass most of the incremental cost on to consumers.
That said, they have one thing in their favor, Apple (AAPL) who has been able to lobby the President to postpone another massive Chinese tariff increase.  While Apple is still a competitor, it has considerable production in China, and therefore works toward the same goals as Chinese brands in this instance.  As Apple continues to shift iPhone production away from China that will dissipate, leaving Chinese brands to fend for themselves, an unenviable position at best, at least for the next 3.5 years.

Smartphones are incredible feats of technology, squeezing innumerable parts into a rectangle typically under 20 in2 and ~ 1/3 of an inch thick.  Most smartphone owners rarely see what is on the inside of their phones, making purchase decisions (hopefully) on matching specifications to their use profile.  But inside those rectangles, packed in like sardines, are literally hundreds of ICs and other components, along with a battery, display, and assorted cameras. 
There are those that relish the thought of purchasing smartphones and then taking them apart, piece by piece, in order to quantify structure and cost.  Such a group is TechInsights, who are known for their detailed teardowns of various CE devices.  They have been kind enough to afford us a detailed look at one of their smartphone teardowns, which we summarize below.
The phone being disassembled here is the Sony (SNE) Xperia 1V, a device released in July of 2023.   Sony is not a major smartphone brand but is known for the high quality of their phones, so the example below should be a guide as to what to look for in a high-end smartphone.  We note that when the Xperia 1V was released, it sold for $1,399.  The phone weighs 188 grams, runs on Android, and has a 6.48” OLED display, along with four cameras, and runs on a Qualcomm (QCOM) Snapdragon 8 Gen 2 processor.
While the greatest share of the BOM is the broad category of integrated circuits (45.7%), the camera subsystem captures 23.7%, due to the fact that it covers 4 cameras and associated electronics, lenses, etc.  The display subsystem, which is a single 6.48” OLED display and a touchscreen, along with a polarizer and cover glass (total of 70 components), is next at 7.5%, followed by non-electronic parts (frame, etc.) at 7.2%.  More relevant to the investment community would be the breakdown of the total component types and the IC category on a branded basis.  As can be seen in the table below, the IC category carries the largest cost share by a large margin, putting significant weight on the brand share shown in the table that follows.  

With only three of the 11 months of Chinese mobile phone shipments in 2024 being above the monthly 5-year averages, one might think that the Chinese mobile phone market continued the long-term decline it has been in since 2017.  While 2024 Chinese mobile phone shipments will not wind up anywhere near the heady levels seen eight or ten years ago, we expect 2024 to be the second year of improvement after hitting a low in 2022 (see Figure 1).  Based on our expectation for mobile phone shipments in China for December, we estimate that 2024 will see shipments increase by 6.9% y/y.  This is a bit better than shipment growth in 2023, which was 6.5%, but comes after the extremely weak 2022, which saw y/y Chinese mobile phone shipments down 22.6% y/y.  

In isolation (see Figure 2), the last three years of Chinese mobile phone shipments present a picture of growth, however the shipment level for 2024, the better of the three years shown in Figure 2, are only slightly above the level of shipments in 2020 and are still below all other years, other than the previous two.  Given the strength of 4Q of 2023, much of the y/y growth in 2024 came in late 2Q and 3Q.  That said, while we would expect 2025 to again see some y/y growth in Chinese mobile phone shipments, we would expect overall y/y growth to be lower than in the two previous years as the comparisons become more difficult throughout the year.  However there are two factors that could influence shipments in 2025.
First, AI.  The Chinese market has had a number of AI enabled models available to consumers, with the Vivo (pvt) X100, released in November of 2023, the first we can find that had advanced generative AI features, and also the first to use the Mediatek (2454.TT) Dimensity 9300 Ai chipset.  By 3rd quarter of 2024 ~22% of all Chinese smartphone shipments were AI capable and Chinese brands held a roughly 92% share of the 28m Ai capable smartphones that were shipped in that quarter in China (Samsung (005930.KS)) had a 4% share along with ‘others’, also at 4%).  This data points to Chinese smartphone brands looking to use AI in 2025 as a way to push the upgrade cycle on the mainland, in what has been a relatively weak retail environment. 
While the success of this strategy is far from certain, Chinese consumer seem to be more enthusiastic about AI, we believe, in part, because China itself has been quite aggressive in AI development, and started from a point similar to others, rather than having to play catch-up.  While trade restrictions on semiconductor development could slow that growth a bit, we expect a continued push from Chinese smartphone brands to offer AI features as a selling point this year.
Second, the Chinese government has recently included smartphones in its ‘New for Old’ consumer subsidy program, which helped to spur sales for a number of CE products in 4Q ’24.  Details of the smartphone subsidies are not yet available, but other products covered under the program typically garner a subsidy between 10% and 20% of the retail price, which we believe is substantial enough to move the needle, at least at the onset.
With these two potential factors as influencers early in the year, and an early Chinese New Year (1/29), we expect 1Q ’25 could see continued y/y growth, but we expect that it will lessen as the year progresses, as comparisons get more difficult and the enthusiasm behind the subsidies wears thin.  All in we expect Chinese smartphone shipments to stay in the low 300-million-unit range for the year, with much of the y/y growth in the 1st half, and, barring any unforeseen trade issues, we see similar results for 2026 at this time. 
As Chinese smartphone brands have a small share of the US market, potentially onerous trade restrictions on Chinese phones would have little effect on US consumers, with Xiaomi (1810.HK) having the largest share, albeit a small one (~1.2%).  However the implications for non-Chinese brands, particularly US smartphone brands in China could face a bit of additional nationalistic pride from Chinese consumers, who tend to opt for Chinese brands during periods of trade tension with the US.  2025 presents a fair number of variables that can have an influence on the Chinese mobile phone market, but we believe the longer-term picture is one where it become similar to other more mature markets, finding a shipment level that remains fairly constant over the years.

With only three of the 11 months of Chinese mobile phone shipments in 2024 being above the monthly 5-year averages, one might think that the Chinese mobile phone market continued the long-term decline it has been in since 2017.  While 2024 Chinese mobile phone shipments will not wind up anywhere near the heady levels seen eight or ten years ago, we expect 2024 to be the second year of improvement after hitting a low in 2022 (see Figure 1).  Based on our expectation for mobile phone shipments in China for December, we estimate that 2024 will see shipments increase by 6.9% y/y.  This is a bit better than shipment growth in 2023, which was 6.5%, but comes after the extremely weak 2022, which saw y/y Chinese mobile phone shipments down 22.6% y/y.  

In isolation (see Figure 2), the last three years of Chinese mobile phone shipments present a picture of growth, however the shipment level for 2024, the better of the three years shown in Figure 2, are only slightly above the level of shipments in 2020 and are still below all other years, other than the previous two.  Given the strength of 4Q of 2023, much of the y/y growth in 2024 came in late 2Q and 3Q.  That said, while we would expect 2025 to again see some y/y growth in Chinese mobile phone shipments, we would expect overall y/y growth to be lower than in the two previous years as the comparisons become more difficult throughout the year.  However there are two factors that could influence shipments in 2025.
First, AI.  The Chinese market has had a number of AI enabled models available to consumers, with the Vivo (pvt) X100, released in November of 2023, the first we can find that had advanced generative AI features, and also the first to use the Mediatek (2454.TT) Dimensity 9300 Ai chipset.  By 3rd quarter of 2024 ~22% of all Chinese smartphone shipments were AI capable and Chinese brands held a roughly 92% share of the 28m Ai capable smartphones that were shipped in that quarter in China (Samsung (005930.KS)) had a 4% share along with ‘others’, also at 4%).  This data points to Chinese smartphone brands looking to use AI in 2025 as a way to push the upgrade cycle on the mainland, in what has been a relatively weak retail environment. 
While the success of this strategy is far from certain, Chinese consumer seem to be more enthusiastic about AI, we believe, in part, because China itself has been quite aggressive in AI development, and started from a point similar to others, rather than having to play catch-up.  While trade restrictions on semiconductor development could slow that growth a bit, we expect a continued push from Chinese smartphone brands to offer AI features as a selling point this year.
Second, the Chinese government has recently included smartphones in its ‘New for Old’ consumer subsidy program, which helped to spur sales for a number of CE products in 4Q ’24.  Details of the smartphone subsidies are not yet available, but other products covered under the program typically garner a subsidy between 10% and 20% of the retail price, which we believe is substantial enough to move the needle, at least at the onset.
With these two potential factors as influencers early in the year, and an early Chinese New Year (1/29), we expect 1Q ’25 could see continued y/y growth, but we expect that it will lessen as the year progresses, as comparisons get more difficult and the enthusiasm behind the subsidies wears thin.  All in we expect Chinese smartphone shipments to stay in the low 300-million-unit range for the year, with much of the y/y growth in the 1st half, and, barring any unforeseen trade issues, we see similar results for 2026 at this time. 
As Chinese smartphone brands have a small share of the US market, potentially onerous trade restrictions on Chinese phones would have little effect on US consumers, with Xiaomi (1810.HK) having the largest share, albeit a small one (~1.2%).  However the implications for non-Chinese brands, particularly US smartphone brands in China could face a bit of additional nationalistic pride from Chinese consumers, who tend to opt for Chinese brands during periods of trade tension with the US.  2025 presents a fair number of variables that can have an influence on the Chinese mobile phone market, but we believe the longer-term picture is one where it become similar to other more mature markets, finding a shipment level that remains fairly constant over the years.

​Over the next few weeks there will be a number of CE product releases, some of which will happen in conjunction with CES, while others will have their own release promotions.  In fact two popular Chinese smartphone brands, OnePlus (pvt) and Honor (pvt), will be announcing their newest models, the OnePlus Ace 3 and the Honor X50 GT tonight, while Oppo (pvt) is set to release  its Find X7 series on 1/8, Honor again on the 10th with the Magic 6 series, the ROG (2357.TT) 8 gaming series follows on the 16th, and the crecendo on January 18 with Samsung’s  (005930.KS) Galaxy S24 flagship smartphone series.
As always, each model will offer its unique feature set combination to entice consumers to trade in their old phones and step up to the new, but there is one feature than spans all of these smartphone brand offerings, and that is they all use one form or another of Qualcomm’s (QCOM) Snapdragon 8 chipset, although there is some expectation that the Oppo Find X7 might also offer Mediatek’s (2454.TT) Dimensity 9300.  Its early in the year, with lots of new smartphones to be released, but we have to note that at least for January, Qualcomm seems to be at the top of the hit parade as far as smartphone chipsets, although said chipset decisions were made months ago.
That said, all of the smartphone excitement will fade away quickly as Apple (AAPL) is thought to be releasing its Vision Pro XR device in the US on January 27th, finally revealing (hopefully) the details about its first venture into the AR/AV/XR world, or the world of ‘spatial computing’ as Apple calls it.  While the hardware details of the Vision Pro will be revealed this month, the $3,500 price tag will be a bit of a challenge for consumers, and we expect, with corrective optical inserts, and a number of other optional extras, the real cost will be ~$4,000.  Perhaps not enough to stop a number of super-fans that will buy anything with the Apple logo ttached, or the “I have to be the first” crowd, but the steep price will be a bit much, even for ardent iPhone fans.
Apple needs to set itself apart from other VR/AR players, particularly Meta (FB), whose seeding philosophy, while costing a bit of change, has allowed them to rule the VR space for years, so why not start high, as the price can always be reduced but rarely can increase?  It sets Apple apart while giving the psychological impression that there is some inherent value in the device itself that ‘allows’ Apple to charge such a high price, but we believe that has little to do with the hardware, and in fact, we expect the price will be justifiable if the device operates as it has been advertised.  That does njot mean that the hardware will perform, as Apple is smart enough to know that they need to make sure the quality of the hardware is a given before the dvice hits the shelves, but the Vision Pro’s ability to create a new user environment will be the key to its success.
The risk to Apple is if the user experience does not live up to expectations, the hardware is a moot point.  Apple has set a picture in the minds of potential buyers of a new concept in the user’s environment, one not dependent on games or the ‘metaverse’, but one that promises a more flexible environment thjat allows the user to do whatever they so desire (work, play, relax, socialize) more easily and more efficiently than is possible outside of the Vision Pro environment.  No longer would an analyst be struggling with multiple monitors, multiple windows, and desktops, but would have an open space as wide as necessary to work with.  Apple also promises that videos will take on new dimension and give the user visual opportunities that were not available before, all of which will operate without lag or workariounds, and that is only a piece of what the Apple marketing machine has promised or implied, and that is a lot to live up to.  Apple has had it’s big winners (iPhone, iPod, App Store) and its failures (Lisa, Butterfly keyboard, Firewire), so the Vision Pro will be a game changer one way or another, and we should know before mid-year.

​When consumers say a CE product is ‘hot’, that is usually a good sign, however, despite the positive expectations and strong pre-orders, the new iPhone 15 series is hot, but not necessarily in a good way.  It seems that some consumers have found that their new iPhone’s have been getting hot, hot enough that they automatically shut down until they can cool down.  While this does not seem to be a widespread problem, it does seem to happen across the entire iPhone 15 line, which tends to end the speculation that it is related to the Titanium shell that is used on the iPhone 15 Pro and Pro Max.  While the internet was abuzz with speculation about why this might be happening, such an issue can quickly become a marketing nightmare, as it did for Samsung (005930.KS), when it was forced to recall 2.5m Note 7 smartphones in September of 2016 when they were found to not only overheat, but also catch fire due to battery issues.
Apple (AAPL) has responded to the on-line furor over the weekend, making the following statement:
“We have identified a few conditions which can cause iPhone to run warmer than expected.  The device may feel warmer during the first few days after setting up or restoring the device because of increased background activity.  We have also found a bug in iOS17 that is impacting some users and will be addressed in a software update.  Another issue involves some recent updates to 3rd party apps that are causing then to overload the systems.  We are working with these app developers on fixes that are in the process of rolling out.”
What is Apple actually saying?   Your phone will be hot for a few days after you start using it because things are running in the background that will stop after a few days.  What things and what are they doing, and what will they be finished with in a few days?  What ever these ‘few conditions’ are or why they are running the phone hotter than normal, Apple did not say.    Is the bug in iOS 7 part of the overheating problem, and when will it be addressed in a software update?  What are the ‘3rd party apps doing that would overload the system?  Are they demanding too much processor time or bandwidth?  When will this be fixed, whatever it is?
We give Apple credit for at least addressing the issue quickly, however the bigger question is whether Apple will disclose the actual issues and whether the software fix will affect the abilities of the iPhone if it is the only alternative.in the near-term.  Apple lost a $500m class action lawsuit in 2020 for throttling the performance of some iPhones in order to fix processor and battery problems without informing consumers and faced similar suits in Europe.  It will be essential that Apple is honest with consumers, about the issue and the fix, given past history.  If they need to throttle performance to avoid the issue until a more permanent fix can be found, that’s fine (coming from an Android user), but more specific details are necessary to keep the general public from becoming wary of problems with the iPhone 15 series, and you know competitors will use that to their advantage whenever possible.  Waiting for the “Forged in Fire and still on fire!” YouTube videos…

Smartphone chipsets and processors are designed to be highly specific to their use cases, and while they can also be used in tablets, laptops, wearables, and some smart TVs, they are designed to be the hub that controls most of the functions of your mobile devices.  There are only a few major independent smartphone processor brands, Qualcomm (QCOM), Mediatek (2454.TT), and UniSoc (pvt), but a number of smartphone brands produce their own application processors and have for many years.  These processors are either exclusive to the brand or are sold externally, but in most cases, they remain internal, with independent suppliers designing and supplying the majority of smartphone brands.
That is not to say other brands have not tried their hand at designing their own silicon, with Samsung (005930.KS) among the earliest with its Exynos 3 processor, used in the 2009 Galaxy S, and Apple’s A4 processor, used in the iPhone 4 in 2010.  2016 was a big year for self-designed application processors, with Lenovo (992.HK) releasing its Tiantian processor in its Vibe K5+ phone, and ZTE (000063.CH) releasing its N1 processor in its Axon 7 model that same year.  Huawei (pvt) joined the club with its Kirin processor series in 2020, although that was made expedient when the US banned exports to the company, and Google (GOOG) more recently with its Tensor processor series.  The remaining brands typically use Apps from Qualcomm and MediaTek, who battle each other on a model-by-model basis.
The problem with commercial application processors are designed to perform a variety of tasks well, but are not designed specifically for a particular smartphone brand or model, which tends to make smartphone models and brands more generic. For example, there are currently 32 smartphone models that use the Qualcomm Snapdragon 8 Gen 1 processor, across a broad swath of brands, from Samsung to Xiaomi (1810.HK), and 16 models use the MediaTek Dimensity 9000, including One Plus (pvt), Honor (pvt) and Vivo (pvt), while 3 models use the internally designed Samsung Exynos 2200 processor, all of which are Samsung phones.  With all three having release dates withing 3 months of each other, the commercial Aps tend to reduce the diversity between models and brands.
Then there is price, and while with so few AP producers there is likely less price competition than there should be, custom APs are considerably more expensive to produce considering the smaller number of units.  That said, as noted above, a number of smartphone brands do design and have produced their own APs.  However, as the smartphone business is facing another year of declining volume, the cost-effectiveness of such development programs is being questioned, and only 3 days ago, Oppo (pvt), the 4th largest global smartphone brand (~10% share in 4Q ’22) shuttered its chip design company ZEKU (pvt) with no advanced warning to employees, customers, or HR, who was hiring new employees up to the 11th. 
Oppo had released its first self-developed chip in 2021, along with its own power management and Bluetooth audio silicon and had been said to be taping out its own 4nm processor recently, while building a $650m chip R&D center.  The company’s CEO said that current revenue did not meet expectations and that the investment in self-developed chips was so large that the company could no longer afford to support the project and issued its termination.  That said, some employees seem to differ with those comments, noting that the AP processor tape-out is not due back from Taiwan Semi (TSM) until late Jun, and if successful, would have put considerable pressure on Qualcomm.  They take it further in that they say that company executives have been in the US earlier this month and were warned by the US that Oppo faced sanctions if it continues with its current self-developed processor path, in order to protect Qualcomm’s position.
None of these allegations are supported with documentation at this point, but it seems that a warning from the US, after the devastation that has been done to Huawei’s smartphone business, might be enough to shutter what has been a ~$7b investment for Oppo, rather than be added to the US ‘naughty’ list and see its share of the smartphone market disappear in a few months’ ala Huawei.  Shades of Teddy Roosevelt’s 1901 speech where he said, “Speak softly and carry a big stick”.  Maybe they were smart enough to realize that the economics were not good no matter what the situation was in a market that is not growing or maybe they realized that they would not be able to buy an semiconductor equipment going forward and would fall behind commercial AP manufacturers.  Too soon to tell but its not a good sign for the Chinese semiconductor industry and one that will empower US politicians to continue to keep the pressure on China.

​Last October we noted that Apple (AAPL) had included the ability to make emergency call (text message) in areas that were not covered by cell service, through the iPhone 14 and 14 Pro..  The service, available for free for two years in the US, Canada, France, Germany, Ireland and the UK, if you have iOS 16.1 or later, and while the service is available for travelers to those countries in an emergency, if the phone was purchased in China, Hong Kong or Macao, those phones do not include the service.  Apple is spending ~$450m, primarily with Globalstar (GSAT) to ensure access to the company’s 24 LEO satellites for emergency-only texts, as long as the user is in view of the open sky and the horizon.
While sat-phones have been around for many years, particularly those based on high-earth orbit satellite systems (~22,000 miles), which can handle higher data volumes but require the user’s phone to ‘find’ a HEO satellite.  LEO satellites are ~900 miles up and smaller, but there are at least two or three available to phone users at all times, and do not have to be ‘found’ by the user’s phone.  HEO based phones are therefore more expensive but are more capable.   Military applications are obvious, but those working in remote locations, such as off-shore platforms, disaster recovery workers, or forestry workers, all have difficulty connecting using typical cellular services, while able to connect, especially in an emergency, via satellite.  We note that Google (GOOG) search results for the phrase ‘satellite phone’ originate primarily (US only) from Alaska, Montana, Kansas, Idaho, and Oregon, none of which are surprising.
Of course, Apple’s service is an emergency convenience, but has already started a trend, with Samsung Electronics (005930.KS) announcing that while it will not be including such services in the Galaxy S23 series, it is building a 5G NTN (Non-terrestrial network) modem into its Exynos chipset, that will give it similar capabilities to the Apple service but will also allow the user to send photos and videos, stepping up the competition and pushing it past ‘emergency services.  Qualcomm (QCOM) has also announced that they are working with Iridium (IRDM) to build emergency satellite services into its Snapdragon Mobile Platform by mid-2025.
Right now the idea of building satellite communication into smartphones is one that has rarified use, but will likely garner the inevitable, “My iPhone 14 saved my life when I was lost on a mountain top…”headlines and push other smartphone brands to add the service to high-end models, but satellite service can be challenging and expensive, so unless the average smartphone user is a global traveler who remains off the beaten path, it seems to be a service with a limited (but helpful) usage profile.  A e-Sims become accepted by smartphone brands and carriers, the ability to sign up to a cell service in a foreign country for a relatively short time becomes a simple process, which obviates one reason for owning or renting a sat-phone, but Apple can create considerable buzz and seems to have set the tone for a new round of competition among major smartphone brands, so we expect to hear more about such plans over the next few months.  

While we note that gauging the success of Samsung’s (005930.KS) just announced Galaxy S23 flagship smartphone series in South Korea is a datapoint that might not translate globally, it does give some color as to the potential success of the series going forward, at least on a relative basis.  Samsung announced the new series on February 1, with three models, the Galaxy S23 Ultra, the Galaxy S23+, and the Galaxy S23 in order of price and feature set, with the three South Korean carriers able to take pre-orders for delivery beginning on the 17th, with Samsung announcing this morning that as of the 14th, pre-orders amounted to 1.09m units, above last year’s record of 1.01m units. 
Of the three models, the S23 Ultra garnered ~60% of the pre-orders, the more generic S23 ~23% and the S23+ ~17%, with the fact that the Ultra has a 200 MP main camera (plus 4 others) and a 6.8” display, while the plus has a 6.6” display and a 50 MP camera (plus 3 others), while the S23 has a 6.1” display and also a 50 MP camera (plus 3 others).  With a difference of $200 between the Ultra and the plus, it seems most early buyers are willing to fork up the extra cash for the high-resolution camera, although there are many discounts and promotions being offered that can lower the price, particularly with trade-ins, new carrier accounts or when using carrier credit cards for purchase.
In recent years Samsung has had difficulty maintaining robust flagship smartphone sales, and the elimination of the Galaxy Note series in lieu of folding models was an indication that the company recognized a need to refresh the premium side of its smartphone offerings.  Breathing life into smartphones that have changed relatively little over the last few years was not an easy task, and the economic weakness being experienced on a global scale in 2022 did little to help, but Samsung continues to dominate the foldable smartphone market, and maintains a significant manufacturing lead over other OLED panel producers. 
That said, it will take time for Samsung’s foldable smartphone line to gain enough end user acceptance to generate consumer momentum toward the smartphone market, along with the potential for Apple (AAPL) to join the foldable market in a year or so, but Samsung does have he ability to stretch in terms of form factors, as we have noted in the past, and we expect a third foldable model to appear this year or b next, although it might be considered more of a tablet than a smartphone.  Either way, if it is practical and generates consumer excitement, it will help to offset the mid and low-tier competition Samsung faces from Chinese brands, where Samsung has less of an advantage.
 

We had made a forecast for Chinese smartphone shipments for the 4th quarter and while the December numbers are not yet in, the official Chinese smartphone shipments for the last two months are 47.16m units, surprisingly 15.6% higher than our estimate, which pushes us to raise our December shipment number from 19.4m units to 22m units.  If this is correct (or close), that would put the full year at 265,65m units, down 24.3% y/y, and the 4th quarter up 16.4% q/q but still down 32.0% y/y, and above our most recent 252m unit estimate.  Most recently we have seen a full year tally of Chinese smartphone shipments totaling 287m units, which would imply a 44m unit shipment month in December, making it the best month this year, by 33%, so we are wanting to understand what the basis for that estimate was, given that our 11 month data is based on information provided by the Chinese government, which, if anything, leans a bit to the high side.
Over the last year 5G shipments in China have tracked fairly closely to overall shipments, representing between 85.1% and 72.2% of total shipments, although the spread narrowed considerably during 2H of 2022.  For the full year, using a proportional 16.97m 5G units in December, we estimate 5G shipments for the full 2022 year to be 207.6m units, or 78.1% of total shipments, down 22.0% y/y, the first year 5G shipments have declined since 2019 when China began releasing such data.  Given the current share, which we expect to expand a bit further this year, we expect 5G shipments in China to be a function of the overall health of the Chinese smartphone market, with far less dependency on the growth of 5G installations across the country than in previous years and more on China’s own macro environment. 
Strict COVID restrictions slowed 5G deployment progress across China last year, and with many of those restrictions being lifted, deployments will likely pick-up, but we are quite skeptical as to the coverage data that the Chinese government has been promoting, and if the data in the US is any example, it bears little practicality to consumers.  Typically many cities that are claimed as ‘covered’ have very spotty 5G service and while the coverage maps look well filled, the detail is far less so, with statistics used more for promotion and politics than actual consumer results.
Chinese brands continue to hold the major share of the Chinese domestic market (84.9%) and while it has deteriorated a bit over the last 4 years (86.5% last year), incursions, particularly by Apple (AAPL), have made little impact on overall domestic brand share in the Chinese smartphone market.  With Samsung Electronics (005930.KS) the only major smartphone brand with a very minor share in China, we expect relatively little change unless Samsung continues to expand and market its foldable line on the Mainland, which, while facing domestic competition, seems to be considered among the most prestigious smartphone devices with Chinese consumers, along with Apple.  However price sensitive buyers do have domestic foldable alternatives and there are still many pockets of nationalistic pride that would push marginal buyers to domestic brands, so for the 2023 year, we expect only a minor reduction in domestic share.
All in, it was a difficult year for CE in China, and smartphones in particular, but while we are careful to temper any enthusiasm against both a poor macro-economic situation on the Mainland, and a festering anti-China manufacturing posture for many global companies, we do take heart in that in recent months, while poor in terms of y/y performance, shipments have been, at the least, relatively stable, which we expect to continue into 1Q.  The Chinese smartphone market is maturing, and with that comes slower growth and more macro affectations, which certainly seems to be the case in recent months.  As that continues we expect the Chinese smartphone market to have basically the same competitive and economic characteristics of the global smartphone market and track more closely to the global markets each year.  That said, Chinese brands have the advantage of lower cost, but also face some political issues, such as those in India, that can offset those cost advantages.  It is up to both the Chinese government and Chinese smartphone brands as to how those issues will play out this year, and over the last year both did little to smooth those relationships that can help Chinese brands gain share outside of the Mainland.  Maybe 2023 will be different, although it is still hard to be overly optimistic.