China Smartphones – July – We Have Been Too Optimistic
Smartphone shipments in China in July declined 28.9% m/m to 19.9m units, down 30.6% y/y against a typical July (5 year average) of -1.3% m/m. While not the lowest shipment month this year, July was a bit disappointing after strong June shipments which showed the first month of positive y/y shipments this year. On a YTD basis Shipments of smartphones in China this year are down 23.02% y/y. 5G smartphone shipments fell 36.1% m/m, also down 35.6% y/y, with 5G share of total smartphones shipped falling to 73.9%, the lowest share this year, while domestic brand shipments on the Mainland fell 25.3% m/m and fell 29.3% y/y in July, while domestic brands saw a 92.0% share of the Chinese market, the highest share in almost a year. We expect some of that might have to do with the then pending Apple (AAPL) iPhone 14 family release, but on a general basis it would seem Chinese smartphone buyers stuck with domestic brands during lockdowns. While we do not have sales value data yet, we expect the focus was on less expensive models as the global economic situation deteriorated and COVID lockdowns began to have a more serious economic impact on a more local basis.
All in it was a particularly bad month for Chinese smartphone shipments and with the exception of a shipment bounce in June, the year has deteriorated from the very strong January that we had hoped would set the tone for the year, or at least would have indicated that the 2022 was going to see Chinese domestic shipment improvement. As the year progressed, with both the continuing stringent COVID lockdowns that the Chinese government continues to use to minimize the spread of COVID variants and the effects of increasing inflation across the globe, our optimistic view of Chinese smartphone shipments has deteriorated. In February that optimism generated a full year estimate of Chinese smartphone shipments of 381.24m units, up 8.7% y/y, which we admit seems more that a Chinese state-propaganda piece than a realistic estimate, but at the time COVID was waning (China was averaging ~100 new cases a day) and inflation was less than 1% domestically, while January smartphone shipments in China remained strong after a strong December ’21.
So, while we can make a myriad of excuses as to why we expected a stronger year of smartphone shipments in China, we are bringing down estimates to better reflect the past few months and our expectations for the remainder of the year. Statistically, based on 5 year averages of m/m shipments for the remainder of the year the estimate should be 255.13m units down 27.2% y/y however we expect that is a bit more negative than actual results, so on a slightly better than statistically average year, we estimate shipments to be 260.5m units, down 25.7% y/y and the worst year since 2012, which is the earliest data we have. The good news would be that Chinese New Year 2023 comes a bit early (1/22/23) so there is a chance that discounting in November and December to clear older inventory will take place, moving shipments above seasonal norms, but it is hard to find scenarios that would boost shipments much further than our new estimate unless the government changes its attitude toward COVID lockdowns or the Chinese economy takes a sharp upward turn, neither of which seem particularly likely.
As a consequence of our substantial reduction in full year Chinese smartphone shipments, we also have to revise our estimates for 5G shipments in China. Based on an average share of smartphone shipments of 80.5%, we now estimate that 5G smartphone shipments will total 210m units, the first down year since 5G smartphones were offered in China. There is a bit of possible upside as 5G share of new models offered for the remainder of the year should increase from the unusually low share in July, but the increment is still rather small.
All in it was a particularly bad month for Chinese smartphone shipments and with the exception of a shipment bounce in June, the year has deteriorated from the very strong January that we had hoped would set the tone for the year, or at least would have indicated that the 2022 was going to see Chinese domestic shipment improvement. As the year progressed, with both the continuing stringent COVID lockdowns that the Chinese government continues to use to minimize the spread of COVID variants and the effects of increasing inflation across the globe, our optimistic view of Chinese smartphone shipments has deteriorated. In February that optimism generated a full year estimate of Chinese smartphone shipments of 381.24m units, up 8.7% y/y, which we admit seems more that a Chinese state-propaganda piece than a realistic estimate, but at the time COVID was waning (China was averaging ~100 new cases a day) and inflation was less than 1% domestically, while January smartphone shipments in China remained strong after a strong December ’21.
So, while we can make a myriad of excuses as to why we expected a stronger year of smartphone shipments in China, we are bringing down estimates to better reflect the past few months and our expectations for the remainder of the year. Statistically, based on 5 year averages of m/m shipments for the remainder of the year the estimate should be 255.13m units down 27.2% y/y however we expect that is a bit more negative than actual results, so on a slightly better than statistically average year, we estimate shipments to be 260.5m units, down 25.7% y/y and the worst year since 2012, which is the earliest data we have. The good news would be that Chinese New Year 2023 comes a bit early (1/22/23) so there is a chance that discounting in November and December to clear older inventory will take place, moving shipments above seasonal norms, but it is hard to find scenarios that would boost shipments much further than our new estimate unless the government changes its attitude toward COVID lockdowns or the Chinese economy takes a sharp upward turn, neither of which seem particularly likely.
As a consequence of our substantial reduction in full year Chinese smartphone shipments, we also have to revise our estimates for 5G shipments in China. Based on an average share of smartphone shipments of 80.5%, we now estimate that 5G smartphone shipments will total 210m units, the first down year since 5G smartphones were offered in China. There is a bit of possible upside as 5G share of new models offered for the remainder of the year should increase from the unusually low share in July, but the increment is still rather small.
China Smartphone Shipments & Y/Y ROC - Source: SCMR LLC, CAIST
China 5G Smartphone Shipments & Share - Source: SCMR LLC. CAIST
China Smartphone Shipments Yearly & ROC - Source: SCMR LLC, CAIST
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