Waiting On Apple
As we noted last week smartphone shipments in China were weak during the Labor Day holiday and generally in May, and if June sales are up ~10%, which would be the average of the previous two months, 2Q in China would see shipments fall 22.7% from the 1st quarter and be down 30.6% y/y. While we do expect smartphone sales to be up m/m in June, Chinese smartphone brands have remained overly optimistic this year, and after weaker than expected holiday sales, even with June being up over 10% m/m, most Chinese smartphone brands will likely see sales decline at least 10% to 15% and possibly more if June does not live up to expectations. We expect Chinese smartphone brands to lower full year targets again in July if that is the case.
As Chinese smartphone brands face a weaker 1H, they have less of a need for components, many of which have been in short supply, and while this could help to reduce some of the shortages, demand related issues reducing shortages are far less positive for the industry than if supply was increased. Unfortunately capacity increases are more of a long-term process, and with some component suppliers seeing less demand from China in 2Q, they might be a bit more cautious as to how fast and by how much to expand, especially given the time it takes to build out capacity. To illustrate the point, Taiyo Yuden (6976.JP), a major producer of MLCCs (Multi-layer Ceramic Capacitors), a component that has been in short supply, recently announced that it is committing $45m US (construction only) to build a new MLCC plant, with construction set to start in September. While this will add to capacity the new plant will not be ready for production until the end of 2023, doing little to alleviate near-term shortages. MLCC demand has been growing as they are necessary for electric vehicles, but demand has also been spurred by their increased use in 5G smartphones, and that demand is quite volatile. .
That said, the same suppliers that are seeing lower component orders from Chinese smartphone brands are also expecting production for the iPhone 13 to begin in July, hopefully offsetting any slowdowns, so there has been little change in component pricing thus far. Given the lead time for new component capacity and the even longer lead time for semiconductor capacity expansion, it will likely take more than a slowdown in Chinese smartphone sales to loosen the component shortage deadlock and slow upward pricing momentum or actually bring down component prices, but in the CE space that theory is only good until the day when buyers postpone orders expecting a lower price the next day..
One material where we have seen some relaxation of pricing momentum is copper, and while the commodity is still up over 35% this year, it is down over 13% from its high about a month ago. While there are many factors that drive copper prices, it is a key material for electronics with its inclusion in everything from wire to PCB boards, and almost any material related to electronics, particularly those that have automotive applications, pushed prices higher up until recently. While copper for wire is the material’s biggest application, which is likely more related to housing and construction than electronics, we expect overall demand to flatten a bit and then pick up at the end of the summer as new products for the holidays begin production, and while off its peak, we expect the raw material to remain in demand, at least from the electronics sector.
As Chinese smartphone brands face a weaker 1H, they have less of a need for components, many of which have been in short supply, and while this could help to reduce some of the shortages, demand related issues reducing shortages are far less positive for the industry than if supply was increased. Unfortunately capacity increases are more of a long-term process, and with some component suppliers seeing less demand from China in 2Q, they might be a bit more cautious as to how fast and by how much to expand, especially given the time it takes to build out capacity. To illustrate the point, Taiyo Yuden (6976.JP), a major producer of MLCCs (Multi-layer Ceramic Capacitors), a component that has been in short supply, recently announced that it is committing $45m US (construction only) to build a new MLCC plant, with construction set to start in September. While this will add to capacity the new plant will not be ready for production until the end of 2023, doing little to alleviate near-term shortages. MLCC demand has been growing as they are necessary for electric vehicles, but demand has also been spurred by their increased use in 5G smartphones, and that demand is quite volatile. .
That said, the same suppliers that are seeing lower component orders from Chinese smartphone brands are also expecting production for the iPhone 13 to begin in July, hopefully offsetting any slowdowns, so there has been little change in component pricing thus far. Given the lead time for new component capacity and the even longer lead time for semiconductor capacity expansion, it will likely take more than a slowdown in Chinese smartphone sales to loosen the component shortage deadlock and slow upward pricing momentum or actually bring down component prices, but in the CE space that theory is only good until the day when buyers postpone orders expecting a lower price the next day..
One material where we have seen some relaxation of pricing momentum is copper, and while the commodity is still up over 35% this year, it is down over 13% from its high about a month ago. While there are many factors that drive copper prices, it is a key material for electronics with its inclusion in everything from wire to PCB boards, and almost any material related to electronics, particularly those that have automotive applications, pushed prices higher up until recently. While copper for wire is the material’s biggest application, which is likely more related to housing and construction than electronics, we expect overall demand to flatten a bit and then pick up at the end of the summer as new products for the holidays begin production, and while off its peak, we expect the raw material to remain in demand, at least from the electronics sector.
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