Smartphone makers risk 'drowning' in excess inventory

Smartphones shipments are still on the decline globally and, although an uptick is in sight, vendors still need to tread carefully, analysts say.

Worldwide smartphone shipments fell by 14.6 percent year-on-year to 268.6 million units in the first quarter of this year, according to new preliminary data from IDC. Its figures are pretty close to those shared by rival Canalys earlier this month – or at least they show a very similar trend – and Canalys has since amended its numbers to show a 13 percent slide in Q1 to 269.8 million units. No matter which company’s figure you choose, the message is pretty clear.

IDC says its numbers show a seventh consecutive quarter of decline, citing a market battling with lukewarm demand, inflation, and macro-economic uncertainty. Further, it notes that the slide is almost two percentage points greater than it had previously predicted.

That is clearly not comfortable reading for the world’s handset makers, who still have high levels of inventory to cope with. However, their efforts on reduced shipments to avoid ploughing more stock into the channel, coupled with promotions, mean that the market as being in significantly better shape than it was six months ago, IDC says, sticking with its belief that there will be a turnaround later in the year.

But let’s not get carried away. This predicted recovery must be approached with caution.

“While we are optimistic about recovery by the end of the year, we still have a tough 3-6 months ahead,” said Nabila Popal, research director with IDC’s Worldwide Tracker team.

“Everyone is anxious about exactly when the tide will turn and wants to be first to ride the wave of recovery. However, it’s a tricky situation. Anyone who jumps in too soon will drown in excess inventory,” said Popal. “Now more than ever, it’s important to keep a close pulse of market. Barring unforeseen elements, IDC expects the market to cross into positive territory in the third quarter and see healthy double-digit growth by the holiday quarter.”

There was a similar message from Canalys, which also predicts the market will start to pick up in the second half of the year as channel inventories reach healthier levels. All being well, then, we’ll be back to smartphones in our stockings come Christmas. And, as per usual, those new devices are likely to come from one or two handsets makers: Samsung or Apple.

Samsung remained the market leader in Q1, despite losing share and seeing shipments decline to 60.5 million units, or 22.5 percent of the global total. Apple gained ground, raising its market share to 20.5 percent on the back of 55.2 million unit shipments. Xiaomi, Oppo and Vivo occupy the remaining three positions in the top five, in that order, just as they did in Q1 last year.

While there are no indications that the smartphone vendor leaderboard is set for serious change, Canalys reminds us that difficult times bring new opportunities.

“For vendors with long-term ambitions and capital to invest, challenging market conditions provide an excellent environment to capture market share, showcase commitment and intentions to new markets, and establish close partnerships with the channel,” said Canalys Research Analyst Lucas Zhong.

It’s certainly a time of tricky balance for the vendor community.

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