Component shortage to hinder smartphone market recovery

Smartphone shipments are expected to bounce back this year as the pandemic eases, but component supply issues will limit the recovery.

This is according to a forecast published by Canalys this week, which shows 2021 unit volume will reach 1.4 billion in 2021, up 12 percent on last year.

“The smartphone industry’s resilience is quite incredible,” said Canalys research manager Ben Stanton. “Smartphones are vital for keeping people connected and entertained, and they’re just as important inside the home as outside. In some parts of the world, people have been unable to spend money on holidays and days out in recent months, and many have spent their disposable income on a new smartphone instead.”

Consumers appear to be getting more excited about 5G handsets too. They accounted for 37 percent of global shipments in Q1, and are expected to account for 43 percent, or 610 million units, for the full year, Stanton said.

In 2022, 5G handset shipments are expected to overtake 4G, Canalys predicts.

It’s not all good news, unfortunately, as component shortages will limit the scale of the smartphone market’s recovery.

“Backorders are building,” Stanton warned. “The industry is fighting for semiconductors, and every brand will feel the pinch.”

Canalys expects vendors to prioritise developed markets like North America, China and Western Europe at the expense of Latin America and Africa. But even those prioritised markets will still be constrained. As supply issues ease, vendors are expected to focus on shipping their products into the speediest channels to market, namely operator partners, rather than distributors and the open market.

In addition, vendors will also have to contend with scarcity driving up component prices.

“Vendors must decide whether to absorb that cost or pass it on to consumers,” said Nicole Peng, VP of mobility at Canalys.

This represents a particular challenge towards the lower-end of the smartphone market, where customers are far more price sensitive. Canalys advised handset makers to protect their market share by improving operational efficiency and lowering margin expectation in the low-end of their smartphone portfolios.

Furthermore, the pandemic’s effect on brick-and-mortar retail is expected to have lasting consequences for the handset market.

“Developed countries have seen an online surge, which has forced retailers to reassess their offline footprints,” Stanton said. “As a result, many stores will close this year, and for those that stay open, their purpose will be reimagined for customer support and order fulfilment, as customers increasingly use multiple channels during the purchase process.”

It could also have a knock-on effect further up the chain.

“Centralised procurement will also give the channel more negotiating power with smartphone brands and may cause some retailers to attempt to bypass distribution to build direct relationships,” Stanton continued. “The new normal for the smartphone industry is as ruthless and competitive as the last one.”