Production of smartphones for the first half of 2020 is expected to drop by as much as 30%, according to a report, Taking Stock of COVID-19, from the global tech market advisory firm ABI Research. The uncertainty in the mobile device industry reflects the quick and dramatic effect of work- and stay-at-home edicts due to the coronavirus pandemic.
The state of the global economy is in question, and global software-centric networks and operations are hard hit. The coronavirus outbreak greatly affects tech companies, companies that invest in tech, and consumers.
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China’s dramatic impact
“The ripples from China will be felt globally,” David McQueen, 5G devices research director, ABI Research said in a press release.
The impact on the global mobile device market has been “disastrous,” the report found. China is the world epicenter of manufacturing of 5G devices, smartphones, and wearables, and also the epicenter of the coronavirus outbreak. COVID-19’s impact led to production line disruption and supply-chain stalls, because of labor shortages and “inactive logistics.”
Vendors’ reliance on China
Smartphone vendor leaders with production in China include Apple, Huawei, Xiaomi, and OPPO, and the major supply chain partners—Qualcomm, Broadcom, Qorvo, and Skyworks, and others–are hard hit by the declining demand for smartphones. The report noted that to return to anything remotely close to near-capacity in the production facilities will take a great deal of time.
Most companies reliant on China for manufacturing and component supply were “woefully unprepared to react quickly.”
China is also one of the biggest markets for mobile devices and wearables and has been severely impacted, notably due to delayed shipments and the weakened development of next-generation products.
“Significantly, in the short term, there will be an adverse effect on 5G devices. No sooner had 5G smartphones started to gain some traction and break into the market in significant numbers, than the outbreak will now trigger a suppression of its near-term growth, pushing out the development and introduction of affordable 5G phones,” McQueen explained.
Hope for lower-price tiers dashed
Smartphone shipments were expected to get a big boost from lower-price tiers in 2020, but that’s unlikely. The report stated that with a stalled supply chain and “crippled demand,” shipment volumes in 2020 for 5G smartphones will be much lower.
McQueen added, “Undoubtedly, the market will also be faced with numerous disruptions and delays, most notably the launch of Apple’s first 5G iPhones that are due to appear in September 2020.”
Long-term effects of COVID-19 on the mobile device industry
By the end of 2Q 2020, the COVID-19 effects are expected to be under control, but that doesn’t mean the industry will bounce back quickly. Manufacturers need to instill confidence in consumers and device production needs to recover.
“Importantly, with such a large proportion of the world’s mobile device market relying on China for manufacturing and component supply, which is contending with disruption on a massive scale, it has become clear that many in the chain were woefully unprepared to react quickly,” McQueen said.
In the short- to medium-term, noted the report, there will be a heavy impact on the smartphone market, but also added that the full or lasting effect COVID-19 will have on the mobile device ecosystem is unclear.
“Aside from taking its toll on both demand and the supply chain, it will particularly affect the industry’s eagerness to drive 5G to lower price points in 2020, seriously blunting its growth potential,” McQueen said.
He recommended that “vendors and suppliers fully understand their exposure to all those along the chain, identifying and evaluating all risks related to issues like capacity management and market demand, enabling them to react accordingly and mitigate the impact of any future market disruptions.”
Samsung stands out as not wholly reliant on China as other companies. Samsung has withdrawn from China in the last couple of years, and heavily uses India and Vietnam. The report recommends that other companies consider “relocating to markets ramping up supply chain production,” notably Taiwan, India, and Vietnam, or countries outside of Asia-Pacific.
Handling economic impacts
The report concluded that those in charge of both the supply and demand sides of technology companies, so impacted by COVID-19 “need to preserve the current order of doing business if they are to sustain that edge,” with “further prosperity and innovation will stem from new forays that are either built atop that edge in a vertical fashion or leverage new, highly complementary horizontal capabilities.”
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