The sudden outbreak has caused a sharp increase in orders from industry chain manufacturers. How long can the fire in the notebook market last?

As we all know, the global smartphone industry chain has been in a downturn this year due to the impact of the epidemic. Even though the current domestic epidemic has greatly improved, it is difficult to prevent a sharp decline in terminal market demand. According to the latest data released by the China Academy of Information and Communications Technology, the total shipments of the domestic mobile phone market in the first half of the year totaled 153 million units, a year-on-year decrease of 17.7%.

Against this backdrop, many supply chain manufacturers have seen a decline in performance, except for a number of manufacturers in the touch display industry, which have seen exceptionally outstanding performance, including Leybold Technology, AU Optronics, and Innolux. These companies stated in their announcements that the current performance growth was mainly due to the substantial increase in demand in the notebook market.

Jiwei.com has confirmed with multiple manufacturers in the industry chain that the demand for laptop terminals in the first half of this year was indeed very considerable, with the order volume in the second quarter increasing by 2-3 times compared with previous years.

Current status of the laptop industry chain

"Many products are now in short supply. Not only TP, but also parts of all sizes are out of stock, causing headaches for many terminal manufacturers in procurement." A laptop camera module manufacturer in Taiwan told the author.

As the overseas epidemic is still brewing, it is urgent for many places to implement online office and online teaching, which has made laptops and tablets a "necessity" in the daily life of many people, and the overall market demand has been significantly boosted. Industry insiders told Jiwei.com that since the second quarter of this year, many urgent orders have been received, and the impact of the domestic epidemic in the first quarter has caused a certain degree of delay in shipments, so the entire industry chain has seen a substantial increase in shipments in the second quarter.

According to him, "In order to ensure the supply of products, many brand manufacturers in the industry have already moved orders from the third and fourth quarters to the second quarter for production and sales. If we only look at the current situation, it should be that the production capacity of most suppliers is fully loaded, and there are too many orders to complete."

Jiwei.com learned that previously, because the laptop market has been in a situation where demand has been stable for a long time and has been decreasing slightly year by year, and the gross profit margins of components are generally low, there are not many mainland suppliers who are interested in this market.

A brand manufacturer pointed out: "In the past few years when domestic mobile phone brands have grown, mainland component manufacturers have also risen rapidly, leaving less and less room for Taiwanese manufacturers. In order to ensure their own performance, the latter have gradually focused more on the laptop market. For many years, only a few mainland manufacturers have participated in it, making the laptop supply chain in Taiwan a stable and relatively closed state."

At present, the supply chains of mainstream brand manufacturers including HP, Dell, Asus, and Acer are dominated by Taiwanese suppliers. Among them, larger suppliers usually sell multiple product categories to customers in packages to ensure a deep binding relationship between themselves and their customers; this also means that there are not many opportunities and space left for other manufacturers.

Even so, with the current situation of "ups and downs" in the notebook and mobile phone markets, many component manufacturers are still tempted; the author has learned from the industry that many companies in the current mobile phone industry chain intend to invest in notebook production lines, hoping to take this opportunity to improve their overall performance this year.

However, there may not be much time left for these companies. 2020 has quietly entered the second half of the year, and it remains unknown how long the demand in the laptop market can continue.

Is it demand or "bubble"?

A driver IC manufacturer told Jiwei.com, "Due to the rapid growth in orders, our factory has been operating at full capacity since the second quarter. Based on the current production capacity, the orders we have received may not be completed until the third quarter."

This year's epidemic was undoubtedly beyond everyone's expectations, which also made the laptop industry chain somewhat unprepared in the face of the sudden market outbreak.

Looking back at 2019, the global PC market has actually shown a trend of recovery. According to the 2019 fourth quarter and comprehensive PC shipment report released by IDC, the total shipments for the whole year reached 261 million units, a year-on-year increase of 4.77%. It should be pointed out that this is the first growth in the PC market after 8 years of decline since 2011.

As mentioned at the beginning of the article, the monthly order demand of terminal brands has increased by 2-3 times since the beginning of this year. Based on this estimate, the market demand for the whole year is expected to exceed 700 million units.

However, terminal brands have not shown much optimism in the face of such growth momentum.

A mainstream brand manufacturer in the market pointed out to Jiwei.com: "Although the entire market is very hot this year, from our perspective, such demand is still relatively accidental; as the epidemic situation improves, the order of life and work will be restored, and the demand will gradually fade."

"In addition, since the replacement cycle of products such as laptops is relatively long, we believe that demand after the epidemic will gradually return to normal levels of previous years. We currently expect this wave of growth trend to continue until the end of the first quarter of next year," the brand manufacturer added.

In fact, whether the investment and return are proportional is also the reason why many companies want to participate but are still waiting and watching.

As mentioned above, the gross profit margin of laptop components is generally low, mainly because the materials used by various module factories are almost all specified by the end customers, and the only thing that suppliers can control is the assembly cost. This also means that the amount of profit depends entirely on the manufacturer's yield rate. For new suppliers, it is not easy to achieve considerable profits in the early stage of small quantities.

A person in the mobile phone industry chain revealed to the author: "Since this year, many customers have actually approached us to make laptop products, but laptops are not a market we have planned, so the only order we received was from a major mobile phone customer. In our opinion, the gross profit margin of laptop components in the early stage will basically not exceed 5%. If we want to make a considerable performance contribution from this business, we still need to cultivate this field for a long time. It may not work just to focus on the current round of demand growth."