The impact of changes in terminal demand has expanded, triggering a "melee" in the mobile phone supply chain

We are now entering a period of intensive release of financial reports by listed companies, and many manufacturers in the mobile phone industry chain have also successively submitted their 2021 report cards.

First, let's review the overall shipment situation of the market last year. According to data released by IDC, the global smartphone market shipped 1.3548 billion units in 2021, a year-on-year increase of 5.7%. The specific figures of several other international research institutions may differ from this, but the same thing is that the total market demand is still showing a slight growth trend.

It should be pointed out that behind the growth reflected in the numbers there are also trends in terminal share and product specification changes; these two changes will not only have a certain impact on the supply chain in 2021, but may also be reflected to a greater extent in 2022.

Mobile phone terminals collectively "downgraded"

Recently, a first-tier mobile phone brand supplier told Jiwei.com: "In the past year, we have seen that many customers have changed their thinking about upgrading components. They are no longer blindly stacking high-specification hardware. On the contrary, some hardware specifications of many models have been reduced."

This is closely related to the changes in the competitive landscape of the global smartphone market in 2021.

According to a report by research firm Omdia, the top five manufacturers in terms of global smartphone shipments in 2021 are Samsung, Apple, Xiaomi, OPPO, and vivo. The shipments of several brands increased to varying degrees last year compared with 2020, with Xiaomi, OPPO, and vivo seeing the most significant growth. In contrast, Huawei's smartphone sales ranking in 2021 slipped to ninth place, down 81.6% from the same period in 2020.

The above-mentioned supplier believes: "On the one hand, this is because the high-end market performance of Android brands last year was not as expected, and the main growth force came from mid- and low-end models; therefore, the demand for higher-specification components was relatively weakened. On the other hand, as a leader in hardware innovation and upgrading of Android brands, Huawei's consumer business has been greatly reduced, which has also suppressed the demand for high-end component products to a certain extent."

As one of the main suppliers of Huawei's high-end camera modules, Sunny Optical mentioned in its 2021 financial report: "Although the company's mobile phone camera module shipments increased during the reporting period compared with 2020, due to the reduction in specifications and configuration of smartphone cameras and changes in customer structure, the average selling price of mobile phone camera modules has dropped significantly compared with last year, offsetting the revenue growth brought about by the increase in shipments."

Some analysts pointed out that Sunny Optical is not the only one facing this problem, because Huawei's consumer business is huge and the scope of impact is also very wide. It is certain that more than one company and more than one type of components will be affected. It's just that each company has different risk resistance capabilities. Sunny Optical's performance is even better than many component manufacturers. Therefore, although the module business revenue declined last year, many institutions are still optimistic about this company.

In addition, the pricing of low-end and mid-range models, which are the main drivers of growth, is mostly in the medium to low price range, and the product gross profit margin is not too ideal for both the terminal and the supply chain. Therefore, under the premise of a slight increase in overall sales, terminal brands may also control costs by slowing down the iteration of components in order to ensure a stable product gross profit margin, thereby achieving the goal of maintaining profitability.

At the same time, the impact of changes in the terminal market has also begun to be transmitted to the supply chain; many first-tier large manufacturers have to compete more actively for orders in order to fill the vacant production capacity.

First-tier manufacturers cut prices to grab orders

Jiwei.com checked the financial reports and found that the comprehensive product gross profit margins of many mobile phone component suppliers in 2021 have dropped significantly, especially in the third and fourth quarters of the second half of the year. Industry insiders told the author: "In fact, it is normal for the price of products of the same specifications to drop every year, but this year's high-end market demand is weak, and the competition in the industry chain became more intense in the second half of last year, so the average unit price of products generally dropped more than in previous years."

An industry insider told Jiwei.com: "Last year, in the component industry such as camera modules, even the leading manufacturers were competing for bids and orders, and they were willing to sacrifice prices to fill the gap in production capacity."

As we all know, as the main supplier of first-tier terminals at home and abroad, the monthly production capacity is basically at the level of tens of millions, so once a large gap appears, it is difficult to make up. However, one day of idle production line means one day of loss. For enterprises, between maintaining profits and reducing losses, the latter should obviously be chosen.

A Huawei supply chain company also told Jiwei.com: "The decline in average selling price this year is a common phenomenon in the mobile phone supply chain. Huawei's orders have dropped sharply, and other brands' high-end products have not made up for this gap. Supply chain manufacturers have to seek more ways to fill production capacity in the short term, so it is normal to make concessions."

It is worth noting that the haze shrouding the smartphone market in 2022 has not been dispelled. At present, more than one supplier has pointed out to Jiwei.com that the sales forecasts of terminal brands in 2022 are generally more conservative, and as of the first quarter of this year, the market demand for high-end products has continued to be sluggish.

On the other hand, the impact of external factors such as the epidemic and inflation on user purchasing power in 2021 is obvious to all. As the situation in Europe becomes increasingly tense, the uncertainties affecting the market and industry in 2022 will only increase. For manufacturers in the mobile phone industry chain, they should perhaps seek development in stability.