Under the pressure of continuous order cuts, what is the way out for Android phone manufacturers?

Recently, TF International analyst Ming-Chi Kuo said on social media that major domestic Android phone brands have cut orders by about 170 million units this year, accounting for about 20% of the original shipment plan for 2022. He also pointed out that due to insufficient consumer confidence, orders are likely to continue to decline in the coming months.

The latest research report from Counterpoint Research indicates that in 2021, China's market share of Android smartphones priced above US$600 will shrink from 44.6% in 2020 to 36.5% in 2021, which means that domestic Android manufacturers are still relatively weak in "grabbing a position" in the high-end market. The current situation is that domestic Android models priced above US$600 are frequently launched domestically, and the high-end market is crowded and surrounded by many competitors.

Although domestic Android manufacturers may be able to fill the market left by Huawei to a certain extent and regain some market share from Apple thanks to their "stacking" hardware support and cost-effectiveness, the reduction in shipment orders is still an indisputable fact.

Mobile phone production and sales both fell in the first two months of this year

The continued spread of the COVID-19 pandemic, the shortage of chips and materials, the Russia-Ukraine war and other multiple factors have all had a significant impact on the consumer electronics industry. Especially in the sluggish market environment, major mobile phone manufacturers are not only facing inventory backlogs, but also facing the pressure of slowing shipments.

It is understood that the inventory level of Skyworks and Qorvo RF front-end chips of some smartphone brands has exceeded 6-9 months. Industry insiders pointed out that the reduction in order demand, coupled with the impact of SoC prices and the reduction of iPhone SE 3 orders, may lead to the price war between 5G SoC suppliers MediaTek and Qualcomm to start ahead of schedule, and the time is expected to be the middle of this year.

At the same time, there were reports that in order to stimulate market demand and accelerate the popularization of 5G mobile phones, downstream manufacturers have asked MediaTek and Qualcomm to lower prices, and the two companies expect their quotations to drop by within 10%.

Morgan Stanley pointed out that if the two companies' price cuts come true, it may shake the investment strategy of the industry's "duopoly". However, it believes that the price cut of SoC does not seem to effectively stimulate the market demand for smartphones, so MediaTek and Qualcomm have not yet agreed to the above request. Morgan Stanley expects that MediaTek may eventually take an indirect approach, that is, by launching entry-level 5G SoCs to meet low-end market demand, rather than directly reducing current product prices, which also ensures that the current product value and profit margins remain stable.

Judging from the data, the reduction in Android phone orders is due to the reality that both product production and sales volumes have declined, which also highlights the decrease in consumer demand for mobile phones.

According to the operating conditions of the electronic information manufacturing industry in January-February 2022 released by the Ministry of Industry and Information Technology, among the main products, the output of mobile phones was 210 million units, a year-on-year decrease of 3.5%, of which the output of smartphones was 150 million units, a year-on-year increase of 0.8%.

CINNO Research believes that due to the impact of the macro environment, mobile phone manufacturers have begun to lower market expectations and cut orders from the mobile phone supply chain, and have reduced the specifications and configurations of mobile phone products. Statistics show that China's smartphone sales in February fell by more than 20% year-on-year and month-on-month. In February, the sales volume of smartphones in the Chinese market was about 23.48 million units, a year-on-year decline of 20.5% and a month-on-month decline of 24.0%.

In the field of smartphone SoC, the agency's data also pointed out that in February, China's smartphone SoC market terminal sales fell after increasing both month-on-month and year-on-year in January. The overall market terminal sales fell by about 24% month-on-month and about 20.5% year-on-year. The sharp year-on-year decline was mainly due to HiSilicon. In addition, Qualcomm and MediaTek saw month-on-month declines of 21.8% and 25%, respectively.

A test of innovation and price

Industry insiders believe that the main reason for the reduction in downstream demand is the epidemic, coupled with the lack of innovation capabilities of brand owners, so consumers naturally have no desire to change their phones. Furthermore, price is undoubtedly one of the obstacles between buyers and sellers.

In recent years, under the pressure of Huawei's mobile phone business being hindered and Apple's leading advantage in the high-end market, mobile phone manufacturers of all sizes have adjusted their market goals towards the high-end route. Although there is no obvious difference in product performance, "price increase" seems to have become an unspoken consensus among mobile phone manufacturers.

"To put it bluntly, the starting prices of mobile phones launched on the market in the past two years have been getting higher and higher. A few years ago, you could buy an Android phone for 2,000 yuan, but in recent years, low-end models cost around 3,000 yuan, not to mention mid-to-high-end models that cost more than 5,000 yuan." The person continued.

A few days ago, two terms on Weibo, "Why are young people reluctant to change their phones?" and "How long have you not changed your phone?", became hot searches. In the comment section, a consumer said, "The functions of current mobile phones are similar, and the camera and battery are not much different. Android phones nowadays are no longer as frequently lagging as previous phones. In addition, changing phones is also very troublesome and requires time to adapt."

Some people commented that changing phones is very troublesome, and uploading and importing various data takes at least two hours. Some people even said frankly: "Lack of money is the primary reason, and another big reason is that the development of mobile phones has reached a bottleneck. A mobile phone can basically be used for three years without any problems."

Apart from the price factor, the decline in consumer demand for replacement phones is also the main reason for the decline in mobile phone sales. "I have always used a thousand-yuan phone, so it is not expensive to change it, but the phone is not laggy, so there is no need for me to change it, and I don't play games or take photos much," said a consumer.

In fact, it’s not just the Android market that’s having a downturn, Apple is also having a hard time.

According to the news, Apple is cutting iPhone SE and AirPods orders one after another. Previously, Kuo Ming-Chi said: "The demand for the new iPhone SE is lower than expected, and the shipment forecast for 2022 has been reduced to 15-20 million (previously 25-30 million)."

Then, Kuo Ming-chi tweeted on April 6 that Apple plans to release AirPods Pro 2 in the second half of 2022 and stop production of the first-generation AirPods Pro. This is mainly because the sales of the previously released AirPods 3 were significantly weaker than those of AirPods 2, causing Apple to reduce its AirPods 3 orders by about 30% from the second to third quarters of this year.