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China’s smartphone market prepares for reshuffling

Based on sanctions imposed on Huawei by the U.S. Bureau of Industry and Security on August 17, semiconductor components containing U.S.-originated technologies or software from September 15 onward can no longer be shipped to Huawei without permission from the U.S. Department of Commerce. TrendForce indicates that Huawei has been amassing a strategic reserve of components from U.S. suppliers since 2019 in hopes of lessening the impact of the tightening trade restrictions on its device production later on. According to TrendForce’s latest analysis, Huawei’s annual smartphone production for 2020 will still reach around 170 million units. This figure is a downward correction of about 10% compared with the earlier projection of 190 million units (based on the series of export control rules levied against the company on May 15). Later revisions to the brand’s annual production volume will depend on the sufficiency status of materials.

The lack of key components may affect Huawei’s manufacturing abilities in 1Q21

Regarding the smartphone market in 4Q20, since Huawei’s sales model is primarily focused on the Chinese market, its Chinese competitors including Xiaomi, OPPO, and Vivo may benefit from Huawei’s lowered production should the sanctions remain in effect. At the moment, the aforementioned three major brands are gradually increasing their production targets while aggressively stocking up on components in order to capture more market share. Of the three brands, Xiaomi has been the most aggressive in procuring components, followed closely by OPPO.

However, as foundries have been operating at maximum capacity utilization rates this year, with various levels of material shortage for components such as processors and panel modules, the three brands will likely have a hard time raising their production volumes in the short run. Therefore, TrendForce has not significantly altered its forecast of yearly smartphone production for the top four Chinese brands. In particular, Huawei is expected to maintain a 14% market share for 2020, whereas other the other brands are unlikely to raise their market shares by a remarkable amount. The market shares of Xiaomi, OPPO, and Vivo this year are projected to reach 12%, 11%, and 9%, respectively.

The global smartphone market is expected to increase by 9% YoY in terms of production volume for 2021, as competition in the Chinese market heats up

Likewise, Huawei is also facing the challenge of limited semiconductor production capacity. Because of the extremely tight grace period during which Huawei’s suppliers may ship to the company, it may face potential shortages in components such as processor chips, panel components, and camera modules. If Huawei’s component suppliers are unable to obtain the relevant licenses to ship to Huawei in a timely manner, then Huawei’s production volumes for late-1Q20 or for 2Q20 will be severely impacted. Looking ahead to 2021, Xiaomi, OPPO, and Vivo will be prompted to increase their production targets and thus obtain more resources from the smartphone supply chain due to Huawei’s impending market share loss as well as the overall shortage in foundry capacities. The scramble for smartphone components is expected to take place ahead of time, in 4Q20.

However, Huawei’s movement in the future remains extremely uncertain, while the growth of smartphone market demand is limited. TrendForce thus forecasts a 9% YoY increase in global smartphone production volume for 2021. Assuming that the overall smartphone market will not noticeably increase in size, competition among different brands will heat up even further, meaning the various brands’ market shares in the Chinese market will fluctuate wildly going forward.
CT Bureau

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