Smartphone Market Entering Waning Phase
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
In contrast to the market expectation that global smartphone shipments will recover, we believe that the smartphone market has entered a period of decline, forecasting 2023 shipments of 1.2bn units (-4.4% y-y).
Just as smartphones drove growth in the IT device market in the 2010s, extended reality (XR) is expected to usher in a new growth era. We note that global IT giants such as Apple and major countries such as China are planning to designate and nurture the XR industry as a core sector.
In terms of investment, we expect earnings and share-price growth at the companies which have high exposure to Apple to stand out amid XR market expansion. At LG Innotek, a key camera module supplier for Apple, market share is steadily climbing. Solid earnings growth is anticipated to continue at the firm based on its competitiveness in cameras and 3D sensors for XR devices. We also draw attention to SEMCO, as the company is likely to play a key role in supplying parts for global IT firms’ XR devices over the mid/long term, despite sluggish short-term earnings due to slowing sales at SEC and Chinese makers.
I. Smartphone market entering waning phase
In our view, the global smartphone market has entered a waning phase, due to weakening competition amid a lack of innovation and market saturation. In addition, global macro uncertainties are weighing on smartphone demand. In 2023, we expect global smartphone shipments to contract 4.4% y-y to 1.2bn units. Over the mid/long term, the global smartphone market is highly likely to follow in the footsteps of the PC market of the 2010s.
II. Gap between Apple and Android OS-based smartphone makers to widen further
By company, SEC and Chinese smartphone makers are to continue booking sluggish sales, whereas Apple should see sustained market share growth thanks to continued hardware/software upgrades. For Android OS-based smartphone makers, limited smartphone upgrades and a higher sales portion of low/mid-end models present challenges. In contrast, Apple is forecast to continue reporting solid iPhone sales backed by continued hardware/software upgrades and product innovations.
III. Global IT firms and governments around the world looking to XR market
In the 2010s, when the PC segment began contracting, the smartphone segment drove overall growth in the IT device market. In the 2020s, the XR segment is expected to herald a new era, given that: 1) Apple and global IT giants are entering the XR segment in earnest; and 2) the Chinese government plans to foster the VR segment as a key industry.
IV. Top picks
We maintain a Positive rating on the handset/IT parts sector. Although the smartphone industry is forecast to slow over the mid/long term, valuations are at historical lows, and new devices such as XR headsets are already being rolled out with next-generation parts. In particular, we expect earnings and share-price growth to stand out at the companies which have high exposure to Apple, amid XR market expansion.