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Handset/IT Parts Industry: Xiaomi Expects Sluggish 1H20 Sales
Smartphone Sales Expected to Reach Lowest Level in 2Q20
Handset/IT Parts Industry: Xiaomi Expects Sluggish 1H20 Sales
  • By Lee Kyu-ha
  • April 2, 2020, 18:14
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The author is an analyst of NH Investment & Securities. He can be reached at -- Ed.


In its 2019 earnings call, Xiaomi forecasted sluggish 1H20 smartphone sales due to Covid-19. However, it also mentioned that if the Covid-19 outbreak subsides, a quick recovery looks possible. We believe that domestic smartphone-related plays will inevitably be hit in 2Q20 as well.

Covid-19 to drag down 2Q20 smartphone sales

Xiaomi has announced strong 4Q19 sales, exceeding the market projection. While smartphone sales fell 4.6% q-q and gross margin narrowed 1.2%p q-q due to increased marketing expenses, IoT sales climbed 24.9% q-q, leading Xiaomi’s overall earnings.

During the conference call, questions mainly focused on Covid-19 impacts. Key takeaways include the observation that: 1) smartphone production has returned to 80~90% of pre-Covid-19 levels in China, with shipments increasing rapidly since end-March as demand recovers; but 2) the Indian and European markets have recently begun to feel the negative effects of Covid-19 in earnest.

Regarding future business conditions, we expect smartphone sales to reach their lowest level in 2Q20, particularly over April~May. However, we note that Xiaomi mentioned the possibility of a faster-than-anticipated recovery in 2H20 driven by pent-up demand, similar to that currently being witnessed in China.

Domestic smartphone manufacturers inevitably to face negative effects in 2Q20

With sales of Samsung Electronics (SEC)’s smartphones (for which Europe and the US are major markets) likely to record a sharp drop from March due to the Covid-19 outbreak, domestic parts makers will almost certainly see negative effects (eg, reduced orders for parts) from 2Q20.

Given that global smartphone demand recovery is likely to hinge upon a slowdown in the spread of Covid-19, it appears necessary to be conservative in estimating smartphone sales volumes. By scenario, we size SEC’s 2020 smartphone shipments at 240.9mn units (-18.8% y-y) under our base case scenario, 222.9mn units (-24.9% y-y) under our bear case scenario, and 261mn units (-12.1% y-y) under our bull case scenario.