Global Smartphone Market Likely to See Recovery from June

The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.

 

Qualcomm achieved healthy FY2Q20 earnings, backed by an increase in chip sales on rising 5G smartphone shipments and M/S growth. While demand is likely to slow for the time being, solid 5G smartphone shipments and the possibility of a quick recovery in the future look positive.

Reports better-than-expected earnings and guidance

We view Qualcomm’s FY2Q20 earnings as implying that: 1) global smartphone demand is plummeting due to the impact of Covid-19; 2) 5G smartphone shipments remain better than feared; and 3) as confirmed by the Chinese case, demand may improve faster than expected when entering the stabilization phase of Covid-19.

Qualcomm’s FY2Q20 EPS beat consensus by 13%. We attribute this sunny result to the fact that: 1) despite slowing global smartphone demand (-21% y-y), its revenue per MSM increased to US$32 (+36.8% q-q) on 5G smartphone shipment growth; and 2) it has increased its M/S in the early 5G smartphone market. While the firm’s FY3Q20 guidance is slightly below consensus, it remains better than many had feared.

In its earnings call, Qualcomm said that it expects 2020 handset shipments to fall by about 30% y-y, while sticking to its original 2020 forecast for 5G smartphone shipments of 175mn~225mn units. It also mentioned that, given China’s pace of recovery, the global smartphone market should see a slight recovery from June.

5G smartphone market expansion and rapid demand recovery look positive

We expect smartphone shipments in 2Q20 to decrease by about 30.4% y-y. In the short term, demand slowdown looks inevitable, but as Qualcomm mentioned, China will likely remain committed to expanding shipments of 5G smartphones, and smartphone demand should be able to recover quickly once the Covid-19 situation stabilizes.

 

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