Handset Shipments in China Improves in April
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
In April, handset shipments in China improved on the back of smartphone subsidies and price discounts. In particular, shipments by multinationals (mostly Apple) climbed 44% y-y. Going forward, we see the possibility of a Chinese market recovery spreading to other regions. Overall, industry conditions look positive, in our view.
Effects of subsidies and price discounts confirmed
In April, smartphone shipments in China reached 40.78mn units (+17.2% y-y, +93.9% m-m), recording the highest monthly sales since Dec 2017. We primarily attribute this sunny result to: 1) 5G smartphone subsidies of 8~12% from the Chinese government and telecom operators; 2) discounts of 10~30% from smartphone makers, including Apple and Huawei; and 3) a recovery in consumer confidence. In particular, shipments by multinationals (mostly Apple) surged to 3.75mn units (+44% y-y, +30% m-m), driving overall growth.
We recommend LG Innotek, ITM Semiconductor, BH Flex, and Derkwoo Electronics as likely beneficiaries of recovering demand for Apple smartphones, and we are upbeat towards SEMCO and JNTC as expected beneficiaries of improving demand for Chinese handsets.
Of note, shipments of 5G smartphones grew sharply to 16.38mn units (+163.6% m-m), with the portion of 5G smartphones out of total smartphone shipments in China rising to 40.2%. We mainly attribute such growth to subsidies from the Chinese government and telecom operators. We anticipate that China’s 5G smartphone shipment expansion will accelerate (rising sales growth) in 2H20, in line with expectations laid out by Qualcomm in its FY2Q20 conference call.
China represents leading indicator for smartphone demand in other regions
We believe that smartphone sales trends in China following an easing in Covid-19 serve as leading indicators for global smartphone demand, as regions such as the US and Europe are likely to follow a similar path to China on the road to post-Covid-19 normalization. Anticipating that shipments in other regions will improve in May and achieve recovery in June, we expect global smartphone demand to normalize faster than many have feared, with overall industry conditions remaining generally favorable.