China’s idling economy to slow down global smartphone market

The data: The economic downturn in China will be a factor in dragging down worldwide smartphone shipments in 2022. IDC’s latest forecast is pointing to a 3.5% global decline, per Bloomberg.

The world’s biggest smartphone market stumbles: When China falters, global markets feel the squeeze. China’s smartphone market is expected to shrink by 38 million units this year, down 11.5% YoY.

  • This represents four-fifths of the global shipment reduction volume behind Central and Eastern Europe, a market whose economy is clouded by ongoing war. 
  • COVID-19 lockdowns, surging inflation, geopolitical angst, record-high oil prices, and cooling consumer spending are compounding economic recovery in various countries.
  • IDC says Apple “appears to be the least impacted vendor due to greater control over its supply chain … and customers in the high-priced segment are less influenced by macroeconomic issues like inflation.”
  • Despite this, Apple has already taken a more conservative stance and is keeping iPhone production flat in 2022, producing 220 million iPhone units for the second year, per Bloomberg.
  • In contrast, Chinese smartphone makers are facing the worst drop in shipments since the pandemic started, a trend that is expected to continue until parts of China recover from the mandated two-month lockdown.

The bigger picture: China isn’t just the world’s largest market for smartphones—it is the key producer for various brands. The country produced more than 70% of the smartphones shipped to the US, per Canalys, and builds devices for brands like Vivo, Oppo, Huawei, Xiaomi, and others.

  • China’s economic recovery, or how quickly it can bounce back from factory closures and production slowdowns, will likely be a key indicator of return to growth for smartphone manufacturers.
  • IDC still expects a 5% growth in 2023 following various landmark smartphone releases, including a redesigned iPhone 14, Google’s flagship Pixel 7, and Samsung’s latest flagships and foldables. 

What’s next? The toll of inflation, the chip shortage, as well as increasing transport and storage costs due to oil price hikes will inevitably raise smartphone prices as a whole.

  • Price increases will come at a time when consumers are holding off on upgrades after their recent 5G transitions.
  • This is an opportunity for entry-level and mid-range smartphone manufacturers to grab a larger market share with affordable 5G-capable smartphones.
  • The void left by Chinese manufacturing slowdowns also leaves an opening for manufacturers in other countries to ramp up capacities to fill resulting backlogs.

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