Smartphone modem inventory supplied by Qualcomm and MediaTek could outpace smartphone sales through the first quarter of 2021 leading to a risk of inventory correction, a UBS analyst said Sunday.
“While UBS remains bullish on smartphone units in 2021, component inventory is being built now with heightened risk of correction,” UBS analyst Timothy Arcuri said in a note to investors.
Modems from Qualcomm and MediaTek, based in Taiwan, are estimated to grow up to 28% through the first quarter of next year, significantly outpacing smartphone shipments and sales for the same period. “We have not seen component inventory build to this degree,” he said.
The risk, as in any substantial inventory correction, is that OEMs like Huawei or Samsung would stop buying modems for a time, producing a down quarter or longer in that segment for the parts suppliers. When a buyer stops making orders it can take months to reach previous purchasing levels as electronics manufacturers take weeks to ramp up production again.
Arcuri has previously noted that China smartphone demand was “lukewarm” in the third quarter, but now believes iPhone sales and strong production from Chinese smartphone makers will last into the first quarter of 2021.
For all of 2021, UBS said 5G smartphones and the effect of post-COVID, as well as buyers replacing their older smartphones, will drive market improvement. UBS now is estimating for all of 2020 that smartphone shipments will decline 8% over 2019, while the levels will improve by 6% in all of 2021.
Last week, IDC put the improvement for smartphone shipments in 2021 at 4.4% compared to 2020. The research firm also said the global market is projected to grow 1.3% each year through 2024.
IDC also said the third quarter was stronger than expected and the fourth quarter will grow by 2.4%. The market rebound was due to an “impressively quick supply chain recovery” as well as incentives on new 5G products.
The recovery in China has been slower than anticipated due to weaker than expected demand for 5G, IDC said. Still, “5G is the driving force for the industry right now,” IDC said. The number of 5G smartphone shipments globally will reach nearly 10% in 2020 and grow to 29% in 2024. “Despite concerns about the lack of demand for 5G, it is apparent that the wheels are in motion to transition the mobile industry to the latest network technology,” IDC added.
“Competitive pricing will play an integrate role in shaping 5G development,” said Sangetika Srivastava, an IDC analyst. More affordable 5G phones will emerge, with IDC expecting average selling prices to drop by 25% each year, reaching $611 in 2020 and $453 in 2024.
UBS said its estimates for all of 2020 place Samsung at the top with 20% of the global market, with Huawei in second with 14.5% and Apple in third with 13.6%. Huawei is expected to drop dramatically in 2021 to just 3.5% of the market when more than 1.4 billion smartphones by all players will be shipped.