While laptop and game console sales remain solid for the time being thanks to demand from consumers looking to stay productive and entertained while stuck at home, the same can't be said for smartphone demand.
There are a couple of reasons for this. First, whereas many of the consumers buying game consoles in recent weeks didn't own one before, smartphone penetration rates are comfortably above 80% in most developed countries.
And whereas many of those working from home for the first time (or their employers) have felt that a laptop purchase was necessary for productivity reasons, not too many smartphone owners upgrade at this point because they feel that their existing phone isn't able to run popular apps well enough.
Rather, features such as battery life, camera and display size/quality improvements have been driving smartphone upgrades. For this reason, unless a user's smartphone has broken down or has been lost/stolen, smartphone upgrades have been viewed far more in recent years as discretionary purchases than as necessary ones (which, in turn, is a big reason why smartphone upgrade cycles have been gradually lengthening).
As a result, with the COVID-19 pandemic causing major job losses and taking a heavy toll on consumer sentiment, as well as making it impossible for many consumers to try out phones at retail stores, it's not surprising to see evidence mount that smartphone sales are taking a big hit.
Among other things, we've seen:
- A Korean media report stating that sales for Samsung's (SSNLF) Galaxy S20 line (launched in February) are much worse than year-ago sales for the Galaxy S10 line, and that Samsung has "radically cut its demand" for S20 components.
- A Reuters report stating that one of Apple's (AAPL) top contract manufacturers expects Apple's orders to be down 18% annually for the March quarter.
- Memory giant Micron (MU) states that (while it's seeing strong demand from laptop and data center clients) it expects smartphone, consumer electronics and automotive demand to be below prior expectations during the second half of its fiscal 2020 (ends in Aug. 2020).
- Research firm Strategy Analytics estimate that global smartphone shipments fell 38% annually in February to 99.2 million. With COVID-19 not having had a major impact on U.S. and European consumer spending until March, much of this decline was due to the pandemic's impact on Chinese production and demand.
One relative bright spot: On Tuesday, Chinese smartphone OEM Xiaomi said that China's smartphone market has "recovered to 80% to 90%" of normal levels. That said, a 10% to 20% sales drop is still far from ideal.
Also: Though time will tell how much the economic damage done by COVID-19 impacts demand, Bloomberg has reported that Apple's 2020 iPhone lineup is still on track to launch in the fall. The phones are expected to pack Qualcomm (QCOM) 5G modems, with flagship models also quite possibly containing a LiDAR scanning system similar to what Apple placed within its latest iPad Pros.
Regardless, as earnings season gets underway in a couple of weeks, investors in both smartphone OEMs and their chip suppliers should be ready to hear downbeat commentary about how near-term demand is trending.