Slow work resumption and weak demand, how big is the impact on Apple, Huawei, Samsung

“Although some mobile phone production lines have been transferred to Vietnam, India and other countries, the supply system has always been in China. The supply system is more valuable than the assembly line. We must cherish the hard-won supply chain, restore it as soon as possible, and maintain our advantages.” Chang Wang Jianzhou told China News Weekly.

The new crown pneumonia epidemic has made the already difficult mobile phone market worse.

In recent years, the smartphone market has been declining, the replacement cycle of technology products has been prolonged, the innovation of smartphones has slowed down, and market competition has become increasingly cruel. Under the epidemic, users stayed at home, stores were closed, logistics stopped, and supply chain manufacturers delayed resuming work. Difficult problems followed one after another.

MWC 2020, an event in the field of mobile communications that was originally scheduled to be held on February 24, announced the cancellation. The normal production and sales rhythm of mobile phone manufacturers was disrupted, mobile phone shipments began to shrink, and offline new product launches were converted to online live broadcasts. On February 24 alone, Huawei, Honor, and Realme all held online global conferences in different regions, and all new products appeared.

Mobile phone sales have also shifted to the front line, with various mobile phone manufacturers introducing online booking, offline delivery, full disinfection, and contactless delivery methods. And Apple, Huawei, Xiaomi and other top manufacturers are also looking for sources of income other than mobile phones, and overseas expansion and software services have become the main points of force.

Slow resumption of work and weak demand

IDC, a market research organization, believes that in the first two weeks of January 2020, although the overall market performance has improved year-on-year, due to the impact of the epidemic, the Spring Festival holiday, which should be the peak sales season, suffered a “cold market.” The domestic mobile phone market from January to February will face a Sharp decline of about 40% year-on-year, and even if the epidemic is controlled in March, the market will not be able to return to the same period last year. The domestic mobile phone market will decline by at least 30% in the first quarter. As the product rhythm returns to the right track, market demand will begin to release. The market is expected to rebound in the second quarter and the second half of the year. The total annual shipments are expected to decline by 4%.

The China Academy of Information and Communications Technology issued a report on February 24, stating that in January 2020, the total domestic mobile phone market shipments were 20.813 million units, a year-on-year decrease of 38.9%, of which 5.465 million 5G mobile phones accounted for 26.26% of the total shipments. The shipment of domestic brand mobile phones was 18.319 million units, a year-on-year decrease of 42.9%, accounting for 88.0% of the mobile phone shipments during the same period.

IDC believes that the impact of the epidemic has delayed the resumption of factory work, and the ability of mobile phone manufacturers to adjust their supply chains will be tested. Small and medium-sized participants in the mobile phone industry, especially retail channel partners, face shocks and even reshuffles during the epidemic, which will have uncertain effects on the mid- to long-term performance of the domestic mobile phone market.

Both ends of the supply and demand of the mobile phone industry chain are affected. Yang Xin, a researcher at the China Merchants Bank Research Institute, believes that on the demand side, mobile phones have certain optional consumer attributes. With offline channel sales still dominating, the panic caused by the epidemic and the frequency of going out are reduced, restraining some consumers Replacement requirements. The epidemic has led to an economic downturn, which will cause some consumers to lose income and even lose their jobs, and their spending power will decline, which in turn will affect the consumption of mobile phones. It is expected that domestic smartphone shipments will decline by 5% year-on-year in 2020.

On the supply side, Hubei’s local mobile phone assembly capacity is relatively small, but the provinces surrounding Hubei such as Henan, Jiangxi, and Hunan have the main production bases of mobile phone industry chain companies such as Foxconn, Oufeiguang, and Lens. Guangdong and Zhejiang are also major mobile phones. Industrial chain base. At the same time, the automation of mobile phone industry chain companies is generally not high, and the number of workers is large. The epidemic has affected the resumption of work in many companies, which may have a significant impact on the global mobile phone industry chain. In addition, the transportation capacity of many parts of the country has been greatly affected, the transportation time of some raw materials has been extended, and the supply of raw materials has become a disturbing factor.

Revenue is less than expected, vendors are struggling to resume work

In fact, Apple’s mobile phones are facing more intense impact from mainland manufacturers.

On January 28, Apple announced its first-quarter revenue forecast of $63 billion to $67 billion. Today, although all 42 of Apple’s previously closed physical stores in mainland China are gradually resuming operations, Apple stated in a notice on February 17 that due to weak demand in China and temporary shortages in the global supply chain, factories have resumed operations. Slow, sales are blocked, and revenue in the first quarter is expected to be lower than expected. After this news was announced, Apple’s stock price plunged instantly.

China is Apple’s largest production base, and more than 99% of Apple mobile phones are produced and assembled in China. According to Apple’s latest financial report, North America, Europe, and China are its three major markets, accounting for 45%, 25% and 15% of revenue respectively. Foxconn is the world’s largest Electronic product foundry company, and Apple of the United States relies on it to produce mobile phones and other products. It is difficult for Foxconn to resume work on a large scale, which will inevitably affect the production of Apple mobile phones.

In order to encourage current employees to return to work faster, Foxconn employee incentive bonuses have been increased. The Shenzhen Park interviewer stated that new employees before March 31 will receive an entry bonus of 7,110 yuan, which is only for the iDPBG and iDSBG departments responsible for Apple’s mobile phone and tablet business. Previously, 15,000 places have been fully reported, and 500 places were released in 10 minutes on the 24th. It is understood that the Shenzhen Park and Zhengzhou Park are Foxconn’s two largest factories in the Mainland, with a total of more than 400,000 employees.

According to a UBS research report, Apple’s mobile phone sales in January fell 28% from the previous month. UBS analyst Timothy Arcuri believes that the supply and demand problems caused by the epidemic may make February’s sales figures worse. Apple’s recovery in the June fiscal quarter depends more on the demand side and is difficult to predict.

Samsung, which sits firmly on the top of the world’s largest mobile phone manufacturer, has also been hit by the epidemic. In October 2019, Samsung closed China’s last mobile phone factory in Huizhou, Guangdong, and switched to foreign mobile phone production lines. Recently, Samsung’s Galaxy Z Flip South Korea factory was forced to temporarily shut down because an employee was diagnosed with a new crown virus infection. This factory in Gumi City, South Korea is mainly responsible for the production of Samsung’s folding screen mobile phones, including Samsung Galaxy Z Flip and Galaxy Fold.

Previously, Vietnam’s Ministry of Industry and Trade stated that the country’s manufacturing industry is facing supply chain issues caused by the new coronavirus epidemic, which may cause delays in the production of Samsung’s new mobile phones. Due to the large reliance on China for materials and equipment, this makes the country vulnerable to the outbreak.

As for Huawei, it has recently officially promoted Huawei’s mobile services (hereinafter referred to as HMS) and AppGallery to overseas markets. As HMS’s overseas ecosystem has just started, many contents and functions need to be improved. Strategy Analytics predicts that in 2020, overseas sales of Huawei smartphones will decline by more than 50% year-on-year, and the decline in Western Europe will be even greater.

On February 13, Xiaomi, which launched the first shot of the 2020 mobile phone online conference, officially released the 5G flagship Xiaomi Mi 10 series mobile phones. Huajing Securities analyst Zhou Yating believes that Xiaomi’s smartphone business is difficult to maintain a gross profit margin of 8% to 9%, because the construction process of China’s 5G base station may be delayed, which will affect the application of 5G smartphones and give Xiaomi’s smartphone business a boost. The average selling price pressure will come, and additional operating costs may be incurred during the epidemic.

Strategy Analytics released a report stating that 70% of the world’s smartphones are manufactured in China, and quarantine restrictions have caused delays in the start of factories and a shortage of labor supply, which will affect the global smartphone supply chain and manufacturing capacity. In the first half of 2020, Huawei, OPPO, vivo and Xiaomi will face the risk of declining demand in the domestic market, and the expansion of overseas markets will also be affected by production capacity and travel bans. In addition, international brands including Apple will also suffer from insufficient production capacity and face the risk of declining demand in the Chinese market.