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© Trendforce Analysis | August 29, 2018

Intensified competition among smartphone companies

TrendForce expects global production volume of smartphone to grow by 6% QoQ in 3q18; Huawei would overtake Apple to become world's second largest smartphone vendor for two consecutive quarters.
The global smartphone market has been growing in 2Q18 driven by the launch of new models by Chinese smartphone brands and the brands’ strong sales in overseas markets, according to TrendForce. As the result, the production volume of smartphone grew by 3% QoQ, reaching 352 million units in 2Q18, and is expected to grow by another 6% QoQ to reach 373 million units in 3Q18 driven by the holiday sales in the peak season.

The global smartphone market will be flat this year or have only marginal growth due to the weak momentum, approaching the market saturation. Smartphone brands have been making every effort to boost the demand and expand their market shares. However, the tension between China and the U.S. may lead to rising costs for components and higher prices for smartphones as a result. This will also influence the shares of smartphone brands in the global market, some brands would be forced to exit from the market faster due to the pressure from cash flow.

Samsung remained the top smartphone vendor but encounters setbacks in the Chinese market

TrendForce notes that Samsung and Apple remained the leader of the global smartphone market, ranking first and second place respectively. In 2Q18, Samsung’s production volume of smartphone grew marginally QoQ to 74.4 million, but the figure represented a 7% decrease YoY. As for 3Q18, Samsung is expected to produce no less than 70 million smartphones with a market share lower than 20%. Although its Note 9 flagship series has been launched earlier to boost the sales, the models are not expected to trigger much demand as the series’ overall specifications are not much different from the previous generation.

As for the future, compared with other Android smartphone vendors, Samsung also faces two problems which influence its business. First, while Chinese brands actively explore lower end and emerging markets, it is relatively difficult for Samsung to develop new business fields, because it has already had a complete deployment in segments of all levels. Second, Samsung’s share in the Chinese smartphone market has decreased to only around 2%, due to the fierce competition with China’s domestic brands.

Apple fell to the third place with a production volume of 41.9 million units in 2Q18, ranking after Huawei, since the consumers tend to have a conservative attitude during the transitional period of two generations of iPhones. Despite Apple’s three new models to be launched this fall, the production of new iPhones is mainly scheduled in the fourth quarter, so the new series would make a limited contribution to Apple’s growth in the third quarter. The company is expected to produce 43 million smartphones in the third quarter, a QoQ growth of 3%. Huawei would overtake Apple to become the world's second largest smartphone vendor for two consecutive quarters. For the whole year of 2018, the production volume of iPhones would have only a marginal growth less than 3% compared with 2017, while the tension in US-China trade would bring more uncertainties to the sales of iPhone.

LG produced 11.5 million smartphones in 2Q18, and the production volume is expected to grow by 10% to 12.8 million units in 3Q18, due to the holiday sales in North America at the year end. As for Sony, its market share has been shrinking due to the high performance-price ratio of Chinese brands. In addition, Sony has adopted a different product strategy in recent years, with a focus on mid to high-end models which have higher profit margins. As the result, Sony produced only about 2 million smartphones in the second quarter of this year.

Nokia has a constant growth of smartphone production volume over the past quarters after building the partnership with FIH Mobile. Nokia not only benefited from the bargaining power of FIH Mobile, but also made use of the long-established reputation and distribution channels of its own. For the second quarter, Nokia's total production volume is about 5.2 million, and the number in 3Q is estimated to remain flat as in 2Q18.

As for HTC, whose market share has been decreasing since 2016, it has launched new models less frequently and has outsourced an increasing amount of manufacturing to OEMs in order to reduce costs. Thanks to demand from North America in 2Q18, HTC’s production volume recorded 600,000 units, higher than that in 1Q. TrendForce notes that HTC may seek for other opportunities for development in the future, such as 5G. It is worth observing that whether HTC could make more achievements with the development of 5G smartphones.

Intensified competition would eliminate brands faster in the market; Huawei, Xiaomi, OPPO and Vivo have remarkable performances

Faced with intensified competition, Chinese smartphone brands have been growing rapidly driven by their active exploration of new markets, simplified sales channels, and adoption of both online and offline sales modes. Most importantly, their flexible pricing strategies focus on a high performance-price ratio, as well as a wide range of products and prices, which enable Chinese smartphone brands to succeed in new markets. For the whole year, these Chinese brands are expected to achieve a combined share of 54% in the global market. However, the overemphasis on high performance-price ratio has been squeezing the profits for these brands. Consequently, some brands would be forced to exit from the market faster due to the pressure from cash flow.

Although Huawei’s expansion in overseas markets has met some setbacks in North America, its Honor models have successfully presented the brand in the European and Indian markets. According to TrendForce’s forecast, Huawei’s production volume increased by 32% YoY to 44.35 million units in 2Q18, surpassing that of Apple. Going forward to the third quarter, the sales of flagship models may drive the production volume to grow by 5% QoQ and 14% YoY, which enable Huawei to retain the second place in the ranking with a market share of 12.5%.

Xiaomi registered 31.5 million units in smartphone production for 2Q18, a record high. It also recorded remarkable shipments in India market. For 3Q18, Xiaomi will maintain the strategy of building an ecosystem and offering products with high performances at affordable prices, and would probably achieve a large QoQ growth of 17% in production volume, with a market share of 9.9%, ranking the fourth.

As the demand across distribution channels recovered in 2Q18, the production volumes of OPPO and Vivo have returned to a normal level. Looking ahead to 3Q18, their total production volumes are estimated to be 34.2 million units and 27.3 million units respectively driven by the release of flagship models. Moreover, Vivo has focused on overseas markets and explored emerging markets like India. Based on its performance in 2Q18, Vivo has become the third largest smartphone brand in India, following Xiaomi and Samsung.
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November 14 2018 11:24 am V11.8.1-1