Weak demand, high inventory weigh on handset sector

The handset sector is in a trough of high inventory and weak demand that will likely last until well into the third quarter.

Q1 numbers from Canalys earlier this week showed a 12% fall in handset sales – the fifth consecutive quarterly decline.

The analyst firm said the lower sales were within industry expectations and were driven by local macroeconomic conditions and sluggish consumer demand, despite price cuts and heavy promotions from brands.

It said handset inventory could reach a relatively healthy level by the end of the second quarter, but it was still too early to predict the recovery of demand.

Figure 1: With global smartphone sales falling in Q1, big chip firms are trying to clear inventory.
(Source: JeongHyeon Noh/Alamy Stock Photo)

In the latest filing, Taiwan chip giant TSMC Thursday forecast a revenue dip in Q2 to $15.2 billion to $16 billion, down from $18.2 billion in the same period last year. Analysts had forecast $16.1 billion, Bloomberg reported.

TSMC, Apple's biggest chip manufacturer, said Q1 sales were down 19% compared to the December quarter, which it attributed to declining macroeconomic conditions, weak end-user demand and inventory adjustment by customers.

Sales of smartphone chips, which account for a third of revenue, dropped 27%.

Slow China recovery

TSMC CEO CC Wei told an earnings call it was taking longer than expected to clear the high inventory from late last year.

Instead of starting to fall, chip stocks in fact had continued to increase in the fourth quarter as a result of weakening economic conditions and softer demand, he said. Additionally, the recovery of end-user demand following China's post-covid re-opening was also lower than expectations.

"Therefore ... inventory adjustment in the first half is taking longer than expected and may extend into the third quarter this year before rebalancing to a healthy level," he said.

Bloomberg Intelligence said while TSMC faced weak or uncertain demand for smartphones and PCs, its outlook was boosted by soaring sales of high-end chips on the back of the AI boom.

Another big chip player, Samsung, is already moving to cut production after forecasting a 96% plunge in Q1 profit earlier this month.

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It said demand was impacted by deteriorating purchasing sentiment and the effects of inventory adjustments as well as the economic conditions.

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— Robert Clark, contributing editor, special to Light Reading