China handset sales fall off a cliff

China handset sales are plummeting and it's not clear where the bottom is.

Total smartphone shipments sank 40.5% to 21.5 million in March, with 5G shipments down 41% to 16.2 million, according to state research organization CAICT. Across the full quarter, total smartphone and 5G shipments declined 29% and 23% respectively.

It may just be a pandemic-induced bump, but it may also point to a serious softening in demand.

To get a sense of how unsettling those numbers are for the industry, Rick Tsai, CEO of Taiwan handset chip firm MediaTek, told analysts that his company was expecting Q1 5G numbers to be 30% above the 2021 level.

Figure 1: SMIC, China's biggest chip foundry, has declared that demand for smartphones, PCs and home appliances has crashed.
(Source: Sipa US/Alamy Stock Photo)

A Morgan Stanley research note reported by Chinese media attributes the big fall-off to weaker consumer purchasing power as a result of the lockdowns, the lack of compelling 5G smartphone apps and functionality and the March launch of Apple's mid-range 5G iPhone SE, which likely depressed Android demand.

All that may be true, but the outlook is weak as well.

Taiwan research firm TrendForce last week lowered its forecast for Q2 smartphone production from 323 million to 309 million, citing the declining China market and warning that its forecast might be further revised lower.

Digitimes, another analyst firm, is predicting a 20% drop in Q2.

But the downward trend is also evident in the tepid demand for components.

Shanghai-based CINNO Research said China smartphone SoC shipments in Q1 were down 14.4% year-on-year and continue to fall on a sequential basis, with March shipments down 14.6% over February.

Demand has crashed

Ominously, SMIC, China's biggest chip foundry, has just declared that demand for smartphones, PCs and home appliances has crashed.

CEO Zhao Haijun told investors Friday that the Ukraine war and China's covid lockdowns had massively driven down demand for electronic goods, Nikkei Asia Review reported.

He said demand had "dropped like a rock," with some customers holding more than five months of inventory and no sign of an end to the downward trend.

Zhao said 200 million smartphone units "will disappear from the market" this year, the vast majority made by domestic Chinese phone brands.

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As Nikkei points out, SMIC's views are notable because it's the first big tech firm to report since the draconian Shanghai lockdowns began more than a month ago.

Zhao and the analysts agreed that the smartphone market outside China is still showing good growth.

But with consumer confidence ebbing and the lockdowns weighing on the slowing economy, a rebound in China's smartphone market looks to be some time away.

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— Robert Clark, contributing editor, special to Light Reading