Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
Kayla Matthews
The first quarter of 2020 has represented a historic low for the smartphone industry. While some technology sectors, like cloud services, have excelled amid the coronavirus pandemic, the mobile industry has not. As Covid-19 continues to spread throughout the globe, it's causing substantial economic effects on smartphone companies.
Counterpoint Research reports a 13% year-over-year loss in Q1 for the smartphone market, its fastest decline in history. This sharp drop is the result of a variety of factors, from changing demand to production issues. While not all changes in the industry are consistent, most companies are dealing with similar problems.
1. Falling Demand for New Phones
The most notable of all of Covid-19's effects on the industry is a falling demand for new smartphones. It's not that the outbreak has rendered smartphones less useful, but the ensuing recession changes consumers' priorities. In the face of economic distress, people won't likely buy a new phone unless they need one.
In the U.S. alone, unemployment has reached 14.7%, the highest it's been since the Great Depression. With more than 20 million people without a consistent income, fewer consumers will consider an upgrade they don't need. Even those with job security may hold off on these purchases in light of the growing economic uncertainty.
2. Declining Production
Cell phone sales aren't the only falling numbers in the mobile industry right now. Smartphone manufactures have rolled back production in light of the pandemic. Declining revenue and shutdowns over health concerns have severely hindered smartphone production.
According to Korean news sources, Samsung has reduced its monthly production to roughly 10 million units in April, less than half of its average monthly output. As factories in Brazil and India shut down, they wouldn't be able to maintain normal production levels even if it were economically viable.
3. Rising Smartphone Usage
Despite these dropping production and sales figures, smartphone usage is experiencing higher levels than usual. Many businesses now rely on instant messaging, and individuals in quarantine spend more time on social media. Amid the pandemic, smartphones have become a more prominent asset than ever before.
This increased usage can translate to some small financial gains for smartphone companies. App sales and accessory purchases could likely rise, and cellular service providers certainly benefit from growing data consumption. However, these gains don't represent enough profit to offset the declining sides of the market.
4. Changing Market Shares for Manufacturers
The data in Counterpoint's report indicates some shifts within smartphone market shares. All phone vendors and manufacturers are experiencing an economic drought, but not all are experiencing it equally. In Q1 of 2019, Samsung had a 21% market share, which has dropped to 20% in Q1 of 2020.
While Samsung's share dropped, Huawei's remained the same, and Apple's increased by 2%. All of these companies report fewer shipments between 2019 and 2020, but this decline is disproportionate between them. As the outbreak continues, it could cause some more notable changes in standing in the smartphone market.
5. Mixed 5G Adoption
Before the pandemic struck, the mobile industry was rushing to bring 5G networks and technologies to market. With declining revenue and a shrinking market, this shift is less likely to take place soon. Companies like Verizon and Apple have already delayed upcoming releases of 5G devices and services.
5G in manufacturing may experience the opposite effect as the advantages of the IoT become more prevalent. More manufacturers could adopt 5G services to sustain their increasing automation in light of the virus. Consumer adoption, on the other hand, won't happen as soon as companies initially thought.
Will the Smartphone Industry Recover?
The coronavirus pandemic has not been kind to most of the smartphone industry, but it's not enough to end it. In today's increasingly digital world, these devices have become less of a luxury and more of a necessity. The industry will recover after the outbreak subsides, but it likely won't be immediate.
The smartphone industry's losses have been too substantial for quick restoration. If the pandemic goes on for too long, smaller companies may not survive the ongoing production and sales drops. Like the virus itself, though, the results remain uncertain for now.
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