The worldwide deployment of 5G is expected to provide one of the strongest tech narratives in the early years of the new decade. The roll out is still in its initial phase and it appears full integration might take a little longer than expected.
China, the world’s largest smartphone market is expected to lead the way in the deployment of 5G networks. It is estimated the superpower will spend a massive $180 billion on 5G infrastructure in the coming years. But according to Rosenblatt’s Jun Zhang, Chinese OEMs (original equipment manufacturers) might be cutting down near-term forecasts for sales of 5G enabled phones.
“We expect Chinese OEMs in the first half of this year to be very conservative and target 25 million 5G smartphone shipments. We believe the overall smartphone market will drop ~5% y/y in 2020. We expect more component order cuts in the next a few weeks before the Chinese New Year on January 25th,” Zhang said. (To watch Zhang’s track record, click here)
Chinese OEMs launched several 5G smartphone models in November and December but sales have been slower than expected. Furthermore, 4G smartphone demand has also been impacted. It is possible consumers are anticipating 5G smartphones prices to further come down, and demand might slow down in Q1 and Q2 due to the ongoing transition from 4G to 5G.
The recent OEM cuts are likely to affect several US companies who rely on the Chinese market. Huawei provides chipmaker Skyworks (SWKS) with roughly 12% of its total revenue. The company was also affected by the US-China trade war, which impacted on Skyworks’ Huawei business. Qorvo (QRVO), a provider of radio-frequency (RF) solutions for smartphones and IoT devices, is also set to feel the impact of the order cuts, as Huawei’s contribution made over 15% of QRVO’s revenues in FY2019. The company, though, is expected to benefit from its relationship with Samsung, so might feel the impact to a lesser extent.
The second half of 2020 could see demand for 5G smartphones ramp up following improved network coverage due to a second round of 5G network deployments in China.
The transition from 4G to 5G appears to be slower than from 3G to 4G for a variety of reasons; while the 3G to 4G upgrades was accompanied by a number of tangible features including screen and cameras, the new upgrade is more infrastructure based and harder for the casual consumer to gauge as of yet.
According to Zhang, we might have to wait a little longer to feel the full extent of 5G’s impact, “Based on our observations of initial 5G smartphone sell-throughs in China, we do not expect a big 5G smartphone upgrade cycle in both the US and European markets in 2020 due to less smartphone competition and slower than expected 5G network deployments in 2020,” said the analyst.
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