Component supply is the "new bottleneck" for the smartphone industry, according to Canalys, even though it says the pandemic "is subdued" as the vaccine roll-out continues around the world.
Of course, no-one knows whether the virus and its variants will cause new waves to emerge, but even so, Canalys Research Manager Ben Stanton said: "The smartphone industry’s resilience is quite incredible. Smartphones are vital for keeping people connected and entertained, and they’re just as important inside the home as outside.
"In some parts of the world, people have been unable to spend money on holidays and days out in recent months, and many have spent their disposable income on a new smartphone instead. There is strong momentum behind 5G handsets, which accounted for 37% of global shipments in Q1, and are expected to account for 43% for the full year (610 million units).
"This will be driven by intense price competition between vendors, with many sacrificing other features, such as display or power, to accommodate 5G in the cheapest device possible. By the end of the year, 32% of all 5G devices shipped will have cost less than US$300. It is time for mass adoption.”
So, what are the component supply bottleneck details?
We're told that component supply bottlenecks will limit the growth potential of smartphone shipments this year, with Stanton adding: "BBackorders are building. The industry is fighting for semiconductors, and every brand will feel the pinch.”
In recent months, Canalys notes "vendors redirected some allocation to other regions due to the COVID-19 outbreak in India, but this is not sustainable as the world returns to normal. Vendors will first turn to regional prioritisation, focusing the flow of units into lucrative developed markets such as China, the US and Western Europe at the expense of Latin America and Africa.
"But even in these better-served regions, they will still be constrained, and will then turn to channel prioritisation, pushing a greater allocation of units into fast-activation channels, such as carriers, and fewer into distribution and the open market. This will have interesting side-effects and may open doors for challenger brands to gain share in key open market channels if the incumbents are unable to fulfil."
Nicole Peng, Canalys VP of Mobility said: "The other angle to this is pricing. As key components, such as chipsets and memory, increase in price, smartphone vendors must decide whether to absorb that cost or pass it on to consumers.”
But as there are major constraints around LTE chipsets, this will cause challenges at the low end, where customers are particularly price sensitive. Smartphone vendors must look at improving their operational efficiency while lowering margin expectations in their low-end portfolios for the duration of the constraints, or risk haemorrhaging market share to their competitors.
Canalys refers to the pricing factor above, which I can only wonder if it also attributes to inflation, without stating the word, given global governments have, in unison, printed trillions of dollars out of this air to support their citizens and economies.
The impact is something we're seeing in Australia dramatically impact the price of real estate, but how soon this might impact on consumer electronics is yet to be seen, with those low margins of the low-end portfolios already very thin. I'm not an analyst or an economist though, so I can only speculate, but with the definition of inflation being an increase in the money supply, this will presumably only add to the pressures the world is facing.
Indeed, Canalys does state "the pandemic has caused permanent changes, which will shape the new normal for society, and the smartphone market."
Stanton added: “Channels had to transform or die during the pandemic, and this forced innovation. Developed countries have seen an online surge, which has forced retailers to reassess their offline footprints. As a result, many stores will close this year, and for those that stay open, their purpose will be reimagined for customer support and order fulfilment, as customers increasingly use multiple channels during the purchase process.
"Innovations driven by COVID-19, such as unified stock and delivery to car, are helping shift retailers toward their consolidated omnichannel vision. And centralised procurement will also give the channel more negotiating power with smartphone brands and may cause some retailers to attempt to bypass distribution to build new direct relationships. The new normal for the smartphone industry is as ruthless and competitive as the old one.”