Major Chinese smartphone makers including Xiaomi, Oppo and Vivo are cutting their shipment targets for this year by up to 30%, with a memory chip shortage dealing a direct blow. By contrast, Samsung Electronics (005930.KS) is expected to reap the benefits. Nikkei reported Tuesday that the Chinese companies had notified suppliers of the changes.
Xiaomi, the market leader, was the first to falter. Earlier this year, it lowered its target to 135 million units from 170 million the previous year. Recently, parts shortages and surging prices disrupted its development road map and shipment plans, prompting another cut of 30%, to about 95 million units. Nikkei reported that Xiaomi, the world's No. 3, warned of further reductions if the supply chain does not improve.
Oppo and Vivo also lowered their expected sales to below 90 million units. Honor, which hit a record high of 71 million units last year, notified suppliers that maintaining its growth pace this year would be difficult.
"Most Chinese clients are assuming a 15% drop in shipments as a baseline, and some see declines of 20% to 30% or more from late-year projections," an executive at one component company said. "Xiaomi is the biggest concern," he added. "As supply constraints and rising costs intensified, projections fell sharply after March."
By contrast, demand in China's after-sales service market and for refurbished-phone components rose this year. With prices broadly higher, consumers are keeping their phones longer than expected. "It is extremely difficult even to plan next year's new product launches," an official at one Chinese company said. "We have no way of knowing how we will secure the parts we need." Beyond memory, certain printed circuit boards and supporting chips are also in short supply.
The root of the crisis is artificial intelligence (AI). As component production concentrates on building AI infrastructure, supply for smartphones has dried up. The PC industry faces the same pressure. PC makers have raised prices to reflect higher chip and component costs, and Apple has announced it will raise prices for the MacBook and iPad due to memory price increases.
Counterpoint Research projected that the component crisis would shrink the global smartphone market by 14% this year, the largest decline on record. IDC also forecast a 14% drop. The Android camp, including Xiaomi, Oppo, Vivo and Honor, is expected to decline by up to 21%.
Samsung is different. IDC analyzed that Samsung, focused on premium smartphones and well-positioned to secure memory, is in a position to take market share from rivals.
The blow is concentrated on budget and mid-range makers. Another component company executive said that rising prices for parts such as memory chips are a particularly heavy burden for budget and mid-range phone makers. "Our main customers are price-sensitive consumers, so it is hard to pass on costs directly," he said. "Cutting production is the best option; otherwise, the more we sell, the more we lose."
