Mizuho: Apple's strength in China looks to continue in 2H 2022

"Chinese mobile phone makers have struggled to stir excitement for their handset demand this year" -- Analyst Anthony Huang

From a note to clients that landed on my desktop Thursday:

China handset shipments up 9.2% y/y in June, marking the 1st y/y growth in 2022. China’s mobile phone shipments arrived at 28.0mn in June, +9.2% y/ y and +34.6% m/m, according to CAICT (China Academy for Information and Communications Technology). 34 new models were released in the month, up 6.3% y/y. 1H22 cumulative mobile phone shipments of 136.3mn were down 21.8% y/y, in which domestic brands were down 25.9% y/y while foreign brands were up 11.9% y/y.

The shipment growth in June was led by foreign brands such as Apple (AAPL US, NR) and Samsung (005930 KS, covered by MHSC analyst Marcus Shin) with 218% y/y growth to 3.5mn due to a very low base of 1.1mn in 2021. Domestic brands like Xiaomi (1810 HK, NR), Oppo, Vivo, Huawei etc however were still down 0.5% y/y to 24.5mn as the official data showed. We believe the bulk of the y/y rebound was from iPhones while Samsung no longer commands a significant share of the country’s mobile phone market. iPhone 13 sell-through demand appeared resilient per our industry survey, as the phones continued to be in the dominant position in the high-end segment without much competition from Android camp. Superior execution along Apple supply chain and good logistics management has also prevented inventory overbuild and destocking risks.

Chinese mobile phone makers have struggled to stir excitement for their handset demand this year with total shipments of 115mn in 1H22, down 25.9% y/y, although the number of new models released were down only by 1% y/y. Nevertheless, we saw a meaningful sequential recovery in June with +47.6% m/ m shipment growth driven by the lifting of COVID city lockdowns in Shanghai and Beijing, 618 shopping festival, and online retailers’ promotional campaigns in China.

Delayed upgrades from consumers, COVID lockdowns, and macro slowdown have caused lackluster handset demand in China. While we expect domestic brands to launch more new models in the coming months, such as Xiaomi’s latest release of 12S series with top-notch 1” CIS from Sony (6758 JP, covered by MHSC analyst Yasuo Nakane) and Leica cameras, these brands’ order placement at component makers are generally conservative, implying conservative outlook with a low demand visibility. Although we expect gradual recovery in 2H from the trough in 2Q, handset supply chain inventory adjustment is likely to bring more moderate seasonal uptrend for the smartphone value chain in the coming couple quarters, especially for Android camp. As for iPhones, EMS in general expects stable 3Q despite upcoming new product launch in Sep/Oct timeframe.

My take: Good for Apple. Not so good for the rest. I almost feel for Samsung.

8 Comments

  1. Jonny T said:
    Samsung deserves no sympathy PED. Perhaps go back and read your own posts to remind yourself!

    1
    August 4, 2022
  2. Gregg Thurman said:
    Now THAT’s a research note. Well written, informative and devoid of speculation. I especially liked how Huang put percentage growth analytics into context by also referring to prior year numbers.

    I’d like to see more from this analyst.

    On a side note. I hadn’t realized just how bad the performance on my XS had deteriorated, until Apple Store replaced it with a “new” one. The performance degradation must have been going on for a very long time. I’m now questioning my need to upgrade to the iPhone 14. If I wait for the 15, my XS will be 5 years old.

    The issue now is what the 14 will offer, that I can’t live without, beyond 5G, and even that offers dubious benefit as my year old iPad Pro (that is always with me) has 5G.

    I’m thinking 5G won’t come into its own until mmw5G is ubiquitous. Another 4-5 years?

    0
    August 4, 2022
    • Roger Schutte said:
      Greg, the improvement in the camera(s) and the computational photography that’s going on in the iPhone 13 was noticeable when I upgraded from the XS. My grandkids are even cuter now.

      4
      August 4, 2022
  3. Rodney Avilla said:
    “Samsung no longer commands a significant share of the country’s mobile phone market”

    I would have liked to see what their share was and is.

    Also domestic companies sell 8 phones for each foreign phone (iphone) sold (if I have the numbers right). That tells me Apple has LOTS of room for growth.

    And no, no matter how hard I try, I can’t seem to feel sorry for Samsung.

    4
    August 4, 2022
  4. Jerry Doyle said:
    I disagree respectfully with my fellow FOBs relative to my feelings toward Samsung. Apple needs a viable Samsung for Apple to remain competitive and innovative. Samsung is a good and competitive company. Samsung causes Apple to sit-up and take notice. If Apple slips, Samsung stands ready to exploit the advantage of that error. The day Samsung declines in computer product development is the day most likely Apple begins a subtle weakening respectfully, in its own computer product development. What makes LSU a formidable powerhouse as a football team is knowing down the road it has to confront the Crimson Tide. It is no different in capitalism between companies in their respective industrial sectors.

    3
    August 4, 2022
  5. Fred Stein said:
    The lack of a foldable phone has not hurt Apple. Or rather, it’s not important enough to cause consumer to switch to Android, nor to defer upgrading an iPhone.

    Nor apparently has the Galaxy Fold 3 helped Samsung.

    2
    August 4, 2022
    • Jerry Doyle said:
      Samsung’s phablet was wildly popular and did hurt Apple who was late to the game with a larger phone, believing that such an expansive device was not needed or desired until Samsung proved correctly Apple was wrong. Competition “always” breathes excellence.

      1
      August 4, 2022
  6. Greg Lippert said:
    Competition makes everyone better and there’s ample room for multiple players. And Samsung also makes some key tech that is in every iPhone – for example, screens.

    Plus, who else can we make fun of?!?

    3
    August 5, 2022

Leave a Reply