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Can Smartphone Market Rebound in 2020? AAPL & More in Focus

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The global smartphone market is poised for a rebound in 2020 after enduring setbacks in the last three consecutive years.

Economic volatility in the global market due to the Sino-US trade tension has been a key threat to smartphone growth. China being the largest smartphone market in the world, a lull in its domain has affected global growth significantly.

Notably, leading smartphone vendors namely Apple (AAPL - Free Report) , Samsung (SSNLF - Free Report) , Motorola (MSI - Free Report) among others persistently suffer the spell of weakness in China’s smartphone market.

Also, in the second quarter of 2019, Huawei’s smartphone sales in the global market sharply declined due to the ban imposed by the U.S. government, observed Gartner.

Moreover, with users hoarding onto their phones for a longer period, shipments continue to be impacted. Sluggish demand for high-end smartphones has been a major headwind.

Will Fortunes Favor in 2020?

Per a recently released report on the global smartphone market by International Data Corporation (“IDC”), while shipment volumes are likely to dip 2.2% year over year in 2019, the same is projected to inch up 1.6% in 2020.

IDC believes that aggressive promotions and offers in the second half of this year will help clear out channel inventory and excite consumers regarding the next wave of smartphone technology, which will lead the market toward renewed growth.

Moreover, IDC is optimistic about the growing deployment of 5G technology in 2020. The firm expects 5G shipments to reach 8.9% of smartphones shipped next year, accounting for 123.5 million devices shipped. IDC forecasts worldwide smartphone shipments to scale to 28.1% by 2023.

Furthermore, addition of premium features, such as “multilens front/back cameras, bezel-less displays and large batteries” to lower-priced models is likely to boost demand for midrange and low-end smartphones.

Attractive devices from Samsung, Huawei, Xiaomi, Oppo and other small and big players are something to look forward to in this space.

How Are the Vendors Faring?

Samsung has maintained supremacy and saw a growth revival in the second quarter of 2019 per Gartner. On a year-over-year basis, the company increased its market share by 110 basis points to 20.4%.

It is benefiting from its recently launched Galaxy A series smartphones. Further, the revamp of its entry-level and midrange smartphones has also been a tailwind. However, declining demand for its flagship Galaxy S10 is a key challenge in 2019.

Apple’s excessive dependence on iPhone poses a risk to overall growth. Although iPhone sales have been gaining traction from higher average selling price (ASP), steep pricing has been blamed for Apple’s dwindling market share in countries like China and India. Moreover, customers are holding on to their older iPhones for a longer duration due to improved battery and iOS12 support. This has negatively impacted upgrades in developed countries.

Per IDC, volumes of iPhone shipments are expected to contract 14.8% year over year to 177.9 million in 2019. Maturity in the market and lack of 5G devices are likely to make 2019 a bumpy, “challenging” ride for the company.

However, given the company’s better understanding of the 5G market conditions, the launch of 5G handsets later in 2020 is likely to pick up shipments, adds the firm.

Apple Inc. Revenue (TTM)

Apple Inc. Revenue (TTM)

Apple Inc. revenue-ttm | Apple Inc. Quote

Alphabet’s (GOOGL - Free Report) Google forayed into the smartphone space much later compared with peers like Apple and Samsung. Nonetheless, the company’s innovative skills, robust voice assistant and a widely preferred Android operating system worldwide will steadily aid its Pixel phones’ advancement.

By beefing up its product portfolio with the expected launch of its latest Pixel smartphones by October, the company is anticipated to rapidly penetrate the smartphone market.

Further, on the basis of operating platform, Android consistently dominates the market. Per IDC, Android's smartphone share will increase from 85.1% in 2018 to 87% in 2019, primarily owing to “5G launches and expedited inventory cleanup of older devices”. Volumes are projected to witness a five-year CAGR of 1.7% with shipments of 1.3 billion in 2023.

Additionally, the availability of new devices in the second half of 2019 is likely to boost Android ASPs by 3.2% year over year in 2019 to $263, notes the firm.

Alphabet Inc. Revenue (TTM)

Alphabet Inc. Revenue (TTM)

Alphabet Inc. revenue-ttm | Alphabet Inc. Quote

Zacks Rank

While Alphabet has a Zacks Rank #2 (Buy), Apple and Samsung carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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