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Inflation to kill growth prospects for smartphone sales

Buy a new phone or pay food and household energy bills? Shipments to crash in 2022

Smartphone shipments are forecast to shrink globally by 6.5 percent this year as many households feeling the pinch of inflation decide to prioritize paying for food, energy and other essentials over refreshing handsets.

According to analysts at IDC, sales of phones will fall year-on-year to $1.27 billion due to meteoric rises in the cost of living, but geopolitical tensions and other economic difficulties have also helped blow a hole through demand.

"The supply constraints pulling down on the market since last year have eased and the industry has shifted to a demand-constrained market," said Nabila Popal, research director with IDC's Worldwide Mobility and Consumer Devices Trackers.

"High inventory in channels and low demand with no signs of immediate recovery has OEMs panicking and cutting their orders drastically for 2022. The events of the last twelve months have shaved 150 million units off the market for 2022 from our forecast in the second quarter of 2021," she added.

Inflation in the world's two largest smartphone markets is biting down on household budgets: annual inflation stateside reached a 40-year high of 9.1 percent in June and was up 8.5 percent in July. In China, it reached as 24 month high of 2.7 percent in July.

Yesterday, HP Inc revealed that the cost of living was deterring some customers from buying a new PC, and retail sales of its boxes were down 20 percent in Q3 of its current financial year.

CEO Enrique Lores said: "Inflation increased in many parts of the world, and this led to lower consumer spending for our product categories. And demand in Europe worsened against the backdrop of the Russia-Ukraine war. Although we highlighted pockets of consumer softness during our Q2 call, the environment deteriorated more rapidly late in the third quarter."

Worryingly, he said HP was also seeing signs of a slowdown in its commercial PC division. "Consumer softness is likely to continue in the near term. We also see some companies taking a more measured approach to their spending and new orders showing signs of softening demand in commercial categories."

Back in the smartphone world, IDC said that despite declining unit shipments, average sales prices grew 10 percent in Q2 and are forecast to rise 6.3 percent for 2022. Buyers of premium handsets clearly aren’t feeling the same squeeze on discretionary spending.

As such higher-end mobiles ($800+) grew 4 percentage points in the quarter to account for 16 percent of the total market. "This includes foldable devices, which is the fastest growing segment today and expected to increase 70 percent year over year in 2022 to reach 13.5 million units shipped," said Popal.

IDC said regions that favor cheaper phones will see shipments drop accordingly, with Central and Eastern Europe forecast to fall 17.4 percent, Asia Pacific down by 4.5 percent compared to prior forecasts of growth of 3 percent, and China dropping 12.5 percent.

Shipments in the US are predicted to be flat on last year, so less impacted despite local inflation, and Western Europe is expected to decline 0.7 percent. ®

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