Smartphone recovery that's always around the corner is around the corner

Pay a bill or buy new phone? That lovely question facing some of us in 2023

Things aren't going to get better for smartphone brands anytime soon as households and businesses weigh up monthly bills versus discretionary spending, and decide a shiny handset perhaps isn't the wisest use of funds.

IDC stepped up this week to say it has revised the 2023 forecast downwards on the back of conversations with sources in the mobile industry, with a "weaker economic outlook and ongoing inflation" blamed.

"Our conversations with channels, supply chain partners, and major OEMs all point to recovery being pushed further out and a weaker second half of the year," said Nabila Popal, research director at the market watcher.

"Consumer demand is recovering much slower than expected in all regions, including China. If 2022 was a year of excess inventory, 2023 is a year of caution. While everyone wants to have inventory ready to ride the wave of the inevitable recovery, no one wants to be stuck holding it too long."

IDC tracks sales-in from vendors – shipments into the channel – and notes that inventory levels remain "elevated," meaning that "confidence from suppliers is still low." The same dynamic is happening in PCs. HP filed its latest quarterly numbers this week, indicating higher sell out than sell-in.

Distributors don't want to get burned with aging stock, a situation where they'd have to rely on negotiations with the vendors to price-protect inventory.

Similarly, businesses are focusing on "reducing budgets," said IDC.

The smartphone industry previously experienced a major upgrade cycle in 2021, said Qualcomm CFO Akash Palkhiwala, who last week presented at the JP Morgan Stanley Global Technology, Media and Communications conference. As such, he expects a pick-up in the "2024-2025 timeframe."

Palkhiwala added that household budgets are being used on services instead of goods, but like so many execs in the industry he is expecting AI to help lift the gloom and drive replacements rates higher.

"There is uncertainty in the short term," he admitted, "and our insight is not much better than anyone else['s]."

Smartphones and mobile networks account for the lion share of Qualcomm's business, and the company is trying to reduce its reliance on the sector by upping its presence in the IoT and automotive sectors.

One business that already has its fingers in multiple pies is China's Xiaomi, once a rapidly growing entity in the global smartphone race stakes. Revenue generated by handsets fell 24 percent in the recent quarter.

Weibing Lu, president of the corporation, said on a recent earnings call with financial analysts that the industry is still gripped by "a lot of uncertainties" given the state of the economy. ®

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