Since the end of March, availability of smartphone components, including memory, displays, and ICs, has been limited. As a result, brands and manufacturers have been aggressively procuring components. There are a few reasons for the tight supply.
New product launch schedule
Most brands announce new products at the Mobile World Congress, then launch before Labor Day and the summer holidays. This seasonality means that there is a huge demand for components in calendar Q2. In addition, smartphones continue to use customized designs, and generally can’t use standard components.
The component supply shortage is especially serious in China, where most of the brands want to deliver all of their new devices to stores and channels in time for Labor Day promotions, continuing into the summer holidays. If a product is not delivered to channels before the end of April for stocking in stores, annual sales could be impacted.
In our Smartphone Quarterly, we forecast total smartphone sales in China will be more than 285 million units in 2013, for Y/Y growth of 68%. This growth is causing the demand for smartphone components to dramatically increase in Q2.
Upgraded specifications for smartphone displays
The average smartphone display size is increasing, and according to the Smartphone Quarterly, 73% of smartphones will have displays over 4 inches, with Y/Y growth of 95%. Although panel makers are using more large fabs – Gen 5 and even Gen 6 – to produce smartphone displays, the yield rate is low and manufacturing processes are more complicated, while the increase in size limits unit outputs. Finally, most smartphone displays are customized designs, so manufactures have to frequently change the products being produced, which also limits display supply.
Driver IC production
Most ICs for smartphone displays are manufactured in 8 inch semiconductor foundry fabs, but the number of qualified, stable lines is limited. Some IC makers are planning to produce driver ICs in 12 inch fabs, but there is a limited capacity for 12 inch wafer bumping used to produce chip on glass (COG) type of packaging used in driver ICs.
Other smartphone components, including memory and camera modules, are facing tight supply as well. Brands, EMS makers and display module makers are concerned that the inventory levels are not sufficient for the upcoming hot season in China. This is leading them to buy many components, in some cases more than the end market forecast. In our research, we have found that some makers have high component inventories, and the rate of component purchasing is slightly slowing in May. But smartphone demand in China is still growing strong, so even for makers with high component inventories have a chance to reduce their levels before the October holidays.