In May, we noted that aggressive component purchasing by Chinese mobile phone manufacturers developing new models was leading to shortages, particularly in displays and driver ICs. There were concerns of excess inventory buildup, but we noted that demand from the China mobile phone market seemed to justify the purchasing. Since then, some Chinese telecom carriers cut back on demand for some handsets, leading to speculation that production for the Chinese mobile phone market overshot in the first half. While component purchasing in 1H was indeed too high, the market still growing, and new models are being developed.
According to our smartphone research, in 2013, 925 million mobile phones will be manufactured in China, 335 million for the Chinese market, and 590 million for export.
In the first half of the year, about 450 million smartphone application processors (APs) were shipped to China, while more than 550 million driver ICs and more than 500 million LCD cells were shipped to China from February to May. This suggests oversupply of display components in general.
However, there were pockets of tight supply, in particular 3.5” HVGA smartphone displays, for which panel prices increased several times. Perhaps in reaction, Chinese telecom operators decided to not promote such models in 2H’13, in order to cool demand and push back on price increases.
Mobile phone application processor shipments are expected to be 929 million units in 2013, very close to the manufacturing volume, and AP makers may increase shipments in Q3 to meet demand. AP makers are promoting entry- and mid-level models in 2H’13; such APs can support FWVGA, qHD and HD resolution smartphone displays. Brands will need to stock components for these new models in Q3, because shipments of driver ICs and LCD cells for these resolutions has not been sufficient to meet demand. But compared to typical trends, component shipments will decrease after the October holidays in China.