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Latest China lockdowns create new uncertainty for smartphone sector

Paul Lipscombe
May 3, 2022

COVID-19 has led to enforced lockdowns in parts of China, resulting in the closure of some manufacturing hubs. Mobile News spoke to some analysts to get their take on how this might impact on the global smartphone industry

It feels like 2020 all over again, as COVID-19 has led to enforced lockdowns in parts of China.

This is bad news for the smartphone industry, resulting in the closure of some of the country’s key manufacturing hubs.

Apple supplier Foxconn was forced to shut operations at two manufacturing sites in Kunshan near Shanghai, while operations were disrupted in Shenzhen in March.

At the time of writing, it’s not known how long these factories will remain shut, but the fallout is expected to have an impact on global markets – with the smartphone sector expected to feel the force of this.

Rewind two years to when the pandemic was at its worst, and factory closures caused chaos in the industry and beyond.

This led to component shortages such as those for chipsets, which are still impacting now, and contributed to Apple delaying its launch of the iPhone 12 series.

Will the latest closures have a similar impact on the market? Mobile News spoke to some of the industry’s leading analysts to get their take.

‘Zero COVID’

China has a strict ‘zero- COVID’ policy in place that it is not relaxing, unlike many other economies in which a return to something like pre-pandemic normality has resumed.

The strict lockdowns are expected to provide manufacturers with global supply chain challenges, while fears of wider lockdowns in late April led to the FTSE 100 slumping two per cent – wiping £40 billion off the index.

“Ultimately there will be an impact,” says PP Foresight telecoms, media and technology analyst Paolo Pescatore. “The extent will be dependent on the length of closures in China and whether providers will be able to source components from other sites.

“This, combined with similar challenges in other countries and Russia’s invasion of Ukraine, will present an ongoing issue.”

A spokesperson in the Chinese team at Counterpoint Research revealed the extent of the lockdowns, confirming that workers are struggling to get to their posts even if factories are open, while there is also a shortage of truck drivers and port workers.

“The impact of the current round of lockdowns on manufacturing and logistics in China is likely to be severe but relatively brief and limited to only those areas like Shanghai, where the controls are most stringent,” says the spokesperson.

The analyst firm anticipates that the biggest impact on the market will come from “depressed consumer sentiment”. “This [consumer sentiment] never fully recovered after the first lockdown in 2020, and the latest round of lockdowns is just forcing it back down to where it was just over two years ago,” says the spokesperson.

“Lack of consumer confidence is likely to have a much bigger overall impact on China’s tech sector and rebuilding it will likely take a long time.”

Other tech sectors will feel the impact even harder say analysts

Size of impact

The impact of the latest lockdowns in China, even if brief, could be harsh for vendors, according to CCS Insight technology analyst and market forecaster James Manning-Smith.

“Manufacturers are likely to be worst hit by ongoing supply issues, due to elevated component costs and a more restrictive environment,” he says. “These vendors have a difficult choice on their hands – whether to decrease prices to stimulate consumer demand, or to protect margins as manufacturing and distributing costs increase.”

The effect of further lockdowns won’t just be felt by the vendors, but also consumers, says Manning-Smith. He adds that demand for smartphones is expected to be low in any case, regardless of component shortages or factory closures. CCS Insight expects the smartphone market to grow by just 2.9 per cent this year, with a perceived lack of innovation a reason for this.

“Weak demand for smartphones is expected to be the main limitation of smartphone sales in 2022, mitigating some of the effects of the ongoing supply conditions,” says Manning- Smith. “The lockdowns in China are poised to elongate the supply chain’s recovery.”

Tech hit

Any disruption won’t just impact the smartphone industry, say analysts, with other tech sectors expected to suffer.

“All industries and businesses will see some form of disruption,” says Pescatore. “Planning and sourcing from different suppliers remains critical in considering the rollout of future devices. Some vendors may consider pushing back flagship launches, as well as limiting stock.”

Manning-Smith argues that smartphones are often prioritised over other consumer tech products, so the impact will be higher in other sectors within the tech industry.

“Smartphones are often prioritised by companies throughout the supply chain, with other goods such as tablets and TVs suffering as a result,” he says.

“With China’s lockdown affecting some of the major manufacturing hubs and potential for the situation to worsen, it is likely that other product areas will see more significant constraints.”

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