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Supply Chain Benefits from Continued Smartphone Growth

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Yes, it was certainly (again) the year of the smartphone and tablet devices. 2013 is also being forecasted to see very strong positive growth for this sector year-over-year (Y/Y). The reason these devices have come front and center in importance is quite simple, and something we all know, they are the major demand drivers for the semiconductor and electronics supply chain. This situation will not abate in the upcoming few years, despite market penetration rates reaching maximums for smartphones in the mature markets.

What we do see across analysts and along the supply chain, is that not only have smartphones and tablets kept many in growth during this otherwise challenging year, the forecast is strong for 2013+. More specifically, with the competition increasing while device version lifecycles are ebbing for  many end-product models, the uptick in emerging market (EM) adoption of mobile wireless devices will pick up in unit volume sales where mature markets begin to abate.

Forecasting strong growth

Smartphones

Citi Research published their updated data on 10 December 2012, "Citi's Updated Global Handset Model," in which they offer the following critical forecast:

Our growth assumption is 30% above the market and based on our view that low end smartphone shipments will surge in 2013 as quality significantly improves and prices erode faster than expect. Through 2015, we expect smartphone shipment CAGR of 35% vs. 57% in the prior 3 years (2010-2012). On the other hand, total global mobile phone sales are expected to grow at 10% CAGR (with 2012 and 2013 unity shipments of 2bln and 2.2 bln, respectively). […] The slower growth is predicated on higher penetration rates as well as other devices (mainly tablets) that compete for consumer share of the wallet. (p.1)

Importantly, the competitive landscape is greatly informing what will happen in the smartphone market. While high end smartphones and tablets will continue to be dominated by Samsung and Apple, there is increased competition in the middle- and low-end device sectors. However, this competition, according to the same Citi report, is likely to result in consolidations among the mid-tier device manufacturers, leaving the low-end growth open as EM adoption heats up during 2013+.

Tablets

Similarly, the tablet ecosystem is also forecasted to see accelerating growth, particularly as competition increases and expands the price range for consumers while addressing the feature demands in the low- and middle-tier tablets, US $60-200 range. Important to this market acceleration is the increase in the tablet white-box sector, according to Credit Suisse, "Asia Semiconductor Sector," 05 December 2012:

Low-cost computing is an emerging product cycle with legs in 2013. Most leveraged sales contribution to the expected doubling in low-cost tablet volumes in 2013 includes 10-15% of sales for [many along the supply chain]. […]

Initial demand is being led by Chinese makers exporting to emerging markets with low PC penetration, mainly for entertainment (games, movies, music) but have begun to offer productivity as keyboard attachments an apps proliferate. Whitebox tablets add 50mn and 171mn (45%/47% upside), respectively. Given cost sensitivity, pricing of Flash, DRAM, and touch display is the key swing factor to whitebox volumes. (p.1)

Displays boosted by device growth

While the TV panel market has been challenging and the netbook, notebook, and desktop displays have also seen flat to negative results for 2012, the forecasted growth for tablets and smartphones brings essential relief to panel manufacturers.

Underscoring the challenges to the supply chain, major display panel manufacturers such as Corning Incorporated (GLW), have been careful in their production and inventory controls in the wake of the 2012 challenges for larger-sized displays, primarily for TVs. While glass demand volume was mostly down or flat during 2012, 4Q12 did see a pick up, and especially for Corning's Gorilla Glass which is expected to see a positive increase of roughly +5% quarter-over-quarter, according to Citi's 05 December 2012 report on Corning. The applications for Gorilla Glass have proved important across end-products and features like these will help various component manufacturers rise in the competitive landscape.

As we know, CAPEX was down in 2012, meaning also that little was done in terms of equipment (re-)investments, however by 2H13, the spending cycle is expected to resume for the flat panel display equipment sector, according to early 4Q12 forecasts from DisplaySearch: 

As a result [of the capital investment], NPD DisplaySearch expects that 2013 will see a more balanced market, higher fab utilization rates and improved profitability for panel makers. At the same time, new manufacturing and panel technologies […] offer the hope of lower costs and higher value applications.

As we know from the above forecasts, the market opportunities that may open as a result of these improved flat panel technologies will greatly impact the ability for increased unit volume for both tablets and smartphones at lower costs for the EM as well as lower-priced devices for the mature markets.

All told, as the component maturation cycles seem to be moving in synch to lower costs for these hottest devices globally, the 2013+ forecasts are strong not only for the OEMs, but importantly for the component manufacturers. For more drill-down into the 2012 market round-up and 2013 forecasts, watch for the latest Smith MarketWatch Quarterly arriving in subscribers' inbox (free subscription) this week, and available in January to the general public.


Lisa Ann Cairns, Ph.D.
Written on Monday, 17 December 2012 15:35 by Lisa Ann Cairns, Ph.D.

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