China's phone sales tipped to plummet as economy slows

China's handset shipments are forecast to sink in the first quarter, the latest sign of continued weakness in the market and the broader economy.
Taiwan-based research firm Digitimes says China's smartphone shipments will plummet 18.5% in Q1 compared with Q4 2023. That compares with a 9.1% drop in Q1 2023 over Q4 2022, according to analyst firm Canalys.

Digitimes, whose numbers are sourced from electronic suppliers in Taiwan and the Chinese mainland, say it is a combination of the seasonal fall-off in demand in international markets and the tepid Chinese economy.

Seasonal variations tend to be roughly the same every year, so this points to a big plunge in China demand. Last year 271 million devices were sold in China, a 5% decline and the lowest in ten years. But the market showed signs of rebound in the last quarter, with 73.6 units shipped, up 1.2%, according to IDC numbers.
But IDC warned this higher demand was concentrated mostly among high-end users in tier-1 cities buying the iPhone 15 or Huawei's Mate 60 flagship.

Analysts aren't surprised at the forecast drop in sales.

Low-growth trajectory

Canalys said competition was hot in Q4, with Chinese vendors launching high-end, AI-equipped models, Huawei entering the 5G market and Apple being quite aggressive. Canalys predicts lower, single-digit annual growth for mainland China's market in 2024.

But the drop in sales also underscores the low-growth trajectory the China economy is stuck in. It is dealing with headwinds including the unravelling of the property market, the stock market sell-off, the collapse in foreign investment and the tech war with the US. The IMF predicts 4.6% growth this year, down from the official 5.2% in 2023, although actual growth may have been as low as 1.5%.
This means a lower outlook for telcos, despite a buoyant year in 2023 as a result of booming demand for cloud and data center services.

For one thing, Chinese operators are quite reliant on handset sales. In the first half of last year, for example, China Mobile's hardware sales grew 11% and accounted for nearly 15% of total revenue.

It also seems they will have to wait longer to see a return on their enormous 5G investments. China Mobile's mobile ARPU in the first six months of 2023 was just 51.2 Chinese yuan (US$7.12), up 1% year-on-year. China Telecom’s was CNY46 ($6.4), up 0.4%.

The softening economy is going to hit demand for digital transformation services as well.

China's flat economy following years of breakneck growth looks set to be the new normal. This is a new challenge for China's telcos and their government supervisors. Will they respond in a market-driven fashion, or as state organizations helping to prop up the economy? We will see.