Smartphone sales could drop in Q2, analysts say

China’s recent surge in Covid cases threatens to hurt sales of handsets in the world’s largest smartphone market if it’s not contained, but U.S. giant Apple could still hold up well, analysts told CNBC.

On Wednesday, China reported more than 20,000 Covid infections with the majority in the mega city of Shanghai. Authorities there have imposed strict lockdown measures in the city, threatening logistics and consumer spending.

Neil Mawston, executive director at Strategy Analytics, forecasts a 20% year-on-year decline in the second quarter for smartphone shipments.

Neil Shah, partner at Counterpoint Research told CNBC smartphone sales for April and May could fall 12% to 13% year-on-year.

Sales could pick up in June due to a huge discount shopping event and as Covid subsides. That could leave smartphone sales in China down 3% to 4%, Shah said. If the Covid situation continues, however, the market could drop as low as 12% year-on-year, he added.

Smartphone shipments could fall around 3.4% year-on-year in the second quarter, predicted Will Wong, research manager at IDC.

“The impact is expected to be mainly coming from the soft consumer demand and sentiment caused by the Covid outbreak and slower economic momentum,” Wong told CNBC. “The supply disruptions will be a less disturbing factor as the factory bubbles and the government’s experience in curbing the outbreak could help to mitigate the impact.”

In March, Apple iPhone assembler Foxconn briefly had to close one of its main factories in Shenzhen due to Covid. During Covid outbreaks, China has attempted to keep factories up and running as much as possible to reduce disruption.

China’s smartphone shipment decline in the second quarter will be “mainly due to the weaker momentum of the Android market,” IDC’s Wong said.

Android is Google’s smartphone operating system. Chinese brands run a modified version of these. Android phone vendors include Chinese smartphone makers like Xiaomi, Oppo and Vivo.

“The Android segment in China remains a brutal marketplace, with half-a-dozen brands (like Xiaomi) fighting fiercely on price for a piece of a shrinking Android pie,” Strategy Analytics’ Mawston said.

However, Apple could fare quite well. Shah said that Apple could see a decline of around 4% to 5% in shipments in the second quarter, but that is partly seasonal as the effect of brand new product releases wears off. Apple released its newest products toward the end of last year.

Apple continues to take advantage of the decline of Huawei in the premium end of the market, according to both Shah and Wong. Huawei’s smartphone business has been crippled due to U.S. sanctions cutting off the tech giant from key components like cutting-edge chips.

Wong said Apple could actually see positive growth in the second quarter “amid the decline of Huawei and the lack of strong high-end competitors.”

Mawston said he expects Apple to actually grow its overall market share in China in 2022 “as its loyal, affluent fans upgrade to new or more affordable 5G models.”

5G refers to next-generation mobile internet which promises super-fast speeds. Apple launched the 2022 version of the cheaper iPhone SE in March which offers 5G.