Setbacks for Apple, Huawei as US-China trade war rages on

Huawei and Apple suffered setbacks in production volume due to the ongoing trade war between the world’s biggest economies, US and China.

This is according to market analyst firm TrendForce, which says smartphone demand has already made it out of the gloomy offseason of 2Q19, with production volume coming to 344 million units, a 10.5% quarter-on-quarter (QoQ) growth.

The firm points out that the many uncertainties circulating in the international market still caused smartphone production volume to weaken by 2.4% year-on-year (YoY) in 2Q19, with the top six being Samsung, Huawei, Apple, OPPO, Xiaomi and Vivo in descending order.

Influential factors such as the US-China trade dispute and the Japan-South Korea trade frictions still linger in 3Q19 looking forward, says TrendForce.

With the arrival of the 5G era, it says the transition into which the on-looking smartphone market witnesses with anticipation, customers will be holding on to their phones for longer.

“This will whittle down peak season performance in 2H19, and smartphone production volume for 3Q19 is forecast to lie around 363 million units. Despite growing over 2Q19 by 5.8%, this is still a 4.4% decline YoY compared to the figure of 380 million units for the same period last year. Total smartphone production volume is expected to arrive at 1.38 billion units, a YoY decline 5%,” the firm says.

Looking at the 2Q19 rankings for smartphones, TrendForce sees Samsung steadily taking first place yet again, with production volume coming to 76.5 million units, a 3% growth YoY, registering the best performance in a single quarter since 2018.

This is due to Huawei’s loss in European and American market share as an effect of the ban.

As the trade war between the US and China rages on, the former, which put Huawei on an export blacklist citing national security issues, has been rallying its allies to cut Huawei out of planned 5G networks, citing “national security threats” due to the company’s close ties to the Chinese government.

The blacklist has seen companies, including Alphabet’s Google and British chip designer ARM, limit or cease their relationships with the Chinese company.

Contrarily, says TrendForce, Samsung reaped a harvest after having cultivated its presence in European and South American markets in the past.

TrendForce forecasts that production volume in 3Q19 will trend flat from 2Q19 and come to 76 million units.

However, it notes that though the throne seems safely guarded by Samsung phones, the loss of market share remains to be an underlying risk for the South Korean company.

Thus, it adds, Samsung will be working on its product portfolio and replace the mid-range J series with the mid-high A series, which will become its mainstream product.

Samsung will also be using the A series’ existing place in the market to reshape the image of the brand and compete with Chinese brands, who place an emphasis on high specs, the analyst firm says, adding the company will also be releasing the M series, which boasts long battery life, and target online customers such as those in India and Indonesia.

Second place Huawei has been active in R&D in recent years, which is starting to pay off, says TrendForce.

Besides being well received by domestic Chinese consumers, it has also seen rocketing results in overseas markets.

Yet the ban in mid-May has impacted Huawei's overseas sales, causing production volume to fall by over 13% in 2Q19 over 1Q19, coming to 52.5 million units, ending the five-quarter-long growth streak in production volume.

“Looking at 3Q19, though the US government has delayed the tariff, originally applied to $300 billion worth of goods and scheduled to come into effect in September, until 15 December for smartphones and various other products, which will seemingly benefit many in the market, we have yet to see Huawei be removed from the Entity List, and overseas sales will continue to be impacted.”

The firm says the Mate 30 series, which has the next generation Kirin chip implemented, is expected to be released at the end of 3Q as scheduled.

“If they are unable to remedy the Android system restriction situation until then, Huawei’s production performance in 3Q19 may be affected. As for the release of new 5G devices, that will have to wait until 4Q19.”

According to TrendForce, Apple’s production volume for 2Q19 came to about 38.8 million units, a new low since 2015, putting Apple at a global third place.

“Looking at its 2Q19 performance, we see that apart from the high prices of new devices, which is of no help in motivating customers to reach for their wallets, the effects of the US-China trade dispute on sales in China markets and the relatively long periods of time for which Apple clients hold on to their phones compared to Android clients all formed the major reasons for the lack of purchases.”

Previously, the US government declared a tariff on $300 billion worth of Chinese imports, which will come into effect in two stages on 1 September and 15 December respectively.

Since smartphones belong to the second group of items to be taxed, TrendForce says the impact on them is forecast to be limited this year.

“But judging from future developments, China will remain the major location for the production of Apple phones, which may face difficulties in relocation for the short-term. Once the tariffs come into effect, it will not only impact Apple’s profits but chip away at Apple's competitive edge in the smartphone market.”

The firm believes that the three new devices to be announced won't be seeing much innovation in 3Q19 looking forward, and since Apple is unlikely to concede much in prices as per its pricing strategy, its production volume for 3Q19 is forecast to reach about 42 million units, a 10% decline YoY.