The sluggish market affects the terminal procurement volume, and the mobile phone supply chain order "slammed on the brakes"

The contraction of mobile phone sales is being transmitted upstream, and after last year's price "soaring", the price of mobile phone supply chain devices including cameras and screen displays is falling rapidly.

"Taking the camera as an example, the price decline in the first quarter of this year is basically around 5% to 10% compared with the fourth quarter of last year." On March 24, Chen Jun, deputy general manager and chief analyst of Qunzhi Consulting, said in an interview with the first financial reporter that since the second half of last year, due to multiple factors such as cost pressure, the product planning of mobile phone manufacturers has undergone some changes, and they no longer blindly pursue the number of cameras.

According to the prediction of Qunzhi Research, the overall price of camera modules in the second quarter is still showing a downward trend, in low-pixel products, 2M pixels fell by about 5.2% month-on-month, 8M pixel module prices fell by about 1.6%, high pixel products, considering the overall demand and supply reduction in the background, 64M pixel products showed a price decline of about 6.7%.

Weak end demand is transmitted upstream

China's mobile phone market is still in a downward channel.

According to the latest analysis report on the operation of the domestic mobile phone market in February 2022 released by the Chinese Academy of Information and Communications Technology, the mobile phone shipments in the domestic market in the month were 14.864 million units, down 31.7% year-on-year, of which 5G mobile phones were 11.374 million units, down 24.5% year-on-year, accounting for 76.5% of mobile phone shipments in the same period.

The pace of new machine releases by mobile phone manufacturers also tends to be cautious. In February, 22 new smartphone models were listed, down 8.3% year-on-year. From January to February 2022, a total of 50 new models of smartphones were listed, down 23.1% year-on-year.

"The sluggish demand side and the inventory pressure after a large number of orders added last year are the reasons for the purchase sentiment of mobile phone manufacturers." Chen Jun told reporters that in addition to a few devices such as storage devices and mobile phone chips, the prices of mobile phone supply chain devices in other categories have declined to varying degrees in the first quarter of this year.

According to the data tracking of the parts manufacturers of the institution, the revenue performance of the mobile phone optical industry chain company in February was relatively weak, and the sales of Shunyu Optical Technology, Qiu Ti Technology, and Daliguang Mobile Phone Parts and Components declined to varying degrees.

With the optical leader Shunyu Optical Technology (02382. HK) as an example, according to the financial report released on March 22, the company's mobile phone camera module shipments in February were 49.716 million, down 0.6% month-on-month and 24.6% year-on-year; mobile lens shipments were 109 million, down 17.1% month-on-month and 15.9% year-on-year. Due to the decline in the volume and price of mobile phone lenses and the decline in the average sales unit price of mobile phone camera modules, Sunny Optical Technology's revenue in 2021 decreased by about 1.3%, which is the first time that the company's revenue has experienced negative growth in nearly a decade.

Anjie Securities believes that due to the weak macro environment, the reduction of mobile phone manufacturers and the weak demand for high-end models, the pressure on the industry and the company in the second half of 2021 of Sunny Optical Technology is more obvious, and the shipments of mobile lenses and camera modules of 2H21A companies fell by 18.3% and 3.6% respectively year-on-year. It is estimated that the unit price of mobile phone lenses and camera modules has declined by double digits and high units year-on-year, respectively, which has further weakened the annual profit performance of mobile phone optical products.

Huatai Securities said CS Electronics fell 2.0 percent in the nearly month ended Feb. 25, while the Shanghai Composite Index rose 0.5 percent over the same period. In the industry as a whole, the total market value of the mobile phone industry chain fell by 9.5%, and the valuation fell by 9.6% to 28.4x (calculated by P/E TTM), which is currently in the 50% quantile (calculated by P/E TTM) since 2017.

The shortage of main chips in mobile phones has eased

Chips have always been the most serious areas of "out-of-stock" mobile phone parts. Due to the strategic adjustment of domestic mobile phones, high-end chips have been in an extreme shortage state since the beginning of last year, but this situation has eased.

The reporter noted that since the second half of last year, Qualcomm and MediaTek, the main suppliers of mobile phone chips, are accelerating the supply of high-end chips in order to obtain a larger market.

Chen Junhong, deputy general manager of MediaTek's wireless communication division, once told reporters that the sales volume of consumer groups of more than 3,000 yuan has increased, and the entire high-end market is a place where soldiers must compete. Whether it is the process or the speed of chip iteration, the competition between MediaTek and "Big Brother" Qualcomm has been quite fierce.

"Since the beginning of this year, the shortage of mobile phone chips has eased, and the price of some chips has been reduced, but it remains to be seen whether the overall cost of mobile phones has declined." Xu Qi, vice president of realme and president of China, told reporters that because the decline in the mobile phone market in the first quarter was greater than expected, it is expected that the competition in the mobile phone market will be further intensified in the next year, and the overall supply chain challenge is still large.

But he also stressed that the company's full-year growth target has not been adjusted. "We are still looking forward to the second and third quarters, and sales will rise further from the beginning of the fourth quarter."

Chen Jun told reporters that the price of mobile phone devices is expected to stop falling in the third and fourth quarters. "On the one hand, the processing of inventory is nearing completion, and on the other hand, the mid-year peak season is expected to bring about a rebound in demand."

In addition, the trend of high-end mobile phone technology is also driving the demand for some components to rebound.

Counterpoint analysts believe that high-end smartphones must do a good job of display, photography and gaming fundamentals. "High-end smartphone screens need to support high refresh rates, high resolutions and cutting-edge color accuracy, and LTPO screens have become a must-have for high-end smartphones to support variable refresh rates. In the era of computational photography, OEMs are improving the specifications of ANC auxiliary cameras, such as the Realme GT2 Pro with two main camera levels of 50MP rear camera. In addition, mobile games now consume more computing resources than before to meet gamers' demand for transparent picture quality and a smooth gaming experience. ”

Chen Jun believes that game phones will also drive the increase in demand for mobile phone main chips and high refresh rate screens.

According to Qunzhi Consulting data, global LTPO smartphone shipments will be about 53 million units in 2021, and it is expected that global shipments will be about 140 million units in 2022, an increase of 156% year-on-year. From 2022 to 2023, Chinese mainland panel manufacturers BOE, Visionox, Huaxing Optoelectronics, Tianma, etc. will successively launch LTPO products.

However, the development of the high-end market still has a long way to go for domestic mobile phone manufacturers.

"The threshold for high-end brands is there, Nokia surpasses the motorcycle to rely on Symbian smart phones, Apple surpasses Nokia to rely on touchscreen smart phones, and Huawei's high-end status in China relies on self-developed chips, plus later self-developed systems." Hou Lin, a senior analyst of GfK China's mobile phone category, told reporters that if it is only to follow the old road of the predecessors and improve the level of photography, it is basically more difficult for the breakthrough of high-end brands.