Text | Value Institute
On March 28, according to foreign media reports, Apple plans to cut the production of a number of products in the next quarter, including AirPods, which dominate the high-end TWS headset market.
According to media reports, the fundamental reason for Apple's downward revision of AirPods production is that market demand tends to slow down. Given the current near-saturation capacity and inventory situation, it is necessary for Apple to lower its inventory levels in response to possible future changes in the market.
In fact, the popular AirPods have sent out a lot of unfavorable news in the past two years: the decline in market share, the slowdown in the overall growth rate of the TWS headset market, and the step-by-step pressure of competitors such as Samsung and Xiaomi...
As the industry leader, Apple's situation is also a microcosm of the entire market to a large extent. Apple, which has never worried about sales, has also gone to the step of reducing production and inventory, which inevitably makes people worry about the future of the TWS headset market.
Apple plans to cut production, why can't AirPods sell?
According to the Nikkei news report, Apple expects the production of AirPods to be cut by about 10 million units this year, which is quite a large reduction. Official figures show that AirPods sold 77 million units last year.
So far, Apple has not responded to rumors of production cuts, but major suppliers have been affected by the news. After the opening of the market on Tuesday, Goertek shares fell more than 9%, and the stock prices of AirPods supply chain companies such as Wingtech Technology, Tony Electronics, Luxshare Precision and Gongda Electroacoustic also fell in response.
In response to the unfavorable information in the market, Goertek said it would not comment. Luxun Precision responded that there is no situation where the company's largest customer cuts 10 million orders, and the company's acoustic wearable products maintain a stable cooperative relationship with customers, and orders are delivered on schedule.
However, there are still many doubts about the prospects of AirPods. Two keywords were mentioned in the foreign media report: weak demand and high inventory, which is also considered to be the main reason for Apple's production cuts. Given that Apple has not yet responded positively, speculation is expected to continue to ferment.
In the view of the Value Institute, behind the rumors of large-scale production cuts, Apple's own business strategy and market environment must be responsible for a certain extent.
Apple's own troubles: the rise of competitors has taken a lot of market share
Let's start with the former. Ren Zi, editor-in-chief of the new media "Lei Technology", which focuses on consumer electronics evaluation, told the Value Institute that the production cut of AirPods was affected to some extent by competitors.
"The ecological advantages of AirPods are certainly irreplaceable, but as domestic mobile phone brands have successively launched their TWS headphones, they are also building their own ecology, and using the same functions (noise reduction, sound quality, etc.) and lower prices (the price of True My new flagship mobile phone is only less than 400 yuan) to offset the ecological disadvantages and continuously snatch users from Apple's hands."
In Renzi's view, in the final analysis, AirPods are still too expensive, and the price of thousands of yuan or even two thousand yuan is not what most consumers are willing to pay for. Moreover, the replacement is slow, the product replacement has not seen obvious upgrades, and the decline in sales is inevitable and predictable.
Have AirPods really become unpopular? The Value Institute believes that compared with the foreign media's revelations, the real data is more telling - the scale of production reduction of up to 10 million is not necessarily true, and There are indeed traces of AirPods encountering growth bottlenecks.
From the data point of view, the trend of Increasing AirPods inventory has been revealed in the past two years.
According to The CounterPoint report, 2020 is a turning point in the decline of AirPods sales. At that time, Apple required suppliers to produce a total of between 80 and 90 million airPods, but the annual sales were 72.8 million. The nearly 10 million additional AirPods have significantly pushed up inventory and increased turnover difficulties.
Looking at the demand side, AirPods have indeed encountered some troubles compared with competitors.
According to a report by market research agency Canalys, Apple's TWS headphones (including AirPods, AirPods Pro and Beats) shipped 17.8 million units in the third quarter of 2021, down 33.7% from 26.8 million units in 2020. At the same time, the market share of AirPods also fell from 37.6% in 2020 to 24.6%, and Samsung, Xiaomi, etc. caught up, narrowing the gap with Apple.
Although there was a certain rebound in the fourth quarter, the performance of AirPods throughout the year is still significantly far from the peak.
When it hit a growth bottleneck last year, there was a lot of speculation about the prospects of AirPods.
In the first half of the year, many media believed that "fruit fans" were waiting for the new products launched by Apple's autumn conference, so they suspended the purchase plan. However, AirPods' sales data for the second half of the year still did not improve much, and this argument became untenable.
What's more, even if the "fruit powder" is really waiting for new products, it is not necessarily a stable deal for Apple - the crux of the problem is precisely that if everyone wants to wait for new products, who will consume apple AirPods inventory?
There is clearly a huge supply-demand contradiction in this.
Shrinking environment: The European market bears the brunt
As for the changes in the market environment, many analysts point the finger at the Russian-Ukrainian crisis and the consequent decline in demand in the European market.
The most direct evidence is that along with AirPods, there are also rumors of production cuts such as iPhone SE and iPhone 13, and the decline in European market demand is an important reason.
Data from IDC shows that Apple's iPhone SE shipments without 5G features have plummeted by 40% year-on-year in the past year, and this sought-after product that achieved a major outbreak in the early stage of the epidemic has faded its aura. CounterPoint also pointed out in a survey that the European consumer electronics market is going through a difficult time, but this trend may not be alleviated in the short term.
Put your sights back on the TWS market. The Value Institute believes that Apple, as the industry leader, is in a trough, which is a warning signal for the entire market.
The report, also from Canalys, said that the global personal audio market shipments in the third quarter of last year were 118.8 million, down 1.2% year-on-year, the first year-on-year decline in recent years. Although TWS headphones are still the main force of market growth, the growth rate has also slowed down significantly.
Canalys statistics show that the year-on-year growth rate of global TWS headphone shipments fell to single digits in the second quarter of last year, hitting a new low in nearly three years, and there was not much improvement in the second half of the year. Among the head manufacturers, in addition to Apple, the year-on-year growth rate of TWS headphone shipments of Samsung and Xiaomi has also declined, and the latter has almost zero growth throughout the year. The only one who has really achieved growth against the market is Boat.
(Image courtesy of Canalys)
The TWS headset market is booming and declining, although there are objective factors, such as the epidemic, and the aforementioned shrinkage of the European market. However, in addition to these objective factors, a series of problems that have emerged within the industry cannot be ignored: the decline in word-of-mouth, the proliferation of cottage products, and the lack of quality assurance...
As the saying goes, the rise of a thousand miles collapses in the ant nest, and this sentence is extremely appropriate in the TWS market. The rapid growth in the past few years has masked many problems within the industry, but now, the harmfulness of these problems has greatly exceeded the expectations of the outside world.
The TWS market is full of chaos: copycat products and false propaganda exhaust user patience
Looking back at the past few years, the birth of AirPods can be said to have directly led to the rise of TWS headphones and created a boom in the market. However, like consumer electronics markets such as smartphones and PCs, the rapid growth of the TWS headset industry and the sharp increase in the scale of output value have also led to the entire industry becoming uneven, leaving an opportunity for cottage manufacturers and counterfeit products.
According to the report of Rising Sun Big Data, due to the explosive growth of market demand in a short period of time, the products of head manufacturers are restricted by factors such as production capacity and price, and a large number of vacancies appear in the market. In the past two years, white-label TWS headphones that lack quality assurance but have price advantages have risen to fill the gap in the market.
According to the research report of Western Securities, due to the low requirements of the production process of white-label TWS headphones, the daily shipment volume of a single processing plant can reach 0.5-10,000 pairs, which can seize the market at the fastest speed. The data shows that in the most exaggerated fourth quarter of 2020 and the first half of 2021, TWS headphone shipments in the Chinese market accounted for 64% of the global market, and white-label TWS headphones accounted for 90% of the domestic market.
Judging from the media's breaking news, Shenzhen Huaqiang North, which flourished at the beginning of the rise of the iPhone, has revived again in the past two years because of the soaring demand for copycat AirPods. In the field visits of many authoritative media, it can be seen that the price of Huaqiang North's white-brand TWS headphones is generally below 200 yuan, and the profit margin is high.
Compared with the complex production process of head manufacturers such as Apple and Samsung, the factors that affect the quality and pricing of white-label TWS headphones are very single: the chip.
The "basic" headphones generally use Loda and Jerry chips, and the price is generally around 100 yuan; the "advanced model" uses Qualcomm chips, and the price is only 200 yuan.
What is more noteworthy is that while the sales of white-label TWS headphones have soared, the huge supply chain behind them has gradually taken shape. The two are interdependent, building a "gray industrial chain" that has caused headaches for brand manufacturers such as Apple, Samsung and Huami OV.
Take the chip industry as an example. Because of its strong mass production capacity and high cost performance, and long-term popularity with various white-brand TWS headphones, chip manufacturers such as Luoda, Jerry, hengxuan technology and so on have eaten the dividends of the TWS headset market, and the production capacity and revenue have risen sharply in the past few years.
The report of Rising Sun Big Data also pointed out that as of now, the TWS headset market in cities below the third tier has not yet been fully opened, and it is a market with the greatest growth potential in China. The white-brand TWS headphones with cost-effective advantages have a natural appeal to users in the sinking market.
At this stage, the price seems to be the main consideration when users choose TWS headphones, and it is also the biggest advantage of white-label TWS headphones.
Looking at the relevant information of social platforms such as Weibo, Douban, and Zhihu, you can find that there are not a few users looking for cost-effective TWS headphones.
Zhihu answered the "Wang Duoyu" "measured 2022 true wireless Bluetooth headset recommendation" dynamic, got 11,000 likes and 2,000+ comments, and another respondent "leo soon" of "various brands of cost-effective Bluetooth headset recommendation" has received 27,000 likes and more than 5,800 comments, the popularity is amazing.
However, the rampage of white-label TWS headphones has long begun to regurgitate the market – especially the collapse of word of mouth, which is a disaster for the entire industry.
In July last year, CCTV's "Weekly Quality Report" targeted white-label TWS headphone manufacturers and released a series of shocking figures: 50% of noise-canceling headphones did not have enough noise reduction, and nearly 40% of headphones that claimed to have noise reduction did not support active noise reduction at all.
According to the data of Tianyancha, there are currently more than 300 noise-canceling headphone manufacturers in the mainland, the vast majority of which are taking the route of low-cost production and mass sales, and the white-brand army occupies an absolute main force in the domestic TWS headphone market. According to this data, the 47 manufacturers and 60 models involved in CCTV's survey are only the tip of the iceberg.
In the view of the Value Research Institute, the market has developed to this stage, and in order to stop the decline and rebound, the comprehensive rectification of supervision and the active adjustment of head manufacturers are indispensable.
In terms of supervision, the relevant departments have realized the seriousness of the problem and dealt with it accordingly. After CCTV exposed the quality problems of TWS headphones, the State Administration of Market Supervision said that it had issued quality and safety risk notices to relevant enterprises, urging them to eliminate risks and effectively protect consumer rights and interests. However, considering the complexity of subjective and objective noise reduction evaluation standards, it will take a while to formulate a complete set of product quality inspection bills.
In terms of enterprises, head manufacturers such as Apple, Samsung and Huami OV also have their own troubles - while fighting with white-label manufacturers, they also have to continue to roll in technology and price, how to grasp the proportion is quite important.
The Future of TWS Headphones: Consumption Upgrades or Price Cuts Sink?
Faced with regulatory pressure and a slowing growth rate, TWS headphone manufacturers have now come to a fork in the road.
The first way is to engage in a price war and conquer the sinking market, which is also what Huami OV, and even Samsung, which has been focusing on the high-end market in the past, and other brands have been doing in the past year.
In August last year, the Samsung TWS headset Galaxy Buds 2 was rumored to have cut the price by 20% just days before its release, directly starting the price war with Apple's AirPods 3. At almost the same time, Baidu released the first active noise-canceling TWS headset small smart headphone Pro, and the pre-sale market was quite hot.
The information reviewed by the Value Institute shows that the signs of this price war have been apparent as early as the fourth quarter of 2020. At that time, the four head mobile phone manufacturers of Huami OV, as well as the head players of the traditional audio industry such as Wanderer, FIIL and Magic, have launched cost-effective TWS headphones priced at less than 500 yuan to start the sinking journey. Until Samsung entered the game, this price war can be regarded as a climax.
The Value Institute believes that the sinking route has another role: squeezing the living space of counterfeit and shoddy merchants in the cottage can purify the market environment to a certain extent.
Canalys data shows that in the fourth quarter of 2021, the share of branded TWS headphones rose to 48%, basically equal to white headphones, and the days when the latter led one-sidedly are gone. Facts have once again proved that the brand loyalty of users in the sinking market to TWS headphones is quite limited, and the market is still in the era of price orientation.
The other way is to continue to upgrade consumption and open up premium space by increasing the added value of technology in order to seek higher gross profit margins.
The stickers of this road are none other than Apple. At the time of the double impact of Samsung's initiative to reduce prices to grab the market and the release of AirPods 3 last year, the prices of products such as AirPods Pro and AirPods 2 are still strong. It was not until the end of last year that The AirPods 2 officially announced a price cut, and the National Bank edition entered the era of less than 1,000 yuan for the first time. But the price of 999 yuan, placed on an old product, is still one notch higher than competitors such as Samsung and Xiaomi.
However, the advantages and disadvantages of these two paths seem to be difficult to give now.
On the one hand, Samsung and Xiaomi have engaged in a price war, and indeed achieved certain results, and the market share in the TWS headset market in the third and fourth quarters of 2021 has increased significantly, and the latter is among the top three for the first time. But on the other hand, Apple, which insists on taking the high-end route, has mastered higher profit margins.
In the 2018-2019 period of airPods' explosive growth, the profits obtained by this business alone are enough to offset the entire Xiaomi Group. According to Apple's earnings report, AirPods' total profit in 2018 was about 10.8 billion, and the xiaomi group's net profit in the same year was only 8.5 billion.
Of course, the performance of both the AirPods and the entire TWS headset market has declined significantly from its peak, and similar profiteering scenarios are difficult to reproduce. However, the ultra-high profit margin of AirPods at this level is still the goal pursued by manufacturers such as Huami OV.
Considering this situation, the Value Institute believes that the two roads of price reduction and sinking or consumption upgrading are not a two-choice choice - the combination of two routes, while seizing the sinking market share through cost-effective products, while continuously improving technical barriers and scientific and technological added value to consolidate their core competitiveness, may be the right choice to conquer the market.
In terms of price reduction and sinking, major manufacturers do not have many alternative paths, and enriching the product line is the best way. As for technology upgrades, the Value Research Institute believes that TWS headphones may take a similar route to sports bracelets and smart watches in the future: from accessories attached to mobile phones to independent smart terminals, enhancing product independence performance.
Shifting the biggest selling point from "true wireless Bluetooth" to "smart" is the key to TWS's ability to save word of mouth and increase premium capabilities. At present, the functions of mainstream TWS headphones on the market basically stay in the active noise reduction, voice wake-up and assisted listening stages, and do not have the requirements of independent intelligent terminals. But in the future, with the help of cutting-edge technologies such as AI, enhancing intelligent voice interaction capabilities is completely a direction that can be tried.
According to the statistics of CITIC Securities, the current shipment of smart headphones accounts for about 15% of smart phones, and there is still room for growth in market penetration. The window of opportunity has emerged to see who can seize it.
Write at the end
In May, Sennheiser, a traditional audio giant and one of the big four HiFi brands, announced that it would sell its consumer electronics business unit to hearing aid maker Sonova. The latter, one of the world's largest manufacturers of hearing aids, will cost a total of around €200 million in the acquisition, and Sonova will acquire intellectual property, tangible assets and nearly 600 employees from Sennheiser's consumer electronics business.
As a consumer electronics giant with a history of more than 70 years, Sennheiser was once the king of the headphone industry, creating classic products such as Orpheus HE90. However, in the face of the rise of TWS headphones and the encirclement and suppression of a number of technology giants, Sennheiser was also difficult to resist the impact of the giant wheel of the times, and finally collapsed.
However, Sennheiser's today may also become the tomorrow of many TWS manufacturers.
Giants such as Apple and Samsung will certainly not suffer major losses due to the temporary ups and downs of the TWS headset business, but many mid-waist players under this giant will inevitably increase the pressure sharply. From the perspective of long-term development, price wars and marketing wars are not long-term ways, and allowing white-label products to grow barbarically will inevitably lead to bitter results.
Purifying the market environment and improving product quality is TWS's self-help.