Components suppliers for high-end smartphones will continue to reap big profits over the next few years, even though the premium market is expected to show less robust growth than the low-end segment, Deutsche Bank said yesterday.
Shipments of high-end smartphones are forecast to grow by a compound annual growth rate (CAGR) of 13 percent to 876 million units in 2017 from 536 million units this year amid a saturated market, the bank said, citing Gartner Inc’s data.
However, it is the low-end models that will lead growth in the overall smartphone market in the next five years because of burgeoning demand in emerging markets, the bank said, quoting Gartner’s forecast that shipments would increase by a CAGR of 31 percent to 302 million units in 2017 from 104 million units this year.
Nonetheless, Deutsche Bank believes that makers of handset components, such as lens modules, acoustics, batteries and casings, at the premium end of the market will face less pricing pressure and margin erosion than their peers in the low-end segment, where low entry barriers make decent profits unlikely, the bank said in a report titled Survival of the Smartest.
“Premium smartphones are seen as statements of style, and this leaves them less vulnerable to the margin pressures nearly all maturing technologies face,” Deutsche Bank analyst Birdy Lu (呂家霖) said in the report.
That is because high-end smartphone vendors have been competing on product innovation, instead of price cuts, to gain market share, Lu said.
Take the average selling price (ASP) of Apple Inc’s iPhone as an example. Lu said iPhone’s ASP has not dropped since 2008, but the device’s bill-of-materials (BOM) — a list detailing the cost structure, including raw materials, parts and assembly of a product — has risen over the same period as the company continues to upgrade its specifications.
As a result, Lu said he maintains a positive view of camera lens supplier Largan Precision Co (大立光), microphone and mini-speaker maker AAC Technologies Holdings Inc (瑞聲), metal casing maker Catcher Technology Co (可成), battery pack supplier Simplo Technology Co (新普), and miniature connector and smart peripherals provider Cheng Uei Precision Industry Co (正崴), as these companies are leading players in their field and have a diverse client base.
In the low-end segment, Deutsche Bank said it is only upbeat on handset chip designer MediaTek Inc (聯發科), whose single-chip solution can help clients save costs and shorten their time to market, the report said.
FIH Mobile Ltd (富智康), a handset manufacturing arm of Hon Hai Precision Industry Co (鴻海), is also likely to benefit from the take-off of low-end smartphones, as it can provide clients with total solutions, Deutsche Bank said.
As for component makers of wearable devices such as Google Glass and a variety of smartwatches, the report said an increasing number of companies have invested in such new devices, but some technologies have not developed to the stage where they are ready for the market.
Lu said he has high hopes for Google Glass-like products to become the so-called “the next big thing” in the long term, following further improvements in both hardware and software.
Once the demand for wearable gadgets takes off, it will benefit suppliers of liquid crystal on silicon (LCOS) micro-displays, transparent displays, camera lens modules, acoustics, processors, connectivity chips, environment sensors and wireless chargers, the report said.