Market Insight

In China, COVID-19 cannot slow the spread of 5G handsets

July 17, 2020

Zaker Li Zaker Li Senior Analyst, Smartphone & Mobile

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In China, COVID-19 cannot slow the spread of 5G handsets

In Q1 2020, due to the impact of the COVID-19, smartphone shipments in China declined to 64 million units, down 22% year-on-year. However, shipments of 5G smartphones didn’t slow. In Q1, 15 million 5G units shipped in China - almost twice as many as in Q4 last year. The top four Chinese brands (Huawei, OPPO, vivo and Xiaomi) combine for 98.7% of 5G smartphone shipments in Q1 2020.

The Chinese market is well positioned to lead in the deployment of 5G devices.

Network deployment:

5G network deployments are fostered by the government. In June 2019, The Ministry of Industry and Information Technology officially issued 5G commercial licenses for China Telecom, China Mobile, China Unicom and China Radio and Television. In October 2019, the three major operators (China Telecom, China Mobile, China Unicom) announced their 5G package prices and began signing up subscribers in November 2019. In 2020, speeding up construction of 5G networks has become one of the priorities for infrastructure improvements.

China Mobile plans to build 300,000 5G base stations. China Unicom and China Telecom plan to jointly build 250,000 stations. In addition to existing 5G base stations, the total number should be more than 600,000, if carriers are able to meet their self-proclaimed schedule. Successfully installing these base stations will provide significant outdoor coverage, but falls short of nation-wide coverage, including indoors.

Smartphone markers:

The Chinese smartphone market is highly concentrated on the top 4 brands (Huawei, vivo, OPPO and Xiaomi). The Top 4 brands account for 87.7% of the market in Q1 2020 overall and were responsible for virtually all 5G shipments in the quarter. Apple has not yet released a 5G device, but the brand is one of the few brands able to challenge the Top 4.

Chinese brands know the importance of keeping up with the switch to the next network generation. During the launch 4G networks, there was a shuffle of mobile phone brands, such as Coolpad, ZTE and Lenovo. The existing mobile phone brands were the winners of the last network generation change.

Chinese smartphone brands are lowering 5G smartphone prices sharply. Although a 5G smartphone BOM cost is higher than that of an LTE version, for example Xiaomi Redmi 10X 5G version is 1599 CNY (228.4 USD), while the 4G version is only 999 CNY (142.7 USD), the gap is 85.7 USD :  brands are willing to sacrifice margins and profit for market share. In Q2 2020, 5G models below $250 have started to launch, such as Redmi 10X 5G for around $228 and the Huawei Enjoy Z 5G at $240. With mid-range and low-end 5G chips ready, 5G smartphone prices will continue to lower quickly, giving users more purchase options.

Smartphone users:

China has significant potential demand for 5G smartphones. Chinese users already rely on smartphones for many services. They expect 5G phones to provide a better user experience compared to 4G networks. When 5G services launched in China, many consumers changed their service plans from 4G service to 5G plans, even though they still used 4G smartphones. According to Chinese wireless carrier reports, through May, there are more than 55 million users had subscribed to 5G service plans on China Mobile and 30 million 5G plan subscribers on China Telecom. China Unicom has not released 5G service subscription numbers. Total 5G subscribers in China should already be over 100 million at this point in 2020. 5G smartphone shipments are much smaller than 5G service subscriber numbers. Users are waiting for the right price to buy a 5G smartphone. Demand will increase when prices decrease. We expect that 5G smartphone shipments will reach 143.4 million units, with 43.3% penetration, this year, and 337.1 million units, for 87.2% penetration, in the 2021.

Globally, China will be a leader in 5G smartphone shipments this year. The on-going pandemic will continue to impact carriers and consumers in markets across all geographical regions. China should make up 69% of 5G smartphone shipments this year.

Apple Inc.
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