KUALA LUMPUR (Oct 3): Global smartphone shipments are set to decline at high single-digit rates in 2022, as high inflation and slower global growth hit consumer sentiment and purchasing power, according to Fitch Ratings.

In a statement last week, the global rating agency said the influence of chip shortages in holding back smartphone shipments has eased since the second quarter as supplies have improved, but this effect has been more than offset by weakening demand.

Notably, it now expects shipments within China, which account for around one quarter of the global total, to fall at a rate in the mid-teens in 2022, reflecting slower growth in that economy.

Fitch said subdued Chinese demand will hurt the revenue and profit of Chinese smartphone vendors such as Xiaomi Corp (BBB/stable), Oppo and Vivo, which is set to narrow Xiaomi’s rating headroom.

The agency said high global inflation may also pressure the profitability of smartphone vendors exposed to the value-for-money segment and component vendors that are lower down in the supply chain.

However, it expects the stronger pricing power of higher-end smartphone manufacturers, such as Apple and Samsung Electronics Co Ltd (AA-/stable), to cushion the impact of inflationary pressures on their profit margins.

Fitch expects global inflation pressures to ease in 2023, and consumer spending in China to stage a recovery, albeit not to growth levels seen prior to the Covid-19 pandemic.

However, it said slower consumer spending growth in the US, UK and Japan, coupled with a contraction in demand in the eurozone, suggests that high-end smartphone shipments could face greater pressure in 2023.

Meanwhile, although demand growth in India should be robust, Fitch believes Chinese smartphone vendors may lose share in the market, given a recent pushback by the Indian authorities against Chinese suppliers amid geopolitical tensions between the two countries.

“We expect Asian component vendors to be hit by the downturn in smartphone shipments this year.

“Those in China may be particularly exposed to the fall in demand in that market. Japanese, South Korean and Taiwanese component vendors are likely to suffer less, as a substantial portion of their products is shipped to Apple and Samsung, which gained global market share in the first half of 2022.

“Nonetheless, these trends could be reversed in 2023 in line with developments in smartphone demand,” it said.