There was no great surprise in the news that global smartphone sales fell for the first time ever in Q1. As I suggested in February, when reviewing Q4 data:
“It seems almost inevitable that global growth will now follow China and go negative”.
As the chart shows, Strategy Analytics data suggests that sales fell 3% in Q1, making it the first time that smartphone sales have shrunk on an annualised basis since sales began in 1996. Equally important is that competitive pressures are rising, particularly in the world’s largest market, China. As Bloomberg note:
“Smartphones are no longer novelties in China, and most domestic brands target the mid- and low-price ranges, where buyers don’t upgrade as frequently as those for high-end Apple and Samsung phones.”
Apple was worst hit by the downturn, particularly in China. This used to be its fastest-growing market, but sales plunged 26% in Q1, as China Daily reported:
“Full-fledged local brands such as Huawei and Xiaomi are pushing high-end smartphones, targeting customers seeking quality products that are priced a few hundred bucks cheaper.”
What puzzles me is the behaviour of financial markets over the past 3 months, given that the downturn was almost inevitable as the headlines from my last 3 quarterly posts suggest:
- Q2 data. “China’s smartphone market goes ex-growth as costs fall to $20“
- Q3 data. “Smartphones head for price war as China sales fall 4% in Q4“
- Q4 data. “Smartphone volume peaks as 4.1bn people can’t afford internet“
Why then, one wonders, did Apple’s share price rally by 17%, from $94 to $110, between 12 February and 1 April against this background? Apple’s shares have, of course, since collapsed back to $93 last night.
Clearly nobody really cared about the fundamentals of supply/demand. Instead, just as in China with its commodities rally over the same period, prices were pushed higher by another sudden surge in liquidity.
One factor was the US Federal Reserve’s sudden realisation that the US economy was far weaker that it had realised. Another was the Q1 lending bubble set off by China’s provinces as they battled to retain jobs by rescuing zombie companies. But now, there are growing signs that reality is breaking through again, as I suggested last month:
“Q1 saw a short-lived ‘Triumph of Illusion’, which may well now be followed in Q2 by a painful ‘Return to Reality’. This will confirm that the likely key lesson of the Illusion years is that ‘it is better to travel in hope, than to arrive’.”