After a tough 2020 where annual smartphone sales shrank by 15%, Q1 2021 looks promising. Our weekly counts hint at a 15-20% bump from last year – very positive even considering the weakened Q1 2020 affected by pre-COVID jitters.

At the high-end there has been record buying of iPhones and strong comparative YoY performance of the Galaxy S21 v S20 Series, lifting the premium market significantly. On the low, the budget segment has remained resilient, growing its share by 15% last year to account for one in every five devices sold. So far this year, prepaid device sales have been ticking up on stimulus buying and aggressive carrier promotions. Tax refunds and third round stimulus checks will only boost demand moving forward.

The supply side is where the issues lie and we believe the budget segment is most at risk based on a number of factors:

• LG’s departure is a blow for many prepaid carriers and retailers. Korea’s ‘other’ brand accounted for one-third of all US devices sold in the $100-$250 wholesale price band last year. Others will try to fill the vacuum, but the OEM was a channel favorite, especially amongst prepaid carriers which heavily promoted LG devices.

Source: Counterpoint Research US Channel Share Tracker, Feb 2021. *Preliminary Jan/Feb figures.

• Our February channel checks show little wiggle room:
  • Prepaid channel reps see inventories as “tight but OK”. This could change quickly.
  • Prepaid channels are also experiencing increased foot traffic and declining inventories, with constraints for models such as the budget Samsung A11 and A21. LG’s Stylo 6 is low stock and continues to be the most popular model in prepaid.
• Finally, Samsung and Apple have strong supply chains with suppliers that prioritize deliveries, especially in the case of Apple. In a situation where components are in short supply, this means others will lose out – and those vendors are likely to be makers of cheaper devices.

The looming component shortage which is impacting the broader market is already affecting budget segments. Lower-end 4G application processor chip supply has been constrained on and off since last year and tightness is expected to continue through the end of 2021.

Magnifying the problem, this year’s budget phones increasingly resemble last year’s premium, boosting the need for other key components – especially those in acute shortage like CMOS image sensors (CIS) used in cameras, display driver ICs (DDIC) which control the pixels in displays, and power management ICs (PMIC) which manages power for various applications.

The best-selling LG Stylo 6 is a good example. At around $250 retail, it sports a triple rear camera setup with 13MP main and massive 6.8” screen – specs consumers prioritize when shopping for a device. The draw on CIS, DDICs, and PMICs is high for this type of smartphone and may not be sustainable, resulting in abnormally low inventory across prepaid channels.

Source: Counterpoint Research US Channel Share Tracker, Feb 2021. *Preliminary Jan/Feb figures.

Globally, we saw inventory levels over the last three months of 2020 trend downward – opposite of what has happened in the past and signaling an overall tightening of supply. If the decline continues through Q1, it could spell bad news for the US prepaid market which could be more severely impacted than others.      

Background:

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts:

Jeff Fieldhack

Counterpoint Research
press(at)counterpointresearch.com