Smartphone Market Recovery Looking at More Delays

What Display Daily thinks: There is probably no two better indications of smartphone trends than Arm, at the core of almost every smartphone chipset, and Sony, who provides the image sensors for smartphone cameras and has a near monopolistic hold on the market. The two companies are predicting a delayed smartphone market recovery well into 2024, and not the tail end of this year. There’s an interesting update from Sigmaintell today about smartphone panel sales that also adds a good data point.

However, Sony is also seeing continued demand for premium products, and the extension of its premium image sensors into the mid-range market. It’s one of the ironies of the smartphone market that while demand has dropped, it is opting to push even more features, and higher prices. That has everything to do with the typical product upgrade cycle, almost always driven by new features, better performance, and just more stuff.

Inventory management and pricing resilience are easy enough to say, but in a highly competitive environment, it is a very inconsistent strategy. The question is who wants to keep discipline on pricing at the expense of juicing up monthly sales numbers? So, maybe Sony can keep pricing under control because it has very little competition, but that’s the world the panel suppliers live in.

Smartphone Sales Decline a Fly in the Ointment of Arm’s IPO

Arm, at the heart of products from Apple, Samsung, and Nvidia, to name but three powerhouse customers, is looking forward to a long-anticipated IPO. However, the company’s recent financial statements from its parent company, Softbank, show that the slowdown in the smartphone market has had an impact on its numbers.

(Yen in billions)Q1 FY
22
Q1 FY23ChangeChange (%)
Royalty revenue453365-88-19.3
License & other rev266276+10+3.6
Total net sales719641-78-10.8
Three months ended on June 30 financial summary for Arm. (Source: Softbank)

There is still a healthy demand for the IPO—all of those big customers are lining up to invest in the company—but Arm’s data is as good an indication of the real health of the smartphone market as any data you can find.

(In billions)Q1 FY22Q1 FY23ChangeChange (%)
Royalty revenue$4.2$3.5-$0.7-19.3
License & other rev$2.6$2.8$0.23.6
Total net sales$7.1$6.4-$0.7-10.8
(In billions)20222023ChangeChange %
Royalty units7.36.8-0.5-6.4%
Royalty units as reported by Arm licensees. (Source: Softbank)

Sony Anticipates Smartphone Market Recovery Delayed Until Late 2024

Sony holds a significant 42% share of the image sensor market, while Canon, the largest camera manufacturer, only holds 1%. Panasonic, the only other sensor manufacturer, also has less than 1% of the market. The reason for this discrepancy lies in the fact that image sensors are used not only in cameras and phones, but also in various other devices like industrial machines and vehicles.

Source: Yole

Sony’s sensors are the only ones used in iPhones, and Google Pixels, and widely used in cameras from Fujifilm, Nikon, and Olympus. Samsung holds the second-largest share at 19%, serving various industries beyond photography. This situation reflects the dominance of sensor manufacturers over camera manufacturers in this field, and significant change might only occur if a major player like Apple switches suppliers.

So, you pay attention when Sony talks about the smartphone market in its recent reporting of quarterly financials. Sony initially anticipated a gradual smartphone market recovery from the second half of the current fiscal year (its fiscal year ends March 31). However, due to the persistent market challenges, the company has revised its forecast and now expects the market recovery to take place at the beginning of the next calendar year or the subsequent fiscal year, meaning the latter part of 2024.

The challenging market conditions have prompted smartphone manufacturers to adjust their parts procurement strategies. For example, among Chinese smartphone manufacturers, the trend is toward the adoption of larger die-sized image sensors in their upcoming products for the late 2023 , early 2024 timeframe. This trend extends beyond flagship and high-end phones to middle-range phones as well which suggests an expansion of camera features.

3 months ended on June 30th (Yen in millions)20222023Change
Game & Network Services604,116771,880167,764
Music308,070358,22950,159
Pictures341,377320,366-21,011
Entertainment, Tech. & Services552,310571,78319,473
Imaging & Sensing Solutions237,842292,74054,898
Financial Services216,022681,411465,389
All Other19,33419,493159
Corporate and elimination-49,311-52,250-2,939
Consolidated total2,229,7602,963,652733,892
3 months ended on June 30th (USD in billions)20222023
Game & Network Services$7.656$10.50
Music$3.77$4.33
Pictures$4.05$3.74
Entertainment, Tech. & Services$6.28$6.52
Imaging & Sensing Solutions$2.85$3.49
Financial Services$2.46$7.43
All Other$0.23$0.23
Corporate and elimination-$0.54-$0.57
Consolidated total$26.60$35.10