Months ago, when the first batch of 5G capable smartphones were being introduced, there was a mounting concern that high prices will discourage spending on 5G smartphones and compromise the effort of pushing forward the large-scale commercialization of 5G.
As of the end of October, the number of 5G phones released in 2019 exceeded 20. While leading Android brands have been keen on the adoption of 5G in their premium models, it is still challenging to bring down the price significantly. This is primarily due to limited 5G solutions.
However, as cheaper solutions emerge, we believe that the smartphone market in 2020 will benefit from the escalating competition among major platform providers, as well as the support of 5G connectivity in mid-end segments. Thanks to the availability of more affordable 5G smartphones, the global smartphone market is expected to get back on the growth track in the first half of 2020. The optimistic estimation by Counterpoint shows there will be more than 200 million 5G smartphones shipped in 2020, representing a mid-double-digit 5G penetration. We expect 5G sales in China to pick up from Q1, primarily driven by the new launches from Huawei and BBK group, while the sales boom in the US market will happen in Q3 with the launch of Apple 5G models.
Looking at the current scenario, Xiaomi, famous for its commitment to affordability, launched the cheapest 5G model in China at the end of September. The new flagship of Xiaomi’s number series, MI 9 Pro 5G, has a starting price of roughly US$520.
Exhibit 1: 5G enabled new models in 2019
According to the analysis of the 5G cost structure, we expect an addition of US$50 to implement the sub-6Ghz only by using a standalone 5G modem. However, costs can be reduced through the integration of a modem with the SoC (System on a Chip). Huawei’s Kirin 990 and Samsung’s Exynos 980 had taken a step ahead in this direction, and Qualcomm is expected to launch its first 5G SoC in the Snapdragon 700 family by the end of 2019. Besides, both Qualcomm, MediaTek plans to mass-produce respective 5G flagship platform SDM865, MTK6885, in Q1 2020.
In Q3, TSMC, the world’s leading 7nm chipset manufacturer, had seen the revenue contribution from 7nm node increasing to 27%, and the number is likely to further climb up to over 30%. Its production capacity of both 7nm and 7nm+ will be fully utilized due to the rising demand for 5G modem and chipsets. The promising prospect also reflects the explosive growth of the 5G user base in 2020.
Exhibit 2: 5G platform timeline in 2019 & 2020
Given the fragmented frequency allocation, we expect brands targeting North America and parts of European markets will customize designs with an external 5G model for mmWave, even though, most 5G models will resort to a 5G SoC for a cheaper sub-6Ghz only solution.
To sum up, we believe that 5G smartphones will be available in the mid-end price bands over the course of 2020. As a result, cheaper solutions for a next-generation offering will unlock consumer demand for upgrades of their smartphones.