Walmart Archives - Counterpoint

US Smartphone Inventory at Manageable Levels; Resilient Demand Despite Inflationary Pressures

There have been worries about high global smartphone inventory and weak demand due to high inflation levels. While this might be the story in other regions, the US smartphone market has shown resilience through Q2 2022. Data from the Counterpoint US Monthly Smartphone Channel Share Tracker shows the US smartphone market was down 4% MoM but up 2% YoY in May.

Smartphone inventories in the US are higher than last year. However, 2021 may not be the best YoY comparison as the industry was going through 4G LTE chip shortages last year. Smartphone inventories in the US fluctuate between 4-6 weeks but they can go even higher during new device launches and holiday season channel fills.

We believe that the inventories are normal at present given the seasonality of demand, especially ahead of the back-to-school promotional season. The demand has been steady, driven by strong carrier promotions, especially in postpaid channels.

iOS, Android Inventory Levels in US Smartphone Market

Source: Counterpoint’s US Monthly Smartphone Inventory Tracker

Android vs iOS inventory

Apple has the fastest factory-to-consumer shipping timelines among smartphone OEMs. The iOS inventory was very low at the end of 2021 as the iPhone 13 remained in high demand. The inventory started to increase as the initial demand settled and supply improved. Sell-in continued to improve until March 2022 but dropped back again in April due to China lockdowns. We expect Apple’s Q2 2022 sell-in to remain flat YoY.

Android inventory levels have been higher than in previous years but still manageable. Samsung’s inventory went up in January 2022 driven by the Galaxy S22 series shipments. The Galaxy S22 Ultra accounted for nearly half of the Galaxy S22 series shipments. The Galaxy A13 5G, which is the cheapest 5G device in Samsung’s portfolio, also came in large volumes. Motorola recorded high volumes in Q4 2021 driven by new launches but cooled off in Q1 2021. The brand, too, was impacted by China lockdowns in April 2022 but picked up quickly in May 2022. The Walmart reset was another driver of higher inventories at the end of Q2 2022. This was further supplemented by the launch of new devices from TCL and Nokia HMD, especially in Tracfone channels.

Low-end Android market has growth potential

High smartphone inventory is mostly driven by the low-end sub-$300 Android devices in prepaid and national retail channels. This is manageable ahead of the back-to-school promotional season as the demand is likely to pick up. Besides, with rising inflation, we might see the demand shift back from postpaid to prepaid as consumers shy away from premium postpaid plans and two-year lock-ins. This would be a change from the previous 10 quarters but could further boost demand at the low end.

Verizon, AT&T, T-Mobile and Dish continue to build their prepaid brands. Verizon has strengthened its prepaid presence with the Tracfone acquisition. It now owns Tracfone, Straight Talk, Total Wireless, Net10 and Visible. AT&T, too, enjoys a strong prepaid presence with its Cricket brand. But Dish is likely to be the dark horse that can disrupt the competition in national retail with acquisitions of Republic Wireless, Ting and Gen Mobile. T-Mobile has added national retail doors and its prepaid brand Metro by T-Mobile will remain competitive.

Lastly, as the carriers shut down CDMA networks, they will continue to drive demand for low-cost 4G or entry-level 5G devices. Verizon’s acquisition of Tracfone will drive device upgrades due to compatibility issues as some Tracfone subscribers will migrate from AT&T and T-Mobile’s networks. In addition, DISH must move its Boost subscriber base from T-Mobile’s network to its new MVNO partner, AT&T.

Overall, retail trends in the US market continue to hold strong despite inflationary pressures. Smartphone demand has proved to be resilient both through COVID-19 and the steep inflationary growth of 2021. Though the market can change quickly, early indications are that the US market will see about 3% YoY growth in H2 2022 with a strong Q4 holiday season.

US White-label Smartphone Opportunity Continues to Grow

US carriers sold over 1.5 million white-label devices in Q3 2021, according to Counterpoint Research’s US Monthly Smartphone Channel Share Tracker. This figure includes AT&T, Cricket and T-Mobile (Revvl brand) devices.

Over the years, both carriers have maintained a range of white-label devices to fill gaps in their portfolios by offering affordable device options. Lately, the focus has shifted towards the sub-$300 5G device segment, especially in prepaid channels. In 2021 so far, US carriers have launched white-label 5G devices such as the REVVL 5G, REVVL V+ and Cricket’s Dream 5G/AT&T Radiant Max 5G, bringing down the 5G device cost to sub-$200.

In September 2021, Dish’s Boost Mobile announced the Celero5G-branded smartphone. The device, launched at a price of $279, will include unlimited talk time, text and data (speed throttled after 35GB) for 12 months. Further, the Celero5G comes packed with a 6.52-inch screen, quad camera and 4GB RAM/64GB NAND. It is rumored to be powered by the MediaTek Dimensity 7000 chipset. The device will be available at Boost Mobile-branded retail locations and in national retail.

Dish claims that the device fills a void in the market by providing an affordable 5G option to the customers. This is parallel to AT&T and T-Mobile’s strategy to bring more subscribers to the 5G network.

Opportunity for ODM/EMS firms

Industry continues to ponder whether Chinese OEMs will be able to enter US carrier channels. So far, none of the major Chinese OEMs have been able to range among US carrier channels apart from OnePlus. However, the white-label device opportunity brings OEM, ODM and EMS firms to a level playing field and opens a backdoor channel for entry to the US market.

This has enabled many ODM/EMS firms, such as FIH (Fushan), Wingtech, Tinno and Vinsmart, to work with US carriers. Many Indian OEMs are also aggressively looking to cater to the rising demand.

Apart from the carrier-branded white-label devices, some local US brands are also moving their production outside China. Recently, India-based EMS firm Dixon Technologies announced a partnership with Orbic to manufacture 5G smartphones in India. Orbic devices are sold in Verizon and TracFone channels in the US. BLU-branded devices sold in national retail channels such as Best Buy, Walmart and Target are also being manufactured in Vietnam. There are many other similar brands that are now looking at manufacturing outside China to circumvent unnecessary logistical hurdles.

While these devices don’t get much attention and have lower marketing spend, the arrangement allows US carriers to fill gaps in their smartphone portfolios. At the same time, it allows ODM/EMS firms, which remain behind the scenes, to avoid the marketing cost, which is typically shared between the carrier and a mainstream OEM brand (like Apple, Samsung, Motorola and OnePlus).

T-Mobile Looks to Shake up Wireless Competition in National Retail

Aiming to more than double its footprint in US national retail channels, T‑Mobile will soon start selling its wireless plans at 2,300 Walmart store locations across the US. This is timely and could be very beneficial for T-Mobile. The carrier is under-indexed in rural America. With its improved 4G and 5G coverage, it can get far more aggressive in rural areas where its network has been uncompetitive in the past.

According to Counterpoint Research’s US Monthly channel share tracker, national retail accounted for 14% of the US smartphone sell-through in the second quarter. Walmart remains the largest national retail channel followed by Best-Buy, Target, Costco and Sam’s Club.

Exhibit 1: US Smartphone Sell-through by Sales Channel

Source: US Online-Offline Monthly Channel Share Tracker (Q2 2021)

Walmart Targeted at Low-End & Mid-Tier

Sales at Walmart remain targeted towards mid-tier and low-end wireless retail opportunity. Smartphone brands like Samsung, Motorola, Alcatel and white-labeled AT&T and Cricket devices remain very strong at Walmart. The competition in national retail remains heavily in favor of TracFone brands (such as TracFone, Straight Talk, Total Wireless, NET10 and Simple) selling in Walmart. This places Verizon in a very favorable position as it looks to complete the integration of TracFone by the end of 2021.

Exhibit 2: US Prepaid Brand Ownership and Sales Channel

While AT&T, too, enjoys a strong prepaid presence with Cricket and AT&T prepaid, Dish is likely to be the dark horse that can disrupt the competition in national retail. Dish, which now owns the Boost Mobile brand, has been on a buying spree that will likely continue. The #4 US carrier acquired Republic Wireless in March 2021, Ting in August 2021 and Gen Mobile in September 2021. This takes Dish’s prepaid subscriber count to over nine million and brand count to four in national retail.

Prepaid-Postpaid Migration

In 2021, postpaid deals have been very strong for premium smartphone devices. 5G remained at the center of the three national carriers’ marketing focus. BOGOs and $800+ trade-in deals on new iPhones and Galaxy S21 remained consistent throughout the year, leading to a higher migration in favor of postpaid. This trend of deals is likely to continue in Q4 2021 and 2022, making competition in prepaid more intense.

While Metro by T-Mobile and Cricket account for the majority of the net adds, Dish and Verizon (especially after the Tracfone acquisition) will now be looking to advance their subscriber base. Dish with its four prepaid brands would likely expand its presence in national retail. It is expected to start selling in Target stores in October 2021. Earlier, during an investor presentation, Verizon’s John Dunne also hinted at broadening Verizon’s prepaid offerings. We can expect Verizon to get more aggressive within prepaid if the TracFone deal is completed in Q4 2021.

Overall, national retail remains key to US carriers’ wireless retail strategy. Carriers continue to pay lucrative per-line commissions to retailers. The key target of the carriers is to capture the “customer lifetime value (CLV)”, as 5G opens up new opportunities, and/or finally have them upgrade to a premium unlimited plan.

Q2 2021: US Smartphone Market Grows 27% YoY in H1 2021 Despite Shortages; OnePlus, Motorola, Nokia HMD Gain as LG Exits

Denver, Boston, Toronto, Denver, London, New Delhi, Beijing, Taipei, Seoul – July 27, 2021

The US smartphone market saw a 27% YoY increase in H1 2021 sales as carriers continued pushing 5G upgrades and heavily discounted 5G smartphones. Both Apple and Samsung devices were the top-sellers in the premium segment with 53% and 17% YoY growth, respectively. OnePlus, Motorola and Nokia HMD saw strong growth in the market by capturing the void left by LG’s exit from the smartphone business.

Source: North America Online-Offline Channel Share Tracker Q2 2021

US Research Director Jeff Fieldhack said, “So far, 2021 has been a challenging year for OEMs. There was a consolidation of the market with LG and VinSmart’s exit, increased demand from carriers for more affordable 5G smartphones, and manufacturing constraints due to the global component shortage. This created a big opportunity for OEMs looking to expand market share. So far, we have seen OEMs such as OnePlus, Motorola and Nokia HMD successfully capturing this momentum. Supply for many Android OEMs has been tight, especially for the sub-$600 devices. We believe Samsung could have done even better if it had the inventory to satisfy the demand. The A32 5G was a big hit in T-Mobile’s ‘5G for All’ campaign. Because of supply problems or by design, T-Mobile has changed the high-volume 5G switcher device to the OnePlus N200. This device is one of the most affordable 5G devices in the market at the moment. These large volumes are helping OnePlus grow its installed base and become an early winner in filling the void left by LG.”

Senior Research Analyst Maurice Klaehne added, “OnePlus became the fastest growing OEM in H1 2021 with a growth of 428% YoY. With the introduction of the N100 and N10 5G in January, OnePlus quickly gained market share in Metro by T-Mobile. Besides, it continues to push its premium device presence at T-Mobile with the latest OnePlus 9 and 9 Pro. OnePlus further expanded its presence in Q2 due to LG’s exit from the smartphone market while the N100 has been one of the top selling smartphones within Metro for months.”

Commenting on the US H2 2021 and 2022 market outlook, Fieldhack said, “We are seeing several demand drivers for smartphones. If Verizon’s purchase of Tracfone goes through, millions of subscribers will need to be migrated from T-Mobile and AT&T to Verizon’s network, which needs a large number of affordable devices. In addition, the Verizon CDMA shutoff date is set for December 2022, and this time it is for real. While it may seem like a long way off, it takes a lot of time to migrate millions of subscribers. Lastly, T-Mobile is shutting down Sprint’s 3G CDMA network by January 1, 2022. This means millions of T-Mobile subscribers need to have new devices. DISH will have to also move millions of CDMA subscribers over to its new MVNO partner, AT&T.”

Commenting on inventory levels, Senior Analyst Hanish Bhatia said, “The current global component shortage has tightened the inventory situation in the US market. However, it seems that global OEMs are prioritizing the US market over other regions. Samsung has shifted its focus to premium devices over the mid-range A series on the supply side. Apple’s supply chain remains the most resilient. It had a relatively healthy inventory in much of the first half of 2021. Component shortages are resulting in OEMs falling short in meeting carrier demands for specific smartphone models, while also forcing some to prioritize certain models over others. If this continues, it may put a big constraint on the supply side in H2 2021.”

Analyst Contacts:

Maurice Klaehne

Jeff Fieldhack

Hanish Bhatia

Follow Counterpoint Research

press(at)counterpointresearch.com

Top

Insights Tag： Walmart