With 5G rolling out in major markets, consumers now have big incentive to upgrade their smartphones. This could create a virtuous cycle where more 5G devices spur more 5G investments.
The decade between 2006 and 2016 could be called “the golden age of the smartphone,” as enchanted consumers snapped up increasingly feature-rich cellphone models. New functionality and speed improvements drove annualized growth of 33% in global smartphone shipments over that period.
That era has ended. Since 2016, smartphone shipments have declined yearly due to a maturing market and longer replacement cycles. Where consumers once averaged an upgrade every two years, now it’s every 3.2 years thanks to increasingly durable, powerful—and expensive—devices, with only incremental tech updates.
We see the potential for 5G to deliver an additional $24 billion to $130 billion in revenue, relative to market expectations, between 2019 and 2021.
Enter 5G wireless networks.
This latest generation of wireless technology, now live in some key markets around the world, with U.S. carriers rolling out service nationwide throughout 2020, represents a major step up in speed, efficiency and coverage—and also requires a 5G-enabled device.
While the market is well aware of the promise of 5G, my colleagues and I on the North American Technology Hardware Equity Research team believe that the consensus may still be underestimating the full impact of the technology. Bears point to spotty 5G coverage and a lack of consumer awareness of the benefits. Our take is that the upcoming launches of new 5G devices from manufacturers, could create a virtuous cycle, whereby new devices spur additional investments in 5G rollout, coverage and functionality.
As a result, we have raised our base-case smartphone shipment forecast to reflect stabilizing smartphone replacement cycles driven by demand for new 5G devices. Conservatively, we estimate that 5G-enabled smartphones, which comprised 1% of shipments in 2019, will increase to 15% in 2020 (211 million units) and 29% in 2021 (420 million units).
Global Smartphone Shipments vs. Replacement Cycles
(Morgan Stanley Base Case Estimates)
New Incentive to Upgrade
During the early days of smartphones, makers could count on new users to drive sales, but now that roughlyhalf of all adultsin the world have smartphones, replacements have become an ever-bigger share of the business.
然而,在过去的几年中,设备become more durable and expensive, while improvements in feature and design have become incrementally smaller. As a result, more consumers are holding onto their phones longer, replacing only when necessary. That trajectory could change this year with 5G becoming more widely available and more 5G-compatible devices coming to market. More than 30 new 5G devices are known or expected to be released in 2020 from both top-tier and midrange companies.
From the consumer's perspective, 5G represents a major leap forward. Many know that 5G will be faster, with potential download speeds of 100 megabytes per second and upload speeds of 50Mbps. Less well known are benefits like increased capacity and reduced network latency, which is the time required for data to travel between phone and network. These upgrades could change the existing user experience and introduce augmented reality—which we believe may be the next killer app—to more users.
This all plays into a virtuous cycle in which more 5G devices spur more investments in infrastructure and app development, which in turn drives greater demand for 5G devices.
Our base case estimate now assumes that global smartphone shipment growth, which has steadily declined over the past three years, turns around in 2020, with a 0.8% annual growth this year and a 3.6% annual growth in 2021. (For company-specific estimates, ask your Morgan Stanley representative for our2020 Outlook: Mind the Margin Gap,Jan 17, 2020).
Global Smartphone Shipments by Mobile Network Generation
(Millions)
More Touchpoints, Higher Prices
Smartphone manufacturers could see gains that go beyond increased sales for primary devices. The rollout of 5G could also drive additional demand for wearables, accessories and home devices, not to mention related services and subscriptions.
Meanwhile, a 5G-enabled device is about $300 more expensive on average than its non-5G counterparts, suggesting that growth in 5G-compatible devices will boost average selling prices. Here, too, our view diverges from the consensus, which forecasts 8% average-sale-price (ASP) growth in 2020, followed by a 1% decline in 2021.
We believe this number is too conservative given our expectation that 5G devices could represent nearly a third of all smartphones shipped next year. So while our 2020 estimate is in line with the market, we see an additional 3% growth in ASP for 2021.
Putting this all together, we see the potential for 5G to deliver an additional $24 billion to $130 billion in revenue, relative to market expectations, between 2019 and 2021.
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