The smartphone market has been through a lot in the last few years. The COVID-19 pandemic, currency fluctuations in emerging markets, emerging local manufacturing requirements, the Russia-Ukraine war and historic high inflation have all taken their toll. We had to cut our market forecasts repeatedly in 2022, and I know that hardware vendors, component providers and channel companies did too. 2022 ended with a 12% fall in shipments, the worst annual drop since Canalys started smartphone market research in 2003.

Our latest smartphone forecast, published to clients on Friday, 19 May 2023, cut 2023 global shipments to 1.2 billion, down another 5.2% on 2022. But some positive signs are emerging in the market for the first time since the start of 2022.

From our conversations with the distributors, frontline sales companies and supply chain businesses, a few things show we are headed in the right direction.

Five positive signs for the future of the smartphone market

1. Inventory optimization: Inventories are returning to healthy levels for many vendors and channel companies around the world. Vendors have been cutting sell-in drastically in recent quarters and investing in marketing campaigns to stimulate sell-outs. Inventory levels for some models and regions are still relatively high but look much healthier than a quarter ago.
2. Adaptation to harsh conditions: Vendors adapted to tough business conditions by focusing on channel collaboration, profitability and sustainable business models. This means vendors work more closely with their partners on co-marketing and product planning. They also focus on optimizing operations, expanding the category and understanding end users, allowing them to grow more effectively in the long term.
3. Component supply normalization: The supply and cost of key components are normalizing, so vendors can plan better and improve the bill of materials costs to deliver the best value to consumers and improve demand.
4. Entrance of new players and innovations: New companies are joining the smartphone industry, while smaller players, such as Google, are investing to grow. Smartphones are still at the core of connected life, which has attracted start-ups and cross-industry players to join the game, such as electric vehicle companies and artificial intelligence vendors. This brings genuine innovation to rejuvenate the market and reignite demand.
5. Pent-up demand in restricted markets: There is much pent-up demand in markets where the import and production of smartphones are restricted, given recent local trade controls, such as Egypt and Pakistan. Now demand is much higher than supply, creating a rebound once the trade controls are eased or lifted, which is a short-term opportunity for vendors that are watching and prepared.

Potential challenges for the 2023 smartphone industry

Despite these positive signs, we know the “Grey Swans” are still out there, leading to cautious planning for most smartphone industry players. First, there is still a risk of recession. A recession in the US and Europe and lower demand expectations in China could lead to another wave of disruption in emerging markets’ economic recovery and currency issues.

Second, import restrictions, local regulations and lawsuits could significantly disrupt the supply of critical components or some key vendors’ business operations.

Overall, Canalys forecasts that the smartphone market will return to growth in 2024 at 4.4%. In addition to a well-designed organizational structure and solid financial planning to weather the macroeconomic downturn, vendors should be aware of the many lessons we have learned over the past few years and take steps to avoid the potential pitfalls.

Canalys’ top five recommendations for smartphone vendors in 2023

1. Geographical market diversification: Continue diversifying your geographical market portfolio to find new growth. Embrace emerging markets for scale and the younger generation for mobile-first consumer insights.
2. Robust local organizations: Build and empower robust local organizations to focus on building local partnerships and a software/service ecosystem.
3. Collaboration with trusted local partners: Work with trusted local partners to quickly discover and mitigate business and financial risk and, more importantly, create a growth plan together.
4. Brand building and embracing global trends: Focus on building a trusted brand ahead of the competition. Embrace significant global trends, such as sustainability, the circular economy, data privacy and localized practices.
5. Digital infrastructure development: Develop digital infrastructure to optimize logistics, operation processes and data sharing between the frontline point of sales and back-end production and strategic planning teams.

In addition to the above, I want to emphasize the importance of agile planning and independent market insight. In today’s ever-changing market, vendors must adapt to new trends and challenges quickly. This can be achieved by having a well-informed market research team that can provide timely and accurate insights into the market. With this information, vendors can make better growth planning and go-to-market decisions. Do get in touch with me for an exploratory call.