As countries roll out their 5G networks, smartphone makers are betting the latest 5G-enabled phones can spark an upswing in sales that generates billions of dollars for the industry. Anthony Okolie speaks with Vitali Mossounov, Global Technology Analyst, TD Asset Management on his industry outlook.
- As countries continue to roll out their 5G networks, smartphone makers are betting on the latest 5G-enabled phones. So can 5G spark a new super cycle that generates billions of dollars in sales for the industry? Joining me to discuss this and more is Vitali Mossounov, Global Technology Analyst with TD Asset Management. Vitali, what's the state of the smartphone landscape today?
- There's one word that you were going to apply to the smartphone market, Tony it's mature. I actually, before for the segment, tried to go and figure out when was it that I bought my first smartphone. And it kind of, for some reason, seemed like maybe four, five, six years ago. But it's now been 10. And remarkably-- if we reflect on it some more-- the iPhone came out and really defined this smartphone category-- we're in the 14th year right now. So the market's mature. I think we've got a chart we can throw up.
Look, from '07 to '15-- 2015, 2016-- that was the era when I think we saw our friends, the people around us, using smartphones. And we said to ourselves, hang on a second. I can get an Uber. I can get a date using this thing compared to a regular phone. This is cool. I'm going to go get this. And in 2017, the industry pushed out about a billion and a half phones. Which is a lot, right? There's 7.8 billion people in the world. And since then, it's really been a story of replacement cycle. So everyone's got a smartphone and you just go get a new one now every four or five years. So a mature market, Tony.
- And certainly in this market there's a lot of competitors. There are a lot of different phones you can go and buy. Who would you say are the leaders in the smartphone market today?
- There are a couple. And I think we'll continue with the adjective game and say the market's not only mature but, naturally, it's consolidated. As mature markets tend to be. We've got another chart that I'll trust we'll throw up. And you'll see right there that you've got really six companies controlling 80% of market share. Huawei and Samsung, they lead the way with about 20. Huawei predominantly selling in China. Samsung being more of a global player. There's Apple. Apple's Apple. And three more Chinese companies that have been gaining market share in recent years-- Vivo, Oppo, and Xiaomi. And then really a bunch of-- from an investor perspective-- irrelevant players comprising the remaining 20%.
- And so going forward, given what we've gone through with the pandemic and so forth, do you see any sign of recovery in the smartphone industry?
- There's hope. And in fact, 2020 was supposed to be a bit of a recovery year. As I mentioned, '18 and then '19 saw a modest decline in sales. I'm not going to get into the reasons why 2020 turned out to be a not-so-good year for smartphone sales. We all know what has been a defining event of the year. But for '21, we're now hearing language from big producers like Samsung that they're seeing people come out of their, I guess, nest at home. Get out into the real world more. There's, obviously, the economy's recovering. And as I said, replacement cycles matter. So people are realizing, look, my phone. I've been using it for four years, for five years. I think I might need a new one. Especially with the word 5G be thrown around. So '21 has got a chance of being a growth year for smartphones. It's encouraging.
- OK, I want to little drill down a bit. Because you mentioned about the need to upgrade your phone, particularly with 5G. Do you see that 5G can drive growth in this industry?
- It's a hotly contested debate. I'll tell you what the two sides are. I mean, the first one is saying, look, 5G. What is it, right? Faster speeds, lower latency. So technically it's great. It can lead to something. But in the meanwhile, if you look at the networks that are out there. Are they fully set up for 5G? No. They're not. You can't take advantage of it right now to its fullest extent. And applications that are going to really let you take advantage of those technical parameters I described, they're not there.
So I think the detractors will say 5G will not make a contribution to the sales. I think I take the other side of it. It's not that there's going to be, I think, a 5G super cycle that we're about to embark upon. But I think the consumer is probably going to be driven by the marketing more than the technicals. I mean, we go to work or work from home. We pick up kids from school. We're not doing deep dives on a daily basis as consumers about what it is that this smartphone can give us. And I think the marketing around 5G is actually very aggressive. And as Andre mentioned, I think a couple of weeks ago, the promotions are very aggressive, as well, around 5G. And I think that is going to be a boost to consumer demand and an upgrade cycle for '21.
- Now, there are some growing concerns that the smartphone market is uninvestable-- similar to the PCs became after their sales peaked back in 2011. What's your take on that?
- It's an interesting thought. It does warrant some concern, but I think with the present information we have, it is an incorrect view. I think we need to remember, really, that 2011 to present, the decline of the PC has really been all about cannibalization by smartphones. So we saw the chart earlier in the segment. We just all realized that there was a better way to do things and we stopped buying PCs and started buying smartphones.
That eventually will, of course-- we know the history of technology-- that will happen to smartphones as well. But as we're thinking about the next one or two years, this is not something to be overly concerned right now. This is a long term thought to ponder on.
- OK, we just a few seconds left. What's one way for investors to get exposure to this sector?
- There is no shortage of vehicles out there for technology. It's a popular sector. There are ETFs, there are mutual funds. We at TDAM manage the TD Global Technology Leaders Index ETF. It's a tongue-twister, but the ticker is TEC. And that really brings you the technology companies from all developed markets across the world and thinks through the classification. So some tech companies, we think, are erroneously classified as consumer companies or as automotive companies. In that ETFs, we've put the thought through to say, Tesla, it might be an automotive company, it might be a car company, but we think it's also a tech company. And so it's included in an ETF like ours.
- Vitali, thank you very much for your time.
- Thanks Tony.