The Chinese government is reportedly betting 5G phone subsidies will give a lift to flagging local smartphone demand.
Taiwan's Digitimes reports (citing Taiwanese chip suppliers) that the Chinese government and local carriers plan to jointly offer subsidies for the purchase of 5G phones. It adds the subsidies are likely to be implemented by the end of Q1.
The report comes a few days after a Chinese government agency, CAICT, reported the country's mobile phone shipments fell 38.9% annually to 20.8 million units in Q1, as the coronavirus outbreak weighed on both phone production and consumer demand. Research firms IDC and Strategy Analytics have each forecast that Chinese smartphone shipments will drop more than 30% annually in Q1.
For its part, Apple (AAPL) - Get Report wholly attributed its March quarter sales warning to the outbreak's impact on its Chinese sales and the operations of local supply chain partners. This past weekend, Apple analyst Ming-Chi Kuo forecast that iPhone production won't significantly improve until Q2, while adding that iPhone camera lenses are in short supply.
China has been expected to account for a large portion of 2020's 5G phone shipments, thanks to relatively early 5G network rollouts by Chinese carriers and the launch of a slew of 5G phones by local OEMs. CAICT estimates that 5G phones already accounted for more than a quarter of China's January mobile phone shipments.
With Chinese 5G networks not currently supporting high-frequency, millimeter-wave (mmWave) spectrum bands, OEMs don't need to place mmWave antenna modules within Chinese 5G phones, which in turn has helped them launch relatively cheap 5G models within the country. One good example: Xiaomi's Redmi K30 5G phone, which is powered by Qualcomm's (QCOM) - Get Report Snapdragon 765G system-on-chip (SoC) and starts at just 1,999 yuan ($286).
Should 5G phone subsidies meaningfully boost Chinese phone sales, a slew of chip suppliers would benefit. Qualcomm, which currently has a dominant position in the high-end 5G modem market and has also landed many design wins for its 5G RF front-end (RFFE) chips, is certainly on the list. So is Taiwanese rival MediaTek, which has landed a number of modem/processor design wins for mid-range 5G phones.
RF chip suppliers Skyworks (SWKS) - Get Report and Qorvo (QRVO) - Get Report would also get a boost, particularly given that even 5G phones lacking mmWave support pack more RFFE content than comparable 4G phones. Skyworks and Qorvo have both reported landing 5G design wins with Chinese OEMs Oppo, Vivo and Xiaomi, with Qorvo indicating many Chinese 5G phones have $8 to $10 worth of its content.