13 September 2018
Technology sectorTable of contents
Overview3
Demand weakens further. We expect 2018 iPhone output to fall YoY, but Jan–Mar
2019 could come in strong depending on new iPhones’ prices. Triple-camera sets
may appear in 2019. MLCCs remain tight....3
Stock implications from hardware production trends...........5
Smartphone production trend10
Demand remains weak; smartphone camera spec upgrades to accelerate in 2019;
new iPhones could outperform if prices allow........10
iPhone production: Increasing likelihood that output will be lower in CY18 than in
CY17, but volume could be strong in Jan-Mar depending on sales of new models
.......13
Samsung Electronics smartphone production trend: hastening up-spec'ing in 2019
models, especially with respect to cameras...........20
Chinese smartphone production trend.......28
Outlook for 5G services in China52
Our view following the survey........52
Others (PC, Tablet PC, Apple Watch, Switch)53
Tablets.......53
PC production volume........54
Apple Watch production volume....55
Nintendo Switch production volume...........55
Appendix56
13 September 2018
Technology sectorOverview
Demand weakens further. We expect 2018 iPhone
output to fall YoY, but Jan–Mar 2019 could come in
strong depending on new iPhones’ prices. Triple-
camera sets may appear in 2019. MLCCs remain tight
Smartphones
Our Japan tech team has trimmed its CY18 global smartphone production volume forecast
as of the latest survey to 1,407mn units (4% YoY), from 1,496mn (+2%) in March and
1,457mn (1%) in June, versus 1,464mn (5%) in CY17. Our downward revision reflects
lower-than-expected production of the iPhone 6S and iPhone 7 series versus our
production volume assumptions. In addition, we took into account the lowering of
production plans for Jul–Sep and Oct–Dec at Xiaomi, Oppo and Vivo in China to more
realistic levels.
We forecast CY18 iPhone production volume by quarter as follows: 54mn units in Jan–Mar
(44% QoQ, +25% YoY), 39mn in Apr–Jun (28%, 2%), 58mn in Jul–Sep (+47%,
+17%), and 71mn in Oct–Dec (+22%, 28%). We expect CY18 production to total 222mn
units (4% YoY) with a strong likelihood volume will be lower YoY. For new iPhone
models, we forecast production of 30mn units in JulSep and 57mn in OctDec, totaling
87mn units in CY18 (41mn 6.1-inch LCD models, 19mn 5.85-inch OLED, and 27mn 6.5-
inch OLED). Scenarios for the iPhone can change considerably depending on prices for
new models. If demand for new models is stronger than anticipated during CY18, we see
the possibility that production volume upside will be limited in CY18 but will be higher than
we expect from Jan–Mar CY19, taking into account device supply.
We expect Samsung Electronics to make 293mn smartphones in CY18, versus our
forecast of 295mn at the last survey. We believe the company slightly rolled back
production plans for flagship models, while increasing volume for the J series and A series
in the second half. Samsung Electronics is taking on Chinese makers with better specs by
expanding its lineup of triple-camera smartphones on top of dual-camera models for CY19.
We therefore see a strong likelihood that supply–demand for CIS will tighten further.
For Chinese smartphone production volume (including exports), we now forecast growth of
3% YoY in CY18, somewhat weaker than our forecast for 6% growth at the previous
survey, which reflected aggressive product plans at Oppo and Vivo throughout 2H. As of
the current survey, we believe their production plans have begun to settle down to more
realistic levels. As of the previous survey, our quarterly estimates for CY18 were 151mn
units in JanMar (18% QoQ, flat YoY), 181mn in Apr–Jun (+20%, +10%), 201mn in Jul–
Sep (+11%, +8%), and 200mn in Oct–Dec (flat, +9%). As of the current survey, our
quarterly estimates for CY18 are now 151mn units in Jan–Mar (18% QoQ, 1%YoY),
180mn in Apr–Jun (+20%, +10%), 188mn in Jul–Sep (+4%, +1%), and 191mn in Oct–Dec
(flat, +9%).
Our Asia tech team expects shipment volume in the Chinese smartphone market to
decline by 2% YoY in CY18 (link).
Multiple camera smartphones, especially triple-camera models, to gain
momentum in 2019
Changes on the specifications front include Huawei’s announcement of the P20/P20 Pro,
as well as other Chinese smartphone makers beginning to consider 48MP sensors and
triple cameras in high-end models for late 2018 or 2019, which we touched upon in our
previous report. In this survey, the greatest change in specs is Samsung Electronics
accelerating its multiple camera push in 2019. The company is greatly expanding volume
13 September 2018
Technology sectorfor triple camera models while examining smartphones with 48MP sensors on the high-
end range.
In 2019, smartphone makers forecast triple camera smartphone volume will reach a total
of 190–200mn units with 60–70mn at Samsung Electronics, 30–40mn at Apple, and 80–
90mn at Chinese smartphone makers. Concerns are growing about tighter supply in CIS
because Samsung Electronics has moved to increase multi-camera models.
In addition to growth in CIS and lens demand, we also expect to see benefits from the
steady growth in demand for lens materials, such as resins like cyclic olefin copolymers
and from an upturn in CIS and lens-related production capacity. AF-use VCM and OIS
should see a boost to ASP as main lens diameters get larger due to the shift to
increasingly higher resolutions, but use for zoom and autofocus in low-resolution cameras
(5/8MP) will likely only be for fixed-focus, meaning generally limited impact.
Tablets
Volume is slightly higher than we had expected. We now forecast iPad production volume
of 54mn units versus 53mn at the last survey. Tablet production at Samsung Electronic
has been on an uptrend since August.
PCs
Depending on supply problems with Intel MPUs, we see downside risk in production
volume for notebooks and desktops in Oct–Dec 2018.
Apple Watch
Apple Watch production volume was 18.5mn units in CY17 (6.5mn in 1H, 12mn in 2H),
and plans apparently call for production of 23mn units in CY18 (8mn in 1H, 15mn in 2H). It
seems the launch of a new model may be delayed.
Nintendo Switch
No major changes. We estimate Nintendo Switch production volume of 21mn units in
FY3/18 and 20–21mn in FY3/19. Although production plans are still up in the air for CY19,
it seems the company is eyeing around 25–30mn units. We believe its plans include the
introduction of a 5-inch model in addition to the current 6.2-inch model.
Devices in short supply
Supply is tight for MLCC, IGBT & MOSFET, DDI & TDDI, CIS (5MP, 8MP, low-end 13MP),
and FC-BGA substrates.
FC-BGA substrates
In our previous report, we stated that supply is tightening for FC-BGA substrates, and it
appears this trend has continued more recently. Under these circumstances, major CPU
makers have apparently proposed to FC-BGA substrate makers that they raise prices in
order to expand production capacity. It is surprising that customers would suggest raising
prices in an industry where downward pressure on prices is the norm. Currently, two
Japanese companies and one European company are investing to expand production
capacity, which should have an impact from 2019. In the meantime, tight supply–demand
conditions are likely to persist. The Japanese companies that are expanding capacity say
current product prices make it hard to see a return on their investments, so they are likely
to raise future product prices in our view.
From 2H CY19, demand looks likely to increase in earnest for FC-BGA substrates for 2.5D
packages mixed with HBM (high bandwidth memory), including in AI, switchi