Smartphone sales will return starting in 2024, defying growing warnings of a prolonged recession in the mobile phone sector, according to separate forecasts by Goldman Sachs and Morgan Stanley reviewed by TechCrunch.
The Morgan Stanley report expects global smartphone shipments to rebound by about 4% in 2024 and by 4.4% in 2025, ignoring comparisons with multi-year cutbacks in the PC industry.
Driving the transformation in smartphones will be new on-device AI capabilities that will unlock new demand, Morgan Stanley says. The investment bank raised its forecast for the number of phones worldwide for 2025, citing the great potential of so-called edge AI to enable advances from enhanced photography to speech recognition while protecting user privacy.
Smartphone makers including Apple, Vivo, Xiaomi and Samsung have already started expressing their optimism about artificial intelligence. Vivo’s new AI-powered X100 saw massive sales, while Xiaomi promoted 6 times the usual volume of its AI-packed flagship device. Samsung plans to integrate generative AI into its 2024 models, aiming to offer ChatGPT-style features that are processed directly on the phones, rather than in the cloud.
“The biggest resistance is the lack of visibility into when the ‘killer app’ will be developed.” If we take the desktop Internet and mobile Internet as examples, the emergence of a new killer app usually comes a year or two after the initial hack.
“While there is no guarantee that Edge AI’s killer app will follow the same timeline, the emergence of Microsoft’s CoPilot as a potential PC AI killer app could lay the early groundwork for AI deployment at the edge (implying AI features/function Artificial on the edge (the device, not relying on the cloud), and helping give investors confidence in the emergence of a similar, but different, killer app for smartphones.
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Smartphone drop from Morgan Stanley. India is the only market set to achieve double-digit growth. (Chart and data: Morgan Stanley)
Goldman Sachs estimates that global smartphone volumes in 2023 will decline by 5% year-on-year to 1.148 billion units, down from an estimated 1.206 billion phones shipped last year. The decline in 2023 would mark the second consecutive annual decline after steeper declines in 2022.
But Goldman said momentum will rebuild in 2024 and 2025, supported by new product launches. It expects worldwide smartphone shipments to rise 3% to 1.186 billion in 2024, then rise another 5% to 1.209 billion in 2025.
“With the holiday season and ongoing restocking, coupled with better guidance from the supply chain on market recovery, we have revised smartphone shipments in 2023-25E; however, we still expect low-single-digit growth in 2024-25E, and a return to Global smartphones will gradually reach 2022A level by 2025E.”
The bright future outlook for mobile phones differs from the consensus view that mature smartphones face similar threats of inertia and displacement as personal computers did over the past decade. But replacement cycles and use cases still favor mobile phones, Morgan Stanley said.
“Tablets and smartphones have been taking their share of PCs since 2011. In other words, the decline in PC shipments has been due to the emergence of new devices, not the disappearance of overall demand. We do not see smartphones facing a similar risk of displacement from other technologies.” Like AR/VR anytime soon. Smartphone replacement cycles are shorter because they are used more frequently and have smaller batteries. Use cases for smartphones are still expanding, with Edge AI set to unlock a new wave of innovation.
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Goldman Sachs forecasts for major smartphone vendors. (Chart and data: Goldman Sachs)