In 2020, mobile phone manufacturers will not be able to wait for the 5G trend

In the mobile phone industry, the following judgment is circulated about the market in 2020: With the launch of 5G commercial use, the sales of 5G mobile phones in 2020 will not only stimulate the shipment volume of the entire industry, but also provide an excellent opportunity for mobile phone manufacturers to stabilize their market share or overtake others, especially for companies like Xiaomi that have been good at internationalization for some time and have seen a decline in their domestic market share.

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In this article, we will use data as the main basis to analyze and predict the smartphone market in 2020, and then judge how important the 5G concept is to mobile phone manufacturers, and whether there is any opportunity for the current market structure to change, loosen, or even be subverted.

5G mobile phones in 2020: Looks good, but the market is unlikely to explode

Regarding the predictions for China's 5G mobile phones in 2020, different institutions have different results, ranging from tens of millions to even hundreds of millions. We might as well make our own judgment based on basic data.

Let me first introduce the basis for judgment: Since both networks regard cities as their primary markets, we use the early development path of 4G as a sample and the 4G base station coverage conversion rate as a reference to predict the user conversion brought about by the initial 5G base station construction.

Wu Hequan, an academician of the Chinese Academy of Engineering, said in 2018 that "5G will require more dense base stations, and the number of 5G base stations will be 4-5 times that of 4G." That is, without considering technical details such as different frequency bands adopted by different operators, the coverage area of ​​a single 5G base station is roughly 4-5 times that of 4G. Taking into account that my country has accelerated urbanization migration and increased resident concentration in recent years, based on the above analysis, we might as well optimistically set the user conversion rate of a single 5G base station to one-third of that of 4G.

Organize the following data:

In the first two years of 4G, the number of users covered by a single base station showed a rapid growth momentum. Taking into account the importance attached to 5G by the country, operators and mobile phone manufacturers, as well as 5G's technological advantages in population coverage, we set the number of people covered by the base station to the maximum of 220/3. That is, under ideal conditions in 2020, a single 5G base station will convert 73 users.

According to reports from the Ministry of Industry and Information Technology and CCTV, the minimum number of 5G base stations nationwide in 2020 is expected to be around 700,000. Combined with the conversion situation analyzed in the previous article, the number of 5G users in 2020 will be around 52 million.

In 2019, the national 5G mobile phone shipments reached 13 million. It can be roughly concluded that the shipment scale of 5G mobile phones in 2020 will be around 40 million units.

Whether the above analysis is objective and rigorous can be verified by the following cross-validation.

We have collected and sorted out the relevant data on mobile users from the Ministry of Industry and Information Technology from 2013 to date, as shown in the figure below.

The above units are all "100 million households"

In 2019, my country's mobile phone shipments were as follows: 16.131 million 2G mobile phones, 58,000 3G mobile phones, 359 million 4G mobile phones, and 13.769 million 5G mobile phones.

After observing the data, we found that the shipment situation of 4G mobile phones is roughly as follows: the number of replacement phones in the previous year + the number of new mobile users + the conversion of 2G and 3G - the increase in 5G = 359 million units.

We roughly estimate from the above formula that the annual replacement rate is around 20%. Using this value to verify 2018, the error is also within a reasonable range.

Combined with this estimation result, we make the following summary of the above data:

1. The important reason why 4G mobile phones are booming is that, on the one hand, the huge conversion stock of 2G feature phones has dropped from more than 800 million to more than 200 million, which is equivalent to a large reservoir for 4G. In addition, the peak of 3G's total scale of 485 million and the mobile user penetration rate of around 30% mean that 3G networks have not been completely successful in China, which has provided an excellent growth soil for 4G. On the other hand, due to factors such as mobile phone price cuts and operator package discounts, the scale of mobile users has increased by more than 300 million from 2013 to 2019, and most of them have been converted into 4G users.

2. Due to external factors such as the cancellation of roaming fees and number portability, as well as factors such as the total number of users, the number of mobile users increased by only 30 million in 2019, which also shows that the demographic dividend of the continuous influx of new users in the mobile phone industry is fading;

3. In the 5G era, although operators and manufacturers are emphasizing the fast network speed, no new applications that are suitable for the 5G era have been found on the mobile application side. Compared with the development of short videos, mobile social networking, and mobile games based on 4G, 5G has not seen any applications that are different from 4G in the short term. In other words, 5G’s "surprises" at the mobile application level are relatively insufficient, which will limit its overall increase.

In 2020, as the scale of 700,000 5G base stations is still in its infancy, although operators have stated that they want to cover all prefecture-level cities, the radiation of a single base station is roughly around 0.3 meters and the total coverage area is relatively limited. As a result, although urban areas are covered, most urban residents will not be able to fully and smoothly enjoy the 5G network in 2020. This will also limit the continuous growth of 5G users after the demand for "trying new things".

In addition, the cost of 5G base stations is high. According to a report from the China Academy of Information and Communications Technology, the initial electricity cost of a single base station is 3-4 times that of 4G. Given the small scale of existing users, the amortization cost per user is too high. Without external support such as capital and finance, it will be difficult to reduce package fees in the short term.

In other words, with the maturity of the non-functional machine reservoir and application level, the development efficiency of 5G in the early stage will not exceed that of 4G. The ideal scale of 52 million analyzed in the previous article should be theoretically tenable.

So, what is the approximate growth situation of smartphone users in 2020?

According to the 4G sales growth formula, it can be predicted as follows:

Annual sales volume of smartphones = 5G sales volume + 4G sales volume = new mobile network users + 2G and 3G network switching numbers + 20% replacement ratio of 4G last year

If the number of new network users is set at 20 million (this is also the annual growth of WeChat, which is roughly at this scale), and only 58,000 3G mobile phones were sold in 2019, it means that the existing market of the network has been rapidly lost, and the conservative stock is set at 20 million households. 2G is used by a specific group of people, and its total size is set at around 200 million.

Then the annual sales volume of smartphones = 5G sales + 4G sales = 20 million + 90 million + 12.8*20% = 376 million units

Among them, the number of 5G phones is around 40 million, and the number of 4G phones is over 300 million.

The above statistical analysis is based on industry scale and subjective speculation, and is inevitably biased, but we believe that its trends and overall situation should be relatively accurate.

China Telecom and Strategy Analytics have predicted that the number of global 5G users will be between 160 million and 170 million in 2020. According to our conclusion, China's market share will reach around 30%, making it the most critical market in the world.

Judging from the scale, smartphone sales in 2020 should most likely be in the same range as in 2019. It is unlikely that 5G will see "explosive" growth as optimists claim in its first year of operation, especially due to the coverage. It will be difficult for remote and low-density areas to enjoy the high-quality 5G network in the short and medium term. In other words, for a long time, my country will form a network model with 4G and 5G running in parallel.

Mobile phone manufacturers enter the pure stock market to compete for 5G and take the lead

In the above analysis, mobile phone manufacturers must face the following Chinese smartphone market: 1. The overall scale of the industry is still in a bottleneck period (the 5G concept will not expand the scale of the industry in 2020); 2. The main points of competition should be placed on, first, attracting new users brought by new network access and 2G user conversion. These users are mostly young and old, and are mainly driven by price and cost performance, such as Xiaomi's Redmi series and Honor mobile phones. Secondly, the key lies in 20% of users who replace their phones. This is also the biggest plate. It is not only about maintaining the stickiness of its own brand users, but also about snatching new users from competitors.

As the overall scale of new network entrants and feature phone conversions weakens, manufacturers’ main competitive point has to be in the area of ​​20% replacement of new phones.

This is unprecedented.

In 2018 and 2019, according to the above formula, 4G mobile phone updates brought a market size of 200 million and 234 million respectively, accounting for 53.7% and 60% of the total smartphone size that year respectively.

But in 2020, the figure will reach 70%, indicating that manufacturers will enter a stage of hand-to-hand combat. They must not only maintain the existing user base, but also attract as much incremental growth as possible from their competitors. The industry has completely entered the stock market competition cycle.

According to a report by market research firm Counterpoint Research, the market share of China's leading manufacturers has been extremely stable in the past two years. Except for Xiaomi, which fell by 2 percentage points in 2019, and Honor, which fell by one percentage point, the growth rates of other brands were relatively balanced. Among them, the "other" brands shrank rapidly in 2019, and most of this market share was absorbed by Huawei, which ranked first in market share.

Let's go back to the topic of market competition for the 20% replacement of mobile phones. This part of the market can be divided into two parts: stabilizing the existing market and acquiring rival users. For Xiaomi, the current market share is low, which means that the scale of the existing market is relatively small. To win the battle in 2020, it is necessary to infiltrate the opponent's hinterland and "turn" the rival users.

Since 2019, Huawei and Xiaomi have been engaged in a war of words, and have had multiple rounds of debates over wireless charging capabilities alone. At the launch of Xiaomi 10, Lei Jun still benchmarked against "friendly competitors." Xiaomi's urgency to convert Huawei users is self-evident.

That is to say, in 2020, Xiaomi's situation is more complicated than Huawei, vivo and OPPO. This is also the reason why Xiaomi has been quite proactive in 5G from 2019 to the present after Huawei gained a large voice in 5G. Therefore, if we are optimistic about Xiaomi, it will stabilize the existing market and gain a little from its competitors. If we are pessimistic, the market will be further eroded. However, the general trend that 5G is still on the defensive for Xiaomi will not change much.

Although Xiaomi has a positive attitude towards 5G, the key to its market operations in 2020 is still in the 4G stock market. In other words, Xiaomi's 4G mobile phones are far from the stage of destocking and freeing up production capacity for 5G. On the contrary, 4G mobile phones will still be Xiaomi's absolute main force in 2020.

Today, 5G mobile phones are still in the trial stage in China. Not only are they expensive, but they are also still in the coexistence stage of NSA (non-independent networking) and SA (5G independent networking) (a considerable number of NSA mobile phones sold in 2019 were not connected to the 5G network). As the overall price of mobile phones drops, the explosive growth of 5G should also arrive as expected. The existing mobile phone manufacturers' deployment of 5G is more like consolidation and advancement of the existing market, at least in 2020.