The worldwide smartphone market similar to other markets is expected to see a dip in demand as the fears of a recession continue to grow. This fear of a recession has also played a part in the African smartphone market continuing to underperform, at least compared to the Middle East, as we reported earlier. This has in turn led to smartphone manufacturers reducing their production, as they do not want to be sitting in huge piles of unsold devices.
Samsung, one of the world’s leading smartphone manufacturers, is already facing this challenge, according to a new report from South Korea. The report lays it out that Samsung has an incredible 50 million units that are stuck in distributor stock.
Basically, these 50 million units have not been sold to any customer, and are instead locked up in warehouses owned by Samsung’s distributors in various parts of the world.
The report explains that Samsung had projected to ship around 270 million units for the year. 50 million unsold units form 18% of the 270 million units, which from a business point of view spells danger, as I explain below.
In a normal working market where there is no imbalance in supply and demand, unsold inventory is usually 10% of total shipments. With Samsung’s unsold phones sitting at 18%, it indicates that there is a low demand for the company’s smartphones.
Logically, you might think that if buying new phones is becoming less of a priority for people who are facing pressure from the increased cost of living and high inflation the world over, then the most expensive models should be the ones that have reduced demand. But this is apparently not the case.
The midrange A series is reportedly what makes up the biggest percentage of the unsold 50 million units. Customers who shop at the highest end of the smartphone market for the Galaxy S series or the Galaxy Z Series, typically have more money to spend, and an increase in the cost of living, shouldn’t dramatically change their spending habits.
The same can not be said for people looking at the entry-level or the midrange devices for bargains. An increase in the cost of living has the capability to change their lifestyle, which in turn reduces the number of people that have money left over to upgrade their current smartphones.
Samsung manufactured 20 million units of smartphones per month at the beginning of the year (January and February). Responding to the high inventory levels and low demand, the company dropped the production level to just 10 million units for the month of May.
At the moment, it is difficult to say whether the situation is going to improve in the short term. Samsung sells the highest number of smartphones of any manufacturer across the globe. Therefore, if they are facing this problem, other manufacturers are likely to be feeling the same pain.
From the current increasing costs of living, new lockdowns in China and the Russia-Ukraine conflict, it is difficult to have hope that we will see a quick turnaround in the near future.
