Non-Apple IC manufacturers are reporting positive business performance this quarter. Chinese brands are experiencing a revival driven by the release of new Huawei smartphones, and a resolution in inventory clearance in emerging markets. This has led to an increase in orders. Additionally, Samsung’s success in foldable phones is contributing to the upsurge. This overall trend is benefiting companies like MediaTek and Novatek in the smartphone-related IC manufacturing sector.

As reported by CTEE, China holds about 25% of the global smartphone market, with industry analysts predicting sales of 260 million units in China for 2023. Huawei’s re-entry into the smartphone market will significantly impact the smartphone SoC market share in 2024. This development will challenge Apple’s market share in China, and Huawei’s upcoming Nova mid-range smartphones will also affect brands like Honor, OPPO, Vivo, Xiaomi, and others, as they vie for market share.

Key drivers of the smartphone industry’s recovery

According to Economic Daily News, many Chinese smartphone brands are optimistic about the local market’s improvement following the launch of Huawei’s new smartphones. Beyond flagship models like the Mate 60, mid-range series like Nova are also showing increased activity. Leading non-Apple smartphone manufacturers are gearing up for a surge in demand and are actively stocking up on top-tier flagship chips, thus stimulating the supply chain’s demand for additional orders.

At the same time, Taiwanese manufacturers mention that Chinese smartphone brands that primarily target emerging markets have already digested their accumulated inventory and are now starting to replenish their stocks. Some smartphone-related chip manufacturers have also pointed out that Samsung and other Korean smartphone giants are enjoying good sales of foldable phones and have recently conveyed messages about increasing orders.

TrendForce notes that the current revival on demand side in the global smartphone market is primarily driven by inventory restocking. The potential for sustained orders remains uncertain due to the prevailing economic challenges.

(Image: MediaTek)

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According to Bloomberg, Apple is quietly catching up with its competitors in the AI field. Observing Apple’s layout for the AI field, in addition to acquiring AI-related companies to gain relevant technology quickly, Apple is now developing its large language model (LLM).

TrendForce’s insights:

1. Apple’s Low-Profile Approach to AI: Seizing the Next Growth Opportunity

As the smartphone market matures, brands are not only focusing on hardware upgrades, particularly in camera modules, to stimulate device replacements, but they are also observing the emergence of numerous brands keen on introducing new AI functionalities in smartphones. This move is aimed at reigniting the growth potential of smartphones. Some Chinese brands have achieved notable progress in the AI field, especially in large language models.

For instance, Xiaomi introduced its large language model MiLM-6B, ranking tenth in the C-Eval list (a comprehensive evaluation benchmark for Chinese language models developed in collaboration with Tsinghua University, Shanghai Jiao Tong University, and the University of Edinburgh) and topping the list in its category in terms of parameters. Meanwhile, Vivo has launched the large model VivoLM, with its VivoLM-7B model securing the second position on the C-Eval ranking.

As for Apple, while it may appear to be in a mostly observatory role as other Silicon Valley companies like OpenAI release ChatGPT, and Google and Microsoft introduce AI versions of search engines, the reality is that since 2018, Apple has quietly acquired over 20 companies related to AI technology from the market. Apple’s approach is characterized by its extreme discretion, with only a few of these transactions publicly disclosing their final acquisition prices.

On another front, Apple has been discreetly developing its own large language model called Ajax. It commits daily expenditures of millions of dollars for training this model with the aim of making its performance even more robust compared to OpenAI’s ChatGPT 3.5 and Meta’s LLaMA.

2. Apple’s Advantage in Developing a Paid Subscription Model for Large Language Models Compared to Other Brands

Analyzing the current most common usage scenarios for smartphones among general consumers, these typically revolve around activities like taking photos, communication, and information retrieval. While there is potential to enhance user experiences with AI in some functionalities, these usage scenarios currently do not fall under the category of “essential AI features.”

However, if a killer application involving large language models were to emerge on smartphones in the future, Apple is poised to have an exclusive advantage in establishing such a service as a subscription-based model. This advantage is due to recent shifts in Apple’s revenue composition, notably the increasing contribution of “Service” revenue.

In August 2023, Apple CEO Tim Cook highlighted in Apple’s third-quarter financial report that Apple’s subscription services, which include Apple Arcade, Apple Music, iCloud, AppleCare, and others, had achieved record-breaking revenue and amassed over 1 billion paying subscribers.

In other words, compared to other smartphone brands, Apple is better positioned to monetize a large language model service through subscription due to its already substantial base of paying subscription users. Other smartphone brands may find it challenging to gain consumer favor for a paid subscription service involving large language models, as they lack a similarly extensive base of subscription users.

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In June of this year, Apple introduced the new Vision Pro headset, priced at $3,499, with plans to release it by early next year (by the end of April).

According to Bloomberg’s Mark Gurman in the Power On newsletter, Apple had been considering the development of a cheaper headset even before its June release, as the $3,499 price tag for the Vision Pro is a significant barrier to widespread adoption.

Reportedly, this more affordable follow-up version of the Vision Pro may abandon the use of an external display and Mac-grade chips to fall within the internal discussion range of $1,500 to $2,500. While not exceptionally cheap, it’s nearly half the price of $3,499.

Gurman also stated that this budget-friendly version might employ iPhone-grade chips rather than Mac-grade ones, reduce the number of cameras, and come equipped with a lower-resolution screen to cut costs.

It’s worth noting that forgoing an external display would mean Apple is eliminating a significant feature of the Vision Pro – EyeSight.

Upon first encountering the Vision Pro, individuals unfamiliar with VR technology might think the front of the device is a transparent glass, but in reality, it is an opaque display screen that also includes cameras, sensors, and chips, among other components.

Mike Rockwell, Vice President of the Vision Pro technology development team, explained that the display screen is not only curved but also lens-shaped. This means that users will see different images from various angles, in contrast to traditional 2D displays that can make the user’s eyes look unnatural, especially from a side view.

When someone approaches a user wearing the Vision Pro, the device’s field of view becomes transparent, allowing the user to see the person approaching, and the approaching person can also see the user’s eyes. When users are immersed in a spatial environment or using an app, EyeSight provides visual cues, letting others know what the user is focusing on.

In addition to developing a more affordable model, Apple is also working on a mature second-generation Vision Pro product. The new headset will have a smaller, lighter body and provide a more comfortable fit.

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(Image: Apple)

1. Gloomy Global Economy Affects Smartwatch Sales, Predicted 2023 Shipments at 130 Million

In 2023, the trajectory of the smartwatch industry is shaped by two major forces. On one hand, it’s driven by the shift in demand from the smart wristband market, becoming a gateway for brand manufacturers to create market momentum on a global scale. However, it also grapples with the impact of the sluggish economy, which affects consumers’ disposable income, leading to a reduction in market demand.

It’s estimated that the market will grow to 130 million units by the end of 2023. Brand manufacturers’ share of shipments hasn’t seen significant changes, and they continue to introduce innovative products. Apple leads with over 30%, followed by Samsung at nearly 10%, alongside Huawei, Garmin, Fitbit and others.

2. Manufacturers Opt for More Cautious Strategies, Focusing on Minor Upgrades and Diversified Research

Given the uncertain landscape, major smartwatch manufacturers like Apple, Samsung, and Huawei are expected to embrace a more conservative development approach. While they will keep innovating and introducing new products, their design philosophy leans towards incremental upgrades.

High-end watch models will be introduced with caution, targeting well-defined niche markets. Furthermore, some brands are likely to venture into other smart wearable devices, but many of these new devices face challenges in terms of data analysis, application integration, and market maturity, which means it will take time before they become commercially viable.

3. AI Focus: Major Manufacturers Prioritize AI Integration for Accuracy and Innovation

Without making substantial changes to their existing structure, companies are proactively utilizing AI technology as the cornerstone of their development strategy. This approach yields benefits such as fine-tuning existing sensor data for more precise measurements and the creation of applications that cater to consumer needs.

As AI applications heavily rely on chip performance and battery life, companies like Apple are upgrading their chips. This move aims to elevate past auxiliary functions into mainstream operations through AI. Moreover, this technology may further integrate with their Vision Pro devices’ gesture controls, enhancing the overall user experience.

Source to China Times, as India continues to solidify its position in the global mobile phone manufacturing supply chain, industry analysts predict significant shifts in production dynamics. Apple, for instance, is expected to move 25% of its production to India by 2025, in addition to Chinese brands like Xiaomi, OPPO, and vivo, which have already established manufacturing operations in the country. This trend has led to a scenario where India has substantially reduced its reliance on importing mobile phones from China, posing a substantial challenge to Chinese smartphone manufacturers and potentially resulting in the loss of annual orders for up to 180 million devices.

TrendForce believes that while Apple has such plans in place, the actual execution and achievement of these goals may face challenges.

The typical process of an iPhone involves design work at Apple’s headquarters in the United States, the use of main chips from American chip manufacturers and foundry services from TSMC, key components supplied by companies in Japan and South Korea, and the provision of remaining parts by Chinese manufacturers. The final assembly takes place at Foxconn’s factory in Zhengzhou, China, before the phones are air-shipped to destinations worldwide.

Since September of the previous year, an increasing number of consumers have noticed the label “Assembled in India” on the packaging of their iPhone 14 devices. This indicates that a growing proportion of Apple’s phones are being produced in India. Apple’s plan to shift 25% of its production to India by 2025 aligns with this trend.

Meanwhile, Chinese smartphone manufacturers such as Xiaomi, OPPO, and vivo are also actively manufacturing in India, and Samsung currently produces all of its flagship phones in the country. These developments are reshaping the landscape of mobile phone trade between China and India. In 2014, China exported a staggering 180 million phones to India annually. However, as India’s mobile manufacturing ecosystem matures, its reliance on importing complete phones from China has dwindled.

Data from the Cellular Operators Association of India (COAI) reveals that, following Indian Prime Minister Modi’s “Make in India” push in 2015, India’s share of globally manufactured phones surged to 11%, surpassing Vietnam and making it the second-largest mobile phone manufacturing country after China. Additionally, statistics show that from 2014 to 2022, India’s cumulative mobile phone production exceeded 2 billion units, with a CAGR growth rate of 23%. (Image credit: Apple)

(Source: https://www.chinatimes.com/newspapers/20231004000745-260309?chdtv)