According to TrendForce’s research, the global production volume of smartphones in 2022 is projected to reach 1.192 billion units, a YoY decrease of 10.6%, exceeding even the decline seen in the pandemic year.

However, the market for refurbished smartphones is a completely different story. Research institutions have pointed out that Apple’s sales of refurbished smartphones have grown by 16%, and the company now holds nearly half of the refurbished phone market.

The thriving market for refurbished and second-hand smartphones has ignited demand for touch and display integration IC (TDDI) from the repair market since 2H22, and this demand is expected to double to 200 million units in 2023.

But why is the demand for refurbished and second-hand smartphones increasing year after year? There are two possible reasons based on the current overall environment:

The price of refurbished and second-hand smartphones is lower than that of new smartphones.

Most refurbished and second-hand smartphones are refurbished before being sold back to the market. Their functionality and appearance are mostly normal, and unless the user mentions it, it is difficult to tell if it is a second-hand smartphone.

When purchasing refurbished smartphones, most people prioritize high-end models with high price points, regardless of the brand. However, the entry threshold for high-end new smartphones is often high, but this type of smartphone can be obtained at a cheap price in the second-hand market.

Why iPhone is the preferred choice?

• Brand recognition: Consumers of all ages may immediately think of Apple/iPhone when they hear the words “smartphone brand,” and iPhone can become a faction in its own right compared to Android smartphones.
• Operating system support: For smartphone users, the biggest fear when using the same smartphone for a long time is encountering the problem of the operating system no longer being supported. Although the smartphone can still be used when the operating system cannot be upgraded, security is no longer guaranteed.

However, the support and fluidity of the operating system are often advantages of Apple, and the iOS update support period is quite long, up to 6 years. Although 6 years may not sound long, statistics show that the average device usage cycle for an iPhone user is 3 years, and a support period of 6 years is actually a very long time. Even if you take over someone else’s second-hand smartphone, you don’t have to worry too much about the operating system not being supported.

While the growth of the refurbished smartphone market is good news for consumers, how much benefit does it bring to smartphone manufacturers?

For smartphone manufacturers, most of the profits come from the sale of new smartphones. When consumers purchase second-hand smartphones, the profit margins for manufacturers are reduced. However, manufacturers can still benefit from the demand for refurbished smartphones by participating in the refurbishment process or selling refurbished smartphones themselves.

The market started worrying about the oversupply in semiconductor 2023, when the demand will start growing again depends on two factors: the situation of the macroeconomy and the inventory status.

Since foundries’ capacity utilization rates started drop in 3Q22, chip supply as a whole has decreased significantly. This, in turn, has helped limit inventory growth across the supply chain. However, the global economy is still at risk of a mild recession, so consumers may allocate more of their spending to daily necessities. They may also spend more on tourism due to easing of the pandemic. This could lead to weak sales for consumer electronic products.

Not to mention that most consumers already purchased the electronic products that they need for working or studying at home during the pandemic. Assuming that the overall inventory level of the supply chain will return to a healthier level, TrendForce believes that chip demand will begin to rebound to a certain extent in 2Q23. Then, the demand growth will become more obvious from 3Q23 onward. Nevertheless, this demand growth may not be too strong due to uncertainties in the global economy.

If we observe the situation from the perspective of the foundry industry, smartphones represent the largest application segment in terms of wafer consumption. The smartphone supply chain started inventory correction earlier, so demand rebound might be more obvious initially for smartphone-related chips compared with chips used in other consumer devices. On the other hand, with different benchmarks, the demand for HPC chips will show more significant growth compared with the demand for smartphone chips.

On December 6, TSMC held a ceremony for the first tool-in of its new Arizona fab. This event came after the foundry giant had publicized a series of overseas expansion projects. Within Taiwan, TSMC’s recent announcements have caused a stir in public opinion. Concerns have been raised about the possibility of a hollowing out of the island’s semiconductor industry due to a mass exodus of professionals involved in chip manufacturing.

TSMC’s Overseas Expansion Plan

TSMC actually embarked on the path to internationalize its business operations much earlier in 2015, when it made the announcement to build a fab in Nanjing, Mainland China. At that time, the chief reason behind this expansion project was that Huawei had become the second most important client next to Apple. Also, TSMC planned to have its 16nm node serve as the main manufacturing technology of the Nanjing fab. This decision was in line with the semiconductor technology export rules enforced by Taiwan’s Ministry of Economic Affairs. Specifically, domestic chipmakers are only allowed to deploy “n-1” technologies at overseas manufacturing sites. Despite being in compliance with all domestic laws and regulations, TSMC still attracted a lot of controversies with establishing a base of operation in Mainland China, and there were speculations that more advanced semiconductor technologies will be leaving Taiwan with the “westward expansion”.

Fast-forward to present day, China is not the only one that is focusing on the development of a homegrown semiconductor industry. After witnessing the impact of the COVID-19 pandemic on the global supply chain, many other countries are reconsidering the importance of semiconductor supply in their own industries. From the US to Japan and European countries, governments have begun to offer various subsidies and market-based incentives in order to entice major semiconductor manufacturers such as TSMC to build fabs in their territories.

A detailed survey of TSMC’s overseas expansion activities from 2015 onwards finds that the construction of the Nanjing fab commenced in 2016 a year after the announcement of the project. The fab then celebrated the formal start of mass production with a ceremony in 2018. Two years later, in 2020, TSMC revealed the plan to build a 12-inch wafer fab that deploys advanced nodes in Arizona. Moving into 2021, the foundry giant unveiled two more expansion projects in Japan. The plan to open a “3D IC material R&D center” in Tsukuba (Ibaraki Prefecture) was announced first. Later in October of that same year, TSMC said it will set up a fab in Kumamoto.

Where Will TSMC Go After US?

Regarding the locations of TSMC’s fabs worldwide, TrendForce’s latest research reveals that for 12-inch wafer foundry, TSMC has four fabs in Taiwan, including including two upcoming greenfield projects respectively located in Hsinchu and Kaohsiung. Outside Taiwan, TSMC has one operational 12-inch wafer fabs in Mainland China and two more under construction in the US and Japan. Besides these existing and planned fabs, a close eye is also being kept on TSMC’s possible expansion into the EU states. Germany has long been rumored to be TSMC’s candidate for setting up a fab in Europe. However, Ireland has a lot of potential as well since Intel previously announced its intention to expand its existing manufacturing operation in this country. Currently, TSMC is internally assessing the feasibility of landing a project in Ireland.

Taiwan Still Has Advantages in Talents, Business Culture, and Complete Industry Ecosystem

Going back to the issue of whether TSMC’s overseas expansion activities will negatively affect Taiwan’s semiconductor industry by causing an outward migration of related professionals or a weakening of the industry’s competitive advantage. According to TrendForce analyst Joanne Chiao, the deglobalization trend is gradually emerging in the supply-demand dynamics of the semiconductor market. Based on the latest data, the geographical distribution of TSMC’s production capacity (that is calculated in thousands of 12-inch wafer equivalents per month) for 2022 is estimated as follows: 93% in Taiwan, about 6% in Mainland China, and 1% in the US. The short-term effects of TSMC’s overseas projects will thus be very limited as the majority share of the foundry’s production capacity is going to stay in Taiwan.

As for the effects on the competitiveness of the domestic semiconductor industry in the long run, Chiao believes that deglobalization will lead to a general rise in operating costs for foundries worldwide. This means that every foundry will be facing increasing pressure related to pricing regardless of where they put their fabs. On the other hand, Taiwan’s importance as the world’s main chip production base will diminish somewhat over time because of the deglobalization trend.

Nevertheless, the foundry industry depends on tight relations with clients as well as highly synchronized and meticulous services among all participants across the supply chain. This is where Taiwan shines because the island is home to a complete ecosystem for the foundry industry. All participants in this ecosystem advance together when it comes to upgrading technological capabilities or overcoming technological bottlenecks. Apart from these advantages, a system of management has been well established on the island for the various aspects of fab operation. As foundries keep their fabs running 24/7, they are constantly tested in manpower scheduling. Therefore, they have to rely on locally cultivated talents and local experience that have taken decades to amass. In other words, fabs in Taiwan are performing at the highest level because of the local business and work culture.

（Image credit: TSMC Linkedin）

The expected 2022 development pattern of the notebook computer business laptop market will show that Lenovo, Dell, HP, Apple, Asus, and Acer, the world’s six leading notebook computer OEMs, account for a total business laptop market share of as high as 94%, which is a double-digit percentage gain compared to a market share of 80.8% in 2021. Shipments of business laptops originating from the six major OEMs in 2022 is estimated to reach 80.29 million units, an increase of 8.2% compared to 74.22 million units in 2021, which is contrary to the YoY decline of 6.7% in the overall global business laptop market from 2021 to 2022.

Upon further observation, the aforementioned development trend is primarily due to a sharp decrease in the supply of small market share business laptops from OEMs such as Samsung, NEC, Huawei, and Xiaomi, while supply from the six major OEMs has increased. Comparing the two, the target market of smaller market share OEMs may be limited to their respective home countries. If market demand for business laptops in their home countries approaches saturation, coupled with limited capacity for expansion and a lack of strategic planning for global market access, it will be difficult to displace the top six OEMs with their targeted global market scope, nor do smaller market share OEMs have the strategic and technical ability to expand production capacity in time to meet the huge demand of the global business laptop market.

Performance of global business laptop market will decline sharply in 2023 and pandemic premiums are expected to reappear in 2024-2025

As the key driving force behind the global notebook computer market, business laptops are expected to reach 85.45 million units in 2022, a YoY decline of approximately 6.7% compared with 91.55 million units in 2021. However, shipments of business laptops will account for 43.8% of total shipments of all laptops (including business, consumer, and Chromebook laptops), setting a record for highest proportion of shipments in the past five years and since the global spread of the COVID-19 pandemic in 2019. With Chromebook shipments losing momentum, business laptop sales growth has prevented the market from falling off a cliff.

With the end of pandemic-related business laptop demand, business laptop shipments in the global notebook computer market is expected to diminish to 74.94 million units in 2023, and YoY decline will expand to 12.3%. If inflation in the consumer electronics market can be significantly slowed in 2H22 and the 1H23, cyclical “back-to-school” and “holiday season” growth momentum in 2H23 will benefit the notebook computer consumer product market, increasing the proportion of consumer device shipments in the global notebook computer market to 49.4% in 2023, while the proportion of business laptop shipments will recede marginally to 41.6%.

Although growth momentum in the current business laptop market is weak, the market performance of business laptops is still highly anticipated due to the “bulk sale” characteristic of business laptops, the fact that many companies must purchase replacement “Durable Goods” every 2-3 years, and the expectation that business laptops purchased during the severe pandemic of the past two years will be replaced subsequently from 2024 to 2025.

（Image credit: iStock）

Smart watch shipments reached 107 million units in 2021, surpassing the shipments of smart bands for the first time. Smart bands declined in 2021 with only 70.33 million units delivered. As branded manufacturers strengthen their investment in the smart watch market, market growth has accelerated. Due to the proximity of functional applications, the smart band market has been gradually supplanted by low-cost smart watch products. Therefore, driven by new products in 2022, the current forecast indicates that smart watch shipments will continue to grow in 2022, reaching 119 million units, for an annual growth rate of 11.4%. Smart band shipments are expected to decline to 55.18 million units and the gap between the two continues to widen. It is worth noting, although branded manufacturers are optimistic regarding the development of the smart watch market, in light of risks such as the COVID-19 pandemic, war, and inflation, continuing downward revisions of smart watch shipment volume in 2022 cannot be ruled out and annual growth rate may even fall below 5%.

The top five major manufacturers of smart watches are Apple, Samsung, Huawei, Xiaomi, and Garmin with a combined market share of 63%. Apple Watch shipments reached 36.6 million units in 2021, with an annual growth rate of 20%. Apple is optimistic regarding the market in 2022. On the one hand, the company believes that the Watch Series 8 can maintain the same consumer interest as the Watch Series 7. On the other hand, a wave of entry-level product replacements is expected with the launch of the second-generation Watch SE. Coupled with the launch of new Pro products, Apple believes that market demand in 2022 will surpass that in 2021 and shipment volume is expected to reach 43 million to 46 million units.

However, considering the negative economic impacts following the wake of the COVID-19 pandemic and inflation, 4Q22 holiday sales may not pan out as expected. Throwing in the wildcard of China’s lockdown strategy, production of new Apple Watches may be affected if lockdown measures reappear in 2H22, which will lead to a risk of further delays in shipments of new products, upsetting shipments in 2022. Therefore, shipments of Apple Watches are conservatively forecast to reach 39.1 million units in 2022.

Although Samsung began exploring the wearable device market very early, due to the small market size and the rapid growth of the smartphone market, smart watches were not the focus of Samsung’s product development at the time. This was true up until recent years. As the growth of smartphones slowed, Samsung has once again strengthened its distribution of other consumer electronics products which has led to continuous growth in Samsung Galaxy Watch shipments. In addition, since Huawei has been flattened by Sino-US trade friction, Samsung leaped to claim the number two spot in the smart watch market in 2021. Samsung smartwatch shipments are estimated to grow from 11.09 million in 2021 to 14.1 million units in 2022.

After Google officially acquired Fitbit, although Fitbit remains nominally an independent brand, internal reorganization is bound to be carried out considering this affords more efficient resource allocation, integrating the companies’ procurement, product development, etc. Google will have two smart watch brands, Fitbit and Pixel. In terms of high-end watches, the Pixel Watch is a flagship product positioned as an extension of the Pixel mobile phone and is primarily used in synergy with smart phone functionality. Therefore, the Pixel Watch uses the Samsung Exynos chip and it is expected to highlight the features of various apps in the Google Play Store. Since Fitbit was acquired by Google, it has become necessary to adjust unified strategy and integrate and reorganize resources. Although smart watch shipments resumed growth in 2021, there is some distance between leading brands. Fitbit Is expected to launch new products in 2H22. Google Pixel Watch is also expected to be launched in 2H22, so Google/Fitbit smart watch shipments are estimated to grow to 3.65 million units in 2022.

（Image credit: Pixabay）