MIZUHO SECURITIES USA INC. | US EQUITY RESEARCH
Summary
4G smartphone shipments in China for August were up 9% y/y, but a look at the trend shows 4G shipment growth slowing y/y. While this may be a pause ahead of the SepQ iPhone launch, it will be interesting to watch 4G trends with continued subsidies from the China Telcos. The iPhone launch this year on September 16 was ~9 days earlier than last year and is scheduled to ship to 58 countries by end of September, but could potentially pull-in upside from the DecQ for component suppliers.
Key Points
A look at 4G smartphone shipment trends in China shows a slowing into August, but iPhone and potential subsidies key. As shown on page two, 4G smartphone shipments in China have slowed from 23-25% y/y growth early in the year to 9% y/y in August. While August last year was still strong, the slowdown this year could be a result of higher smartphone penetration or a pause ahead of the iPhone 7/7+. We would also note that the telecom carriers in China, are implementing 35-50% subsidies for the iPhone 7/7+ which should help. Nonetheless, the trends bear watching into 1H17.
Slowing 4G challenges QCOM. We believe a slowing 4G China market could be a challenge for QCOM with a competitive offering from Mediatek (MTK). MTK just introduced its LG smartphone with Helio 10 on Verizon and Sprint in the U.S with the first modem that supports LTE and CDMA/GSM. We believe the more cost-competitive MTK could start to show up at the four major U.S carriers. While the INTC modem 7360/7480 supports LTE, and INTC has the CDMA/GSM IP, the modem still does not support CDMA. Nonetheless, the INTC 7480 modems with Cat 10/12 could be competition for QCOM in 2017.
Early release and content winners are AVGO, INTC and memory; SWKS and QRVO are mixed. The iPhone 7/7 Plus began shipping on September 16, nine days earlier than 6s/6s Plus release, and is scheduled to ship to 58 countries before the end of September, which may pull some orders into SepQ from the DecQ for RF suppliers SWKS/QRVO. A look at the content on the iPhone 7/7+ shows AVGO and INTC gained content, with positive trends for memory players MU, WDC, but traction for SWKS and QRVO was mixed. While QRVO gained share on the INTC baseband, it lost share on the QCOM iPhone 7+ basebands, while SWKS maintained share on the INTC and QCOM basebands. However, we believe the low- to mid-end frequency bands could start to get competitive with SWKS and QRVO.
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