The fact that the Chinese smartphone market is super-competitive isn’t exactly breaking news, but according to a new report released by Morgan Stanley yesterday, things are only likely to get worse in the months to come. Analyzing the state of the smartphone business in China, the Wall Street financial services company cited a revenue guidance released by Swedish tech company Fingerprint Cards, which recently reduced its projected 2016 revenues from 7.2-7.5 billion ($770 million to $810 million) krona to 6.6-6.8 billion krona ($710 million to $730 million) because of an expected slowdown in demand stemming from growing unsold inventories. The Gothenburg-based company designs and manufactures fingerprint verification subsystems for integration into consumer devices like smartphones and tablets.
According to an analysis by Morgan Stanley’s Jasmine Lu, most of the top smartphone vendors in China had set bullish shipment targets for this year, aiming for volume growths of anywhere between 31% and 123% over last year. Although fears of oversupply are starting to grip sections of the industry, some of the leading companies like Huawei, OPPO and Vivo continue to remain highly optimistic for next year, which is what’s now spooking some analysts and industry watchers. According to reports, many of the leading companies are now looking to further increase YoY volumes by between 21% and 114% next year, but with sales growth not quite keeping up with the pace at which the companies are churning out handsets, many have started expressing fears about unsold inventories.
According to Morgan Stanley, a large stock roll over next year will put significant strain on component suppliers, many of whom have already expanded capacities this year to accommodate for the growing demand. If indeed demand from OEMs slow down in 2017, many small and medium-sized component suppliers will be stuck with excess capacity, which will certainly reflect poorly on their balance sheets. While it’s still not the time to hit the panic button, investors have been expressing their displeasure at the situation by selling off the stocks of component suppliers like Sunny Opticals and FIH Mobile over the past few weeks. Even MediaTek isn’t being spared, with the company’s stock reportedly falling around 2% at the Taiwan Stock Exchange earlier today amid reports that its flagship Helio X30 chips are facing massive order cuts from China-based OEMs.