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5G smartphone shipments are projected to increase to account for 67% of all shipments in 2024 as the 5G smartphone market matures. But growth has been slowing since the proportion of 5G shipments passed 50% in 2022. Regionally, the development of 5G remains uneven. There are still persistent challenges regarding consumer demand and component supply, which affect device vendors’ strategies. But as the smartphone industry enters another cycle of component price hikes, vendors are again re-evaluating the potential of 5G smartphones in underpenetrated markets and trying to decide on the best time to release devices.

Regional disparities in 5G development

In markets such as North America, Greater China and most parts of Europe, the share of 5G smartphone shipments has reached high levels, while Latin America and Africa remain predominantly 4G. Asia Pacific shows significant disparities: the 5G smartphone market is rapidly developing in East Asia, Southeast Asia and India, while the market potential for 5G in most of South Asia remains limited. Markets with high 5G smartphone penetration are typically those where:

  • There is a higher smartphone ASP (average selling price).
  • There is a well-developed mobile infrastructure.
  • There is an advanced 5G network and good 5G coverage or a clear 5G network development roadmap from governments and mobile operators.
  • Mobile operators hold a dominant position in the device distribution channel.
  • Operators offer device subsidies or competitive 5G mobile data tariffs.

Even with favorable conditions in local markets, the penetration rate of 5G smartphones eventually depends on consumer demand for 5G services and market supply. More importantly, 5G smartphone penetration hinges on how smartphone vendors balance demand and supply costs in their 5G product strategies.

Fragile demand for 5G smartphones

5G is no longer the leading feature on smartphones as the 5G smartphone market gradually matures. It is now down to the daily user experience of 5G smartphones and how they compare to 4G models to drive organic demand. After five years of officially commercializing 5G networks, the primary obstacles to 5G adoption are still network coverage, user experience and the cost of 5G tariffs. Despite 5G deployment claims in quite a few markets, coverage remains insufficient compared with 4G networks. Furthermore, lowering 5G package fees is a challenge for operators, which are still trying to recoup their expenditure on 5G infrastructure. So in markets lacking 5G network coverage and where 5G data costs are distinctly higher than 4G, demand for 5G smartphones remains weak, particularly among mobile users who spend less on mobile data.

Supply issues are still a key factor in 5G smartphone roll-out

Supply is a more significant factor than demand during the early stages of 5G smartphone development, most importantly, the 5G SoC supply. Qualcomm and MediaTek’s high-end smartphone processor roadmaps and production lines have switched to 5G earlier than the endpoint devices. Therefore, all vendors have completed the product transition from 4G to 5G smartphones in their high-end portfolios in the early stage of 5G. A similar transition is now also happening in the mid-range smartphone segment, where the update and future iteration of 4G mid-range smartphone processors has almost stopped, and processor manufacturers, based on their strategies, are reducing the supply of 4G processors.

But for low-end price points, the SoC supply situation is the opposite. The supply of 4G processors remains sufficient, and device vendors have more options than with 5G processors. Due to factors such as IP (intellectual property), manufacturing processes, design and processor vendors’ strategies, low-end 5G processors still have an extra price difference of US$5 to US$10, or even higher, compared with low-end 4G processors. So, it is difficult for 5G processors to quickly replace 4G processors at the low end. Additionally, beyond the cost increase of 5G processors, 5G smartphones require additional components, such as 5G RF chips and more powerful ICs. Take a smartphone that’s US$150 retail price, adding 5G would add at least 10% to the bill of materials cost, which is a significant burden for low-end smartphones. In the short to medium term, the additional costs associated with 5G are unlikely to be reduced in the low-end smartphone segment.

Considering the additional costs of 5G over the past two years, vendors made a strategic tradeoff between 5G capabilities and other features, such as screen, camera, battery or memory sizes, in the mid-to-low-end segments to optimize hardware margins. This product strategy will likely continue for the rest of this year. Though given memory components have seen significant price increases since the end of 2023, it is no longer a viable option for vendors to make their products stand out in the US$100-to-US$299 price band using large memory sizes. In some of the target geographical markets, such as India, Brazil and Southeast Asia, 5G is again considered a valuable differentiator for new products in these mass-market price bands.

Low-end 5G smartphones are not viable in the short term

The 5G smartphone penetration bottleneck is in the US$100-to-US$299 price band, which won’t see rapid 5G adoption for one to two years, when the low-end 4G chipset supply starts to dwindle. For the sub-US$100 price band, apart from markets such as Mainland China, where supply chain efficiencies, local production, logistics and carrier incentives play a role for ultra-low-end 5G smartphones, there is little possibility of large-scale adoption of 5G smartphones in other markets.

Though the ASP of 5G smartphones has rapidly decreased since their initial launch, this trend has primarily been driven by the technology trickling down from flagship and high-end devices to the mid-end. There are a few key factors affecting 5G smartphone price trends:

  • The transition to 5G in the mid-to-high-end price bands is complete, while 5G growth at the low end remains slow.
  • Flagship and high-end devices, all 5G enabled, are getting more expensive, driven by rising component prices and device vendor strategies. This results in a flat ASP trend for 5G smartphones.
  • From 2025 to 2026, as the penetration rate of 5G smartphones significantly increases in the sub-US$200 price bands, the overall ASP of 5G smartphones is expected to fall noticeably.

Be flexible with 5G product planning

Given the short-to-mid-term challenges in low-end 5G penetration and the varying regional market dynamics, smartphone vendors must take a flexible approach with their mid-to-low-end 5G product strategies to stay agile and competitive.

  • Monitor 5G network developments: Keep a close watch on the current state of 5G networks in target markets. Pay special attention to the penetration rates of 5G packages, coverage and pricing. Capitalize on key moments when mass adoption of 5G occurs.
  • Tailor 5G models for specific user segments: Design 5G devices for channels or partners with specific 5G requirements, ensuring precise targeting. For example, the Samsung A15 5G model, customized for North American carriers, is highly price competitive.
  • Increase collaboration with operators and retail partners: For low-end 5G products, engage in 5G package device bundle collaborations or other mobile terminal projects with operators or retail chain partners.
  • Leverage regional hardware preferences: Differentiate product hardware configurations based on regional market preferences, such as memory and cameras. Flexibly adjust 5G product configurations to balance hardware profitability.
  • Track 4G SoC iterations: Maintain a close watch on the roadmap and supply status of 4G SoC iterations to ensure smooth transitions between 4G and 5G smartphones.
  • Differentiate 4G and 5G product lines: Gradually differentiate 4G and 5G products within the same price segment. Focus on different channels and target customers to minimize cannibalization within product lines.
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