Apple (AAPL) and Samsung (KS) each saw a significant decline in handset sales in Canada due to COVID-19, according to new data from Counterpoint Research, but analysts expect sales will pick up in the second half of the year.
In Q2 2020, Apple saw a 24 per cent year-over-year decline, while Samsung saw a 41 per cent year-over-year decline.
Hanish Bhatia, a senior analyst at Counterpoint Research, said in an interview that it wasn’t surprising to see the decline in handset sales from both manufacturers as most retail stores were closed in Canada due to the global pandemic.
“The trend in Canada has been that each quarter is bigger than the previous one. Q1 is the smallest and then Q2 performs better and so forth. So in that case Q2 should have been better than Q1, but because of the pandemic it declined the way that it did,” he said.
Bhatia said the steep decline for Samsung was a result of a low uptick in sales of the manufacturer’s latest suite of phones the Galaxy S20.
“It’s not only in Canada, but it’s more of a global phenomenon, the S20 series has not done as per the expectation. In fact, if we compare it with the previous generations like the S10, the S20 performance has been almost half of what S10 achieved,” he said. “We still see the previous generations, among one of the best selling from Samsung still.”
Samsung launched its 5G-enabled S20 series in Canada in February and pricing started at $1,319.99, up to $1,849.99.
When it launched, Duncan Stewart, director of technology, media and telecommunications research at Deloitte Canada, said the high price tag for a phone hasn’t historically been something that stopped Canadians from purchasing one.
However, Bhatia indicated that in the case of the S20 series, the high-price tag was a factor for lower handset sales.
“Basically you’re paying the price for using a 5G device, but at the same time you can’t have the full 5G experience,” he said. “I’m basically paying for something I can’t use [fully].”
Rogers, Bell, and Telus have all launched its initial 5G network, but only in some major cities. A full rollout of the network is not possible until the necessary spectrum is acquired, which likely won’t happen until at least 2021.
Bhatia added that Samsung also had a lot of hardware feedback and reviews with the latest series. He noted that the company’s selling point for the S20 series was the camera however many handsets had issues.
Steep declines are “bad for a good reason”
Loup Ventures Managing Partner, Gene Munster, said in an interview that people shouldn’t read too much into the decline despite it being steep.
“We are ahead of what is a major upgrade cycle...what is maybe a different focus and a more appropriate one is what happens in the September and December quarters. And as we start to get in 2021, around those numbers. How do we see those playing out,” he said.
“But a quick take is that it’s bad, but it’s bad for a good reason because we’ve got a pandemic and we’ve got a major upgrade cycle coming and customers hold off in anticipation of that.”
Munster added that in the upcoming quarters, we are likely going to see a “dramatic turnaround in the numbers.”
“Presumably in 12 months, we’re going to be in a better place with the pandemic and separately as we’re going to be starting to enter the 5G cycle,” he said.
It will take at least a year and a half to see uptick in 5G phones
Munster said many Canadians may not buy a 5G-enabled iPhone right away.
“Apple will announce in October a 5G phone, that doesn’t mean a lot of people are going to buy it because there’s limited coverage in Canada. It’s going to take another year and a half before coverage gets to a point where customers really know about it,” he said.
“They’ll hear about [Apple’s 5G phone], but there’s no real value in it.”
In line with Bhatia, Munster noted that Samsung’s 5G phones were expensive without there being full 5G capabilities in the country.
Munster noted that overall the decline in handset sales does not have a major impact on Apple or Samsung’s business.
“When you think about evaluating the businesses, you think about what’s going to happen over the next two to 10 years. And what’s happening over the last three months and in the next three months it’s going to be representative of how much we’re going to need 5G phones, and how important these companies are to our everyday lives.
“Investors have a superpower of looking through the near term noise to look at the long-term view. And I think that the long-term view for both of these, especially for Apple...I think is as strong as ever.”