Page 21 - MUFG Spring 2021

Telecom services, in particular, are indispensable for businesses and individuals during this time, and they have made the sector highly resilient. At the same time, more usage demands more network capacity, which may require additional capital expenditures by telecom companies to augment their infrastructure in order to maintain service quality—whether in cellular phone service or broadband speed. These expenditures may be offset in the longer run by price increases, or by higher revenue from consumer migration to costlier service plans that cover more data
According to our tentative forecast, smartphone demand will decline by 6% overall in 2020, though demand visibility for the rest of the year is poor, since market recovery depends on the easing of various sheltering restrictions worldwide, whose timing is unknown. For now, we anticipate consumers’ preferences to lean toward more affordable devices, which could hurt the higher end of the smartphone market.
2. Personal computers (PCs): In the near term, MUFG expects the PC market to rebound from
supply-chain disruptions earlier in the year with the help of greater demand fueled by remote work and learning. But we believe long-term demand remains at risk, since businesses and consumers may curb planned PC upgrades amid a softening economic climate. Overall, the team foresees PC shipments declining by 4% in 2020 and believes the industry will continue to consolidate as its largest players gain more market share.
3. Servers: We see the rapid increase in network traffic from heightened broadband activity during shelter-at-home requirements providing a notable boost to server demand. In our view, original design manufacturers (ODMs, or white- box suppliers), which design and make servers for rebranding and resale by other companies, are the primary beneficiaries of demand for so- called “hyperscale server computing” (i.e., the ability to scale up servers as network usage increases). “Providers of cloud-based computing prefer low-cost servers over more expensive industry brands, since they buy and use them on a wholesale basis.” MUFG foresees 8% growth in server demand for 2020.
4: Semiconductors: Demand for semiconductors has fallen because of the slump in demand for semiconductor-intensive products—such as smartphones and autos—in the wake of COVID-19. Yet the increased use of semiconductors as the building blocks of consumer electronics, home appliances and durable goods across the board should be a positive factor boosting growth in the sector over the longer run.
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We have seen that home sheltering and lockdowns have favored e-commerce companies, which have experienced considerable growth by offering online alternatives to buying and selling goods in lieu of brick-and-mortal retail. Other effects on hardware manufacturers
The pandemic has impacted a range of hardware technology producers:
1. Smartphones: Makers of smartphones have been hardest hit in terms of revenue as a result of store closures and shelter-in-place orders. To cope with these developments, some manufacturers have adopted self-service models, which empower customers with the independence of using online options for purchasing and activating phones, obtaining tools and information regarding product usage, and troubleshooting technical problems.
We believe that the first quarter of this year marked the bottom point of the smartphone downturn, though we expect weak demand to persist through the second quarter. Yet we also foresee the majority of lost shipment volume being pushed to subsequent quarters with the help of pent-up demand that could begin to show toward the end of 2020. Of note, MUFG anticipates limited impact on the demand for smartphone devices that are compatible with the fifth-generation (5G) technology standard for cellular networks, which should see demand ramp up during the second half of 2020.
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SPRING 2021 / MUFG TRANSACTION BANKING AMERICAS GROUP