New projections by investment banks Morgan Stanley and Goldman Sachs suggest that the smartphone market will experience a resurgence starting in 2024. This comes as a surprise to those who have been warning of a prolonged slump in the mobile sector.
Key Takeaway
Investment banks Morgan Stanley and Goldman Sachs project a rebound in smartphone sales, defying expectations of a prolonged slump. On-device AI capabilities, particularly edge AI, are anticipated to drive this resurgence by unlocking new demand and enabling innovative features. Smartphone replacement cycles and expanding use cases are expected to outweigh any substitution threats, leading to a bright future for the mobile industry.
Morgan Stanley’s Optimistic Outlook
Morgan Stanley’s report reveals that global smartphone shipments are projected to rebound by nearly 4% in 2024 and 4.4% in 2025. This positive forecast is in stark contrast to the multi-year downturn experienced by the PC industry.
The key driver behind this anticipated turnaround is the introduction of on-device artificial intelligence (AI) capabilities. These AI advancements are expected to unlock fresh demand for smartphones. Morgan Stanley emphasizes the potential of edge AI, which enables enhanced photography, speech recognition, and other innovative features while safeguarding user privacy.
Leading smartphone manufacturers, including Apple, Vivo, Xiaomi, and Samsung, have already expressed their confidence in AI. Vivo’s X100, equipped with on-device AI, has experienced explosive sales, while Xiaomi’s AI-packed flagship model witnessed six times its usual volume. Samsung, on the other hand, plans to incorporate generative AI into its 2024 models, aiming to offer ChatGPT-style features processed directly on the device rather than in the cloud.
Morgan Stanley acknowledged that the major concern is the lack of visibility regarding the emergence of a “killer app” for Edge AI. However, precedent suggests that a breakthrough usually occurs 1-2 years after the initial development. The investment bank believes that Microsoft’s CoPilot, an AI application for PCs, could lay the foundation for the popularization of AI at the edge. This, in turn, could give investors confidence that a unique “killer app” for smartphones will also emerge.
Goldman Sachs’ Projections
According to Goldman Sachs, global smartphone volumes are expected to decline by 5% year-on-year in 2023, reaching 1.148 billion units. This represents a second consecutive annual drop following steeper falls in 2022. However, Goldman Sachs anticipates a revival in momentum in 2024 and 2025, driven by new product launches.
The investment bank projects worldwide smartphone shipments to increase by 3% to 1.186 billion in 2024 and by an additional 5% to 1.209 billion in 2025. It is worth noting that Goldman Sachs expects low single-digit growth for 2024 and 2025, with global smartphone shipments gradually returning to the level seen in 2022 by 2025.
A Shift in Outlook
These optimistic projections from Morgan Stanley and Goldman Sachs challenge the prevailing consensus that the smartphone market is facing inertia and substitution threats similar to those experienced by personal computers in the past decade. Morgan Stanley highlights that tablets and smartphones have been displacing PCs since 2011, suggesting that PC shipment declines were caused by the emergence of new devices rather than a general decline in demand.
Furthermore, Morgan Stanley argues that smartphones are not at risk of being substituted by technologies such as augmented reality/virtual reality (AR/VR) in the near future. The shorter replacement cycles and expanding use cases of smartphones, coupled with the potential of Edge AI, are expected to unlock a new wave of innovation in the mobile industry.
