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Smartphone sales set to recover with AI advancements, says Morgan Stanley | GVS

Smartphone Sales to Rebound in 2024, Defying Slump Predictions

Smartphone sales are expected to make a strong comeback starting in 2024, defying predictions of a prolonged slump in the mobile sector. According to separate projections by Goldman Sachs and Morgan Stanley, global smartphone shipments are set to rebound by nearly 4% in 2024 and by 4.4% in 2025.

New On-Device AI Capabilities to Drive Smartphone Turnaround

Morgan Stanley’s report suggests that the driving force behind the smartphone turnaround will be the emergence of new on-device AI capabilities. These capabilities are expected to unlock fresh demand by enabling advancements such as enhanced photography and speech recognition while ensuring user privacy. The investment bank has raised its projections for 2025 worldwide phone volumes, citing the significant potential of edge AI.

Leading Smartphone Makers Express Bullishness on AI

Major smartphone makers including Apple, Vivo, Xiaomi, and Samsung have already started expressing their optimism about AI. Vivo’s new X100, equipped with on-device AI, has seen explosive sales, while Xiaomi has reported six times the usual volume for its AI-packed flagship device. Samsung plans to incorporate generative AI into its 2024 models, aiming to offer ChatGPT-style features processed directly on phones rather than relying on the cloud.

The Search for the “Killer App” in Edge AI

Despite the positive outlook, there is still uncertainty surrounding the development of a “killer app” for Edge AI. Morgan Stanley compares this situation to the emergence of breakthrough applications in desktop and mobile internet, which typically take 1-2 years to develop. However, the investment bank believes that Microsoft’s CoPilot could lay the foundation for popularizing AI at the edge, giving investors confidence that a similar killer app for smartphones will also emerge.

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Smartphone projection by Morgan Stanley. India is the only market slated for double-digit growth. (Chart and data: Morgan Stanley)

Goldman Sachs’ Projections for Global Smartphone Volumes

Goldman Sachs estimates that global smartphone volumes will experience a 5% year-on-year decline in 2023, reaching 1.148 billion units compared to an estimated 1.206 billion phones shipped the previous year. However, the investment bank predicts that momentum will rebuild in 2024 and 2025, driven by new product launches. It forecasts a 3% rise in worldwide smartphone shipments to 1.186 billion in 2024, followed by another 5% increase to 1.209 billion in 2025.

Goldman Sachs analysts wrote, “With the holiday season and continuous restocking, along with better guidance from the supply chain on a market recovery, we revised up 2023-25E smartphone shipments. However, we continue to expect low single-digit growth in 2024-25E, and global smartphone shipments to gradually return to the 2022A level by 2025E.”

Mobile Phones Still Have an Edge Over PCs

The optimistic outlook for smartphones contrasts with consensus views that suggest maturing smartphones face similar challenges as personal computers did over the last decade. However, Morgan Stanley argues that replacement cycles and use cases still favor mobile phones. Tablets and smartphones have been taking market share from PCs since 2011, indicating that declines in PC shipments are due to the emergence of new devices rather than a disappearance of demand. Furthermore, the expanding use cases for smartphones, coupled with the potential of Edge AI, are expected to unlock a new wave of innovation.

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Goldman Sachs’ projections for top smartphone vendors. (Chart and data: Goldman Sachs)