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News from the Electronics Industry

25 August 2016

Gartner Says Five of Top 10 Worldwide Mobile Phone Vendors Increased Sales in Second Quarter of 2016

Global Sales of Smartphones Grew 4.3 Percent Year on Year

Apple Had Three Consecutive Quarters of Slowing Demand as Sales Declined 7.7 Percent

Global sales of smartphones to end users totaled 344 million units in the second quarter of 2016, a 4.3 percent increase over the same period in 2015, according to Gartner, Inc. Overall sales of mobile phones contracted by 0.5 percent with only five vendors from the top 10 showing growth. Among them were four Chinese manufacturers (Huawei, Oppo, Xiaomi and BBK Communication Equipment) and South Korea’s Samsung.

“Demand for premium smartphones slowed in the second quarter of 2016 as consumers wait for new hardware launches in the second half of the year,” said Anshul Gupta, research director at Gartner. In addition, the decline in sales of “feature phones” (down 14 per cent) bolstered the decline in overall sales of mobile phones in the second quarter of 2016 (see Table 1).

All mature markets except Japan saw slowing demand for smartphones leading to a decline in sales of 4.9 percent. In contrast, all emerging regions except Latin America saw growth, which led to smartphone sales growing by 9.9 percent.

Table 1

Worldwide Smartphone Sales to End Users by Vendor in 2Q16 (Thousands of Units)

Company

2Q16

Units

2Q16 Market Share (%)

2Q15

Units

2Q15 Market Share (%)

Samsung

76,743.5

22.3

72,072.5

21.8

Apple

44,395.0

12.9

48,085.5

14.6

Huawei

30,670.7

8.9

26,454.4

8.0

Oppo

18,489.6

5.4

8,073.8

2.4

Xiaomi

15,530.7

4.5

15,464.5

4.7

Others

158,530.3

46.0

160,162.1

48.5

Total

344,359.7

100.0

330,312.9

100.0

Source: Gartner (August 2016)

In the second quarter of 2016, Samsung had nearly 10 percent more market share than Apple. Samsung saw sales of its Galaxy A and Galaxy J series smartphones compete strongly with Chinese manufacturers. Its new smartphone portfolio also helped Samsung win back share it recently lost in emerging markets.

Apple continued its downward trend with a decline of 7.7 percent in the second quarter of 2016. Apple sales declined in North America (its biggest market) as well as in Western Europe. However, it witnessed its worst sales decline in Greater China and mature Asia/Pacific regions, where sales declined 26 percent. Apple had its best performance in Eurasia, Sub-Saharan Africa and Eastern Europe regions in the second quarter of 2016, where iPhone sales grew more than 95 percent year on year.

Among the top five smartphone vendors, Oppo exhibited the highest growth in the second quarter of 2016 at 129 percent. This is due to strong sales of its R9 handset in China and overseas.

“Features such as an anti-shake camera optimized for selfies, and rapid charge technology, helped Oppo carve a niche market for itself and boost sales in a highly competitive and commoditized smartphone market,” said Mr. Gupta.

In terms of the smartphone operating system (OS) market, Android regained share over iOSto achieve an 86 percent share (see Table 2) in the second quarter of 2016. Android’s performance continued to come from demand for mid- to lower-end smartphones from emerging markets, but also from premium smartphones, which recorded a 6.5 percent increase in the second quarter of 2016.

A number of key Android players, such as Samsung with the Galaxy S7, introduced their new high-end devices, but Chinese brands like Huawei and Oppo are also pushing their premium smartphone ranges with more affordable devices.

“Google is evolving the Android platform fast, which allows Android players to remain at the cutting edge of smartphone technology,” said Roberta Cozza, research director at Gartner. “Facing a highly commoditized smartphone market, Google’s focus is to further expand and diversify the Android platform with additional functionalities, like virtual reality, enabling more-intelligent experiences and reach into wearables, connected home devices, in-car entertainment and TV.”

Table 2

Worldwide Smartphone Sales to End Users by Operating System in 2Q16 (Thousands of Units)

Operating System

2Q16

Units

2Q16 Market Share (%)

2Q15

Units

2Q15 Market Share (%)

Android

296,912.8

86.2

271,647.0

82.2

iOS

44,395.0

12.9

48,085.5

14.6

Windows

1,971.0

0.6

8,198.2

2.5

Blackberry

400.4

0.1

1,153.2

0.3

Others

680.6

0.2

1,229.0

0.4

Total

344,359.7

100.0

330,312.9

100.0

Source: Gartner (August 2016)

Additional information is available in the Gartner report “Market Share Alert: Preliminary, Mobile Phones, Worldwide, 2Q16.”
“The top five smartphone manufacturers together continued to gain market share in the second quarter of 2016 — up from 51.5 percent to 54 percent year on year, led by Oppo, Samsung and Huawei,” said Mr. Gupta.

Contacts
About Gartner

Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. The company delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the valuable partner to clients in approximately 10,000 distinct enterprises worldwide. Through the resources of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, USA, and has 8,100 associates, including more than 1,700 research analysts and consultants, and clients in more than 90 countries. For more information, visit www.gartner.com.


Electronics Ranks High in Conflict Minerals Compliance

In a very short period of time the electronics industry has moved from grudging acceptance of the so-called U.S. “conflict minerals” rule to a leadership position in compliance, research concludes. Moreover, companies that have embraced the measure to boycott materials mined in certain regions of the world are driving positive change throughout the supply chain.

A portion of the Dodd-Frank Act of 2010 requires that publicly traded companies disclose the presence of minerals mined from the Democratic Republic of Congo (DRC) and several other regions that are embroiled in civil war. Rebel forces that control mines yielding tin, tantalum, tungsten and gold (3TG) are exploiting mine workers and funding terror campaigns through mineral sales. These materials are used extensively in electronics manufacturing.

Quite a number of electronics companies aren’t simply focused on compliance, according to Dr. Chris Bayer of Development International, who conducted the Conflict Mineral Benchmarking Study RY2015.  “They ‘own’ the due diligence process. These companies want to know for themselves if they are possibly funding armed groups. They not only want to know themselves but they feel they owe it to their employees and their shareholders.” In short, many public companies are embracing the spirit of Dodd-Frank in an effort to “do the right thing,” and for them conflict mineral due diligence has become a standard operating procedure (SOP).

The top 13 compliance leaders – companies that met all compliance criteria outlined by the U.S. Securities and Exchange Commission (SEC) and the Organization for Economic Co-operation and Development’s (OECD) – were Qualcomm, Intel, MSC Industrial Direct, China Mobile, Curtiss Wright, Chicago Bridge Iron, Hughes Satellite Systems, Internet Initiative Japan, Aptargroup, Key Technology, Hasbro, Cree and Nvidia.

High scores for component makers

Overall, component companies did particularly well, according to Assent Compliance Inc.  Program Manager Jonathan Nauth. Assent, which sat on the advisory board of the study, provides compliance software and services to business and industry.

“This is not just an opinion—there is data that reflects overall these companies are passionate about conflict mineral compliance. Many of these companies have been at the ground level—even involved in documentaries about the exploitation of mine workers—they care about this program,” Nauth said. Among the top 25 compliance leaders of 2015 –with combined SEC/OECD scores above 96 percent — were component makers Qualcomm, Intel, Cree, Nvidia, Microchip and QuickLogic.

There are, of course, business advantages: companies that embrace corporate social responsibility (CSR) efforts are viewed favorably by conscientious consumers and investors. Research also finds that millennials, who are becoming an economic force, want to work for and buy from socially-conscious businesses.  And overall, purchasing decisions—whether they are b2b or b2c—are increasingly based on more than just an item’s price and availability.

There are also positive risk-management aspects to compliance, Bayer said. Although there are no punitive damages attached to SEC non-compliance at this time, companies are effectively staking their reputations on being DRC conflict-free. “These companies can say ‘we are effectively managing our risk and we can be recognized by our stakeholders that we are doing our part.’ These companies are applying sensible policies [toward CSR] to make sure they are not doing more harm than good.”

General findings:

The 2015 study not only measured compliance to the U.S. SEC requirements but also conformity to the OECD 5-step Due Diligence framework. The OECD is an international organization that counts the U.S. among its members. The research found:

Among companies filing SEC disclosure (SD) or conflict minerals reports (CMR):

  • 10 percent of Form SD & CMR filers were found to be 100 percent SEC Rule compliant
  • 67 percent were at or above the 75 percent compliance threshold
  • In all, SD & CMR filers averaged a compliance score of 79 percent, a generally high degree of compliance
  • Country of origin data reporting improved in 2 percent of CMR filers, and the smelter or refiner (SOR) data reporting improved by 15 percent among CMR filers — progress in keeping with the continuous improvement mantra

Among companies reporting OECD DD guidance:

  • 13 companies earned a perfect score on both SEC compliance and OECD conformance — the ultimate winners
  • 116 companies – 11.5 percent of all CMR filers – earned at least a 75 percent on both scores

Manufacturing companies represented 77 percent of the 1,216 companies that filed compliance documentation in 2015 and were the largest segment in terms of revenue. Semiconductor and related device businesses made up the biggest portion of manufacturers. Among manufacturing companies filing SEC compliance documents, 89.1 percent of computer and communications companies were compliant and 83.6 percent of semiconductor and related device manufacturers were. Other industries, including media, automotive, broadcast and medical were all above 78 percent compliance.

The 2015 report paid special attention to gaps in the reporting in an effort to help companies improve compliance. Benchmarking studies have been done for three consecutive years since Dodd-Frank took effect; 2015 was the second consecutive year Development International conducted the study. Some companies still misunderstand the basic guidelines and filing procedures, the research found. And, although many companies declared themselves conflict-minerals free, not all companies verified that status through an independent audit (or IPSA).

Regarding the SEC rule:

  • 12 companies that stated a product containing 3TG (or suggested their company, due to a misunderstanding) was “DRC conflict free” did not furnish an IPSA, thus stand in contravention of the SEC Statement of April 29, 2014
  • The majority of all CMR filers (62 percent) reported, either explicitly or implicitly, that their products were “DRC conflict undeterminable”
  • With respect to the CMR filers, the largest shortcoming – with 65 percent of filers not reporting these data – concerned the origin of tin, tantalum and tungsten and gold (3TG), followed by the listing of SOR facilities, data which 43 percent of filers did not report
  • There was a basic misunderstanding between the terms “DRC conflict free” — which would require an IPSA — and “verified conflict free” (e.g. by the CFSI) among some filers

Regarding the OECD DD Guidance:

  • The findings show that while some filers reported applying the OECD due diligence guidance this year, others did not
  • CMR filers reported the most due diligence actions relevant to OECD Step 1
  • In all, 13 percent of SEC CMR filers had an OECD conformance score of 75 percent or higher

Assent Compliance also noted data it deemed as “interesting:”

  • There was a high reliance on the Conflict-Free Sourcing Initiative (CFSI) reporting template and SOR assurance/verification
  • There were possible violations of U.S. trade embargo revealed
  • There are 12 companies that claim they are “DRC conflict free” — but don’t have an IPSA

Among companies that filed as “DRC conflict free” and that filed an IPSA are AMD, Arrow Electronics, AVX, Canon, China Mobile, Intel, Kemet, Philips NV, M/A-COM, Siliconware Precision, Skyworks, Smart Technologies and Texas Instruments.

Impact of legal challenges and the EU

Perhaps the most significant finding of the study was that many companies have accepted that conflict minerals compliance is now standard operating procedure (SOP) for public companies. Moreover, the EU will be joining the U.S. in its efforts and is likely to exceed the parameters of the U.S. rule.

Bayer and others maintain that even in the face of a U.S. Appeals Court ruling that Dodd-Frank requirements violate the First Amendment right of freedom of speech, the bulk of the SEC rule still stands. “[The suit] did complicate matters,” said Bayer, “but it did not comprehensively undermine the rule. There are a series of things a company must do to demonstrate compliance. The ruling did do away with the requirement that companies publicly disclose the conflict status of the 3TG in their necessary products. But all other elements of the SEC rule are in effect.” Moreover, the EU will be joining the U.S. in its efforts to hold companies accountable on conflict minerals. “I think the EU [proposal] is a confirmation that this isn’t going anywhere,” said Bayer. “The sense is that conflict minerals due diligence is here to stay.”

The benchmarking studies also establish that it is possible to be compliant with the conflict minerals rule, Bayer argues, and there is very little reason why companies should not comply. “The technology is there – there are sophisticated IT and logistics systems that can compile and track anything. Companies are putting their cards on the table with their SEC filings. And the best-in-class performers among them need to be recognized. In essence these companies are saying they can’t turn a blind eye to these armed groups. Now there is more than anecdotal evidence that establishes the link [of rebel activities] to 3TG. The problem is real, and it is time to achieve critical momentum.”

In fact, the study notes that compliance leaders can positively influence their supply chains. Based on a company’s purchasing power and its due diligence performance, the study found Apple, General Motors, Honda Motor, HP, China Mobile, Cardinal Health and Microsoft exercised the most influence in 2015.

“Once issuers have performed due diligence on their supply chain and ensured that they are only consuming clean 3TG while not boycotting the region, at that point you’re done,” Bayer stated. “That is all a reasonable stakeholder can ask them to do, and anything more than that is above and beyond.”

Ends.

 

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