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How COVID-19 is Affecting the Smartphone Industry

Foxconn Factory / China

At first glance, the COVID-19 pandemic would seem to be great news for tech companies. Depending on which set of statistics you look at, internet usage has spiked by up to 70% over the past month as people around the globe are forced to work, socialize, and entertain themselves at home.

However, it’s not all good news for tech companies. Zoom has just been hit with a class-action lawsuit in which it is alleged that they have overlooked basic privacy protocols in their video conferencing software. Whilst some states in the US have proposed to move voting online, others have claimed that the poor safety of online voting will open up new opportunities for fraud.

There has also been a rise in corona-related domain names, many of which are for malicious sites. All of these issues have raised consumer consciousness around the security and privacy of their data, and have led to demands for tech companies to improve in these areas.

There is another ongoing impact on the tech sector, albeit one which has been overlooked. Many factories in China have been closed for weeks, including those that produce smartphones. The sharp decline in production, coupled with a decrease in consumer demand, means that the smartphone industry has had one of the worst quarters in its history. In this article, we’ll look at why, and what the long-term effects of this are likely to be.

Supply and Demand

The most recent figures on the health of the smartphone industry have been released by Strategy Analytics, a market research company. These data show that global smartphone shipments dropped 38% year-over-year during February from 99.2 million devices to 61.8 million. Though the largest fall in shipments has been seen in China and other Asian countries, it is likely to continue for some months yet and to begin affecting countries outside that region.

There is one obvious reason for this drop in shipments, and one that is less so. At a basic level, the supply of new smartphones has dropped dramatically because factories in Asia have been unable to manufacture phones as normal due to mandatory government shutdowns and issues securing key components from the supply chain.

A more surprising finding of this same research, though, is that demand is also down. As employees across the world have been forced to work from home, some analysts had expected to see a sharp increase in demand for tech products. And we are not referring just to smartphones, but other remote working solutions as well.

Small business software provider Weave saw a spike of more than 62% of business texts sent using their B2B SMS platform. Likewise, payments provider Freshbooks more than doubled the number of U.K. users on their online invoicing software immediately after England went into lockdown. But many other software businesses are suffering, and haven’t yet realized the sharp increases seen by remote work solutions. Not yet at least. It seems, in fact, that high-street stores still play an important role in driving smartphone sales, even if the devices themselves are typically ordered online.

Because of this, the closure of many tech stores around the world has hit the smartphone industry hard. Apple, the planet’s biggest smartphone company by volume in the fourth quarter of 2019, has closed its stores outside of China indefinitely. It also warned in February that the pandemic would significantly constrain the iPhone supply. Samsung, the second-largest smartphone manufacturer by volume, also closed its stores throughout the world.

The Future

The effects of this slowdown are going to impact the smartphone industry in both the short- and the long-term.

First, the good news for smartphone manufacturers is that production capacity is now slowly returning as China is slowly getting back to work. Apple has also re-opened all of its stores in the country, which should lead to demand for its devices recovering. That said, this is going to take some months to be felt. “Despite tentative signs of recovery in China, we expect global smartphone shipments overall to remain weak throughout March 2020,” Yiwen Wu, a senior analyst at Strategy Analytics said in a statement to CNBC.

On the other hand, the industry that emerges after the pandemic is likely to be significantly different from before the crisis. As employees have moved to remote working over the past few months, both IT professionals within their organizations and the popular press have gone to great lengths to stress that smartphones can compromise privacy and that smartphone apps are a source of malware infections.

In response, research has found that more people than ever are using VPNs to protect their data, even outside of their work environment.

This will come as extremely welcome news to cybersecurity professionals, who have long argued that the only way to improve global cybersecurity is for the average user to recognize the risks of smartphone apps to the security and privacy of their data. This news will be less welcome, however, by tech companies who rely on the data collection capabilities built into smartphones to target users with advertising.

The Bottom Line

In short, it is likely that the smartphone industry will recover, but may be changed fundamentally by the crisis. The new types of cyberthreats that have emerged alongside COVID-19, coupled with the experience of remote working, means that smartphone users may never again be so relaxed about the way that smartphones collect data on them.

For this reason, there are some companies that stand to gain significantly from the pandemic. Among these are businesses producing smartphones (and smartphone apps) with a focus on privacy and data security. Whilst demand for smartphones is unlikely to reduce in the long term, the type of smartphones that consumers demand will.

By Samuel Bocetta, Security Analyst and Consultant

A former defense contractor for the US Navy, Sam Bocetta turned to freelance journalism in retirement, focusing his writing on US diplomacy and national security, as well as technology trends in cyberwarfare, cyberdefense, and cryptography.

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