Global Handset Market Analysis and Forecast

Korea Display Conference 2016 IHS Markit Technology

Jusy Hong Principal Analyst Mobile & Telecom

Global Smartphone Market Saturation

Top 2 OEMs decelerates but China origin companies accelerates

Smartphone market share by OEM Country share by OEM’s Origin 30% 100% Samsung Apple Huawei 90% 25% Oppo vivo 80% Xiaomi LG 70% Others 20% ZTE Lenovo/Moto India TCL-Alcatel 60% Gionee Japan MicroMax 15% 50% Taiwan Coolpad Sony China HTC 40% USA 10% Microsoft BlackBerry Korea 30% Others

20% 5%

10%

0% 0% Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 2012 2013 2014 2015 2016(F)

Source: Smartphone intelligence Premium – IHS Markit

More than half of top smartphone OEMs made negative YoY growth in the 1H

Mil. units Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 1H(YoY) Samsung 81.2 73.0 84.0 82.0 79.4 77.5 2% Apple 61.2 47.5 48.0 74.8 51.2 40.4 -16% Huawei 17.5 30.6 27.4 33.4 28.4 33.3 28% Oppo 9.1 10.8 12.5 13.3 16.8 21.9 94% vivo 9.4 11.2 12.1 12.5 14.4 16.4 50% Xiaomi 14.8 19.7 18.5 20.2 14.8 15.2 -13% LG 15.4 14.2 14.9 15.3 13.5 13.9 -7% ZTE 12.9 15.1 15.6 15.4 11.9 13.7 -9% Lenovo/Moto 18.7 16.2 18.8 20.2 10.9 11.1 -37% TCL-Alcatel 9.1 10.1 10.2 12.1 7.8 7.4 -21% Gionee 4.4 4.8 5.3 5.9 5.6 6.2 28% MicroMax 4.3 5.7 6.4 4.4 4.7 5.1 -3% Others 74.4 79.8 63.9 58.9 60.6 66.0 -18% Sum 332.4 338.7 337.7 368.4 319.9 328.0 -3% Source: Smartphone intelligence Premium – IHS Markit

Huawei, Oppo and vivo revised up its smartphone shipment target while other OEMs revised down

Mil. units As of Feb As of Apr As of Aug As of Oct Change(Feb-Oct)

Samsung 320.0 318.0 316.0 316.0 -1%

Apple 230.0 215.0 208.6 208.6 -9%

Huawei 130.0 140.0 134.6 133.2 2%

OPPO 54.0 75.0 88.7 93.5 73%

Vivo 50.0 68.0 68.8 74.9 50%

Xiaomi 85.0 70.0 63.5 58.1 -32%

LG 63.0 59.0 57.9 55.9 -11%

ZTE 59.0 56.0 57.4 53.3 -10%

Lenovo/Moto 80.0 65.0 45.5 53.3 -33%

TCL-Alcatel 48.0 40.0 32.7 36.3 -24%

Source: Smartphone intelligence Premium – IHS Markit

Will 2016 be the first contraction year of the smartphone history?

Mil. units Q1-16 Q2-16 Q3-16(E) Q4-16(E) 2016(E) YoY(2015) Samsung 79 77 77 82 316 -1.2% Apple 51 40 46 72 209 -9.9% Huawei 28 32 34 39 133 22.3% OPPO 17 22 27 28 94 104.6% Vivo 14 16 21 23 75 65.7% Xiaomi 15 15 13 15 58 -20.6% ZTE 12 15 14 15 56 -6.3% LG Electronics 14 14 14 14 53 -10.8% Lenovo 11 11 14 14 53 -27.9% TCL-Alcatel 8 7 9 12 36 -12.5% Gionee 6 6 8 9 29 39.7% Micromax 5 5 6 5 21 -0.8% Others 60 66 60 55 242 -12.6% Sum 320 328 342 383 1,372 -0.4%

Source: Smartphone intelligence Premium – IHS Markit

The importance of Mid & Low- end smartphones

Emerging regions will account for almost 60% in 2020 in the global smartphone market

Smartphone regional share forecast 100% Rest of APAC 90%

80% E. Europe + Africa + Middle East 70% L America 60% China 50%

40% Western Europe

30% N America 20% Emerging Regions 10%

0% 2014 2015 2016 2017 2018 2019 2020

Source: Smartphone intelligence Premium – IHS Markit

Top 20 models of global smartphone shipment in 1H Volume of premium model declined while that of cheaper model increased

Model Name Company 2015 2015 No. of Vol. Ave. Model Name Company 2016 iPhone 6 Apple 65.4 Model (Mil.) (Mil.) iPhone 6S Apple 50.7 iPhone 6 Plus Apple 25.3 Samsung 12 103.5 8.6 iPhone 6S Plus Apple 16.4 Galaxy Grand Prime Samsung 15.6 Apple 3 102.9 34.3 Galaxy J5 Samsung 15.6 Galaxy S6 Edge Samsung 13.0 Huawei 1 4.5 4.5 Galaxy S7 Edge Samsung 13.5 iPhone 5S Apple 12.3 Xiaomi 4 26.7 6.7 Galaxy J7 Samsung 13.0 Galaxy Core Prime Samsung 10.7 Galaxy J2 Samsung 12.6 Galaxy S6 Samsung 10.1 Galaxy S7 Samsung 12.0 Mi 4 Xiaomi 9.3 Galaxy J1 ACE Samsung 11.0 Galaxy V Samsung 8.3 Galaxy Grand Prime Samsung 9.9 Galaxy S5 Samsung 8.2 iPhone 6 Apple 9.3 Redmi 2 Xiaomi 7.7 Galaxy J3 (2016) Samsung 9.1 Galaxy J1 Samsung 7.3 iPhone SE Apple 8.3 Galaxy A5 Samsung 7.0 Redmi Note 3 Xiaomi 7.9 Galaxy Grand Neo Samsung 6.0 2016 No. of Vol. Ave. Galaxy J1 (2016) Samsung 6.7 Galaxy Core 2 Duo Samsung 5.9 Model (Mil.) (Mil.) Redmi 3 Xiaomi 6.0 Galaxy Note 4 Samsung 5.9 Samsung 10 108.5 10.8 Honor 5X Huawei 6.0 Galaxy A3 Samsung 5.5 Apple 4 84.7 21.2 K7 LG 5.4 Redmi 2A Xiaomi 5.2 Huawei 3 16.0 5.3 Galaxy J1 Mini Samsung 5.1 Honor 4X Huawei 4.5 Xiaomi 2 13.8 6.9 Ascend P8 Lite Huawei 5.0 Redmi Note 4G Xiaomi 4.5 LG 1 5.4 5.4 Ascend Mate 8 Huawei 5.0 - Based on model shipment data of Apple, Blackberry, Huawei, HTC, Lenovo, LG, Motorola, Samsung, Sony, TCL, Xiaomi and ZTE

What is Smartphone Active Installed Data • Smartphone model information which is currently in use. • Collecting 4 billion data points each month. • Covering 80 different countries in the world. • Smartphone model based foundation, which brings various data points.

> Smartphone model; top 20 models by country; top 400 models by OEM by country

> OEM – complete brand coverage;

> Display: Screen size; PPI; Resolution;

> Fingerprint sensor; Barometer; NFC; Gyroscope;

> Audio codecs; Video codecs;

> RAM; Storage; SD card slot;

> Dual/Single/Triple SIM; SIM type;

> IP Rating; Battery capacity;

> Rear camera MP; OIS; Front camera MP;

> Application processor; SoC designer; SoC model; GPU designer; GPU model

> Location: Beidou; Glosnass; GPS; Gallileo;

Rising dual SIM smartphone adoption demonstrates the importance of direct to consumer sales

Dual-sim smartphone share in active installed base 45%

40%

35% Africa 30% Asia Pacific 25% South & Central America 20% Central & Eastern Europe Middle East 15% Western Europe 10% North America 5%

Source: Smartphone intelligence Premium – Active installed base – IHS Markit

Prepaid subscription is popular in emerging regions

Prepaid subscription share by country in 2016

China W. Europe US Korea

India South Africa Egypt Russia Argentina Brazil

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: Mobile Media Intelligence, IHS Markit

Decreasing is an obvious trend but the speed can be slower than forecast

Global handset market forecast 2,000 Feature Phone 1,800 Smart Phone 16% 19% 1,600 25%

1,400

1,200

1,000

800 Million Million units 600

400

200

0 2014 2015 2016 2017 2018 2019 2020

Source: Mobile Media Intelligence, IHS Markit

Still more than 30% of handset users will use feature phone in emerging region in 2018

Smartphone penetration in handset subscription 100% 2015 2016 2017 2018 90%

80%

70%

60%

50%

40%

30%

20%

10%

0% Africa & Middle Asia Pacific Central & Latin America North America Western Europe East Eastern Europe

Source: Mobile Media Intelligence, IHS Markit

Strength of feature phone is cheap price

Design Resolution Bar: 94% 240x320: 35% Flip: 5% 128x160: 30%

Display Camera <2”: 43% <3 MP: 66% 2.0-2.9”: 36% 3-7 MP: 20% $10-40

Image source: gift-10.com.hk Number of feature phone models selling on Alibaba website (Oct’16)

Emerging market is different from advanced market

Local leaders are prevalent across South East Asia in particular, but do appear in more developed markets too

Local Kings: Brands that are in the top 3 in only one country

Source: Smartphone intelligence Premium – IHS Markit

Both Chinese & local smartphone brands are growing, but there are large difference between countries

Smartphone shipments by type of brand, by country, 2015 100%

90% Other

80%

70% Local brands

60%

50% Chinese brands

40%

30% Apple

20%

10% Samsung

0% India Indonesia United States Norway

Source: Smartphone intelligence Premium – IHS Markit

The overall mobile market structure of each country drives the degree of OEM competition

IndiaSmartphone Indonesia shipments Unitedby OEM States by country,Norway 2015

Local brands are Chinese brands Increasingly High postpay Others starting to are rising but diverse due to supports strong Vivo struggle as regulatory shift away from brands & LAVA Chinese brands structure subsidies & slow increases increase their encourages rise of prepaid concentration Motorola focus, but strong local Sony regulation risks brands Asus 100% Huawei LG 80% Oppo 60% Micromax Evercoss 40% Advan ZTE 20% Apple Samsung 0% India Indonesia United States Norway

Source: Smartphone intelligence Premium – IHS Markit

While Samsung dominates market, Chinese OEMs are getting stronger with mid/low-end smartphones

Brazil Argentina Russia Iran Shipment(Mil.) 31.0 Shipment(Mil.) 8.8 Shipment(Mil.) 21.9 Shipment(Mil.) 11.7 Samsung 34% Samsung 37% Apple 39% Huawei 45% Apple 15% LG 15% Samsung 18% Samsung 34% LG 13% Motorola 15% TCL-Alcatel 10% Apple 9% TCL-Alcatel 6% Apple 9% Lenovo 8% Sony 5% Motorola 3% Huawei 0.1% Sony 8% HTC 3% Top 5 71% Top 5 77% Top 5 83% Top 5 96%

Egypt South Africa India Indonesia Shipment(Mil.) 10.6 Shipment(Mil.) 12.9 Shipment(Mil.) 86.4 Shipment(Mil.) 39.4 Samsung 57% Samsung 48% Samsung 38% Samsung 43% Huawei 13% Huawei 11% MicroMax 21% Lenovo 16% Apple 8% ZTE 10% Apple 8% Asus 13% Sony 6% Microsoft 7% Motorola 7% Evercoss 6% Lenovo 5% TCL-Alcatel 7% Microsoft 6% Xiaomi 5% Top 5 89% Top 5 82% Top 5 80% Top 5 83%

More than a half of smartphones in use in the emerging regions is less than 5”

Screen size – all smartphone Screen size – android smartphone (Jun’16) (Jun’16) 100% 6.0 & Korea Larger 90% UK 5.5-5.99 80% US 70% 5-5.49 5-5.49 5.5-5.99 6.0 & Larger 60% Indonesia 50% 4.5-4.99 India 40% 4-4.49 South Africa 30% Egypt 20% below Iran 3.99 10% Russia Others 0% Argentina

Brazil

0% 50% 100%

Source: Smartphone intelligence Premium – Active installed base – IHS Markit

People in Asia Pacific show higher preference for larger screen size

Smartphone screen size – Asia Pacific Smartphone screen size – W. Europe Unknown 100%

2.5 - 2.99 90%

3 - 3.49 80%

3.5 - 3.99 70%

4 - 4.49 60%

4.5 - 4.99 50%

5 - 5.49 40%

5.5 - 5.99 30%

6 - 6.49 20%

20% 6.5 - 6.99 10% 10%

7 - 7.49 0%

7/15 7/15 1/14 3/14 5/14 7/14 9/14 1/15 3/15 5/15 9/15 1/16 3/16 5/16 1/14 3/14 5/14 7/14 9/14 1/15 3/15 5/15 9/15 1/16 3/16 5/16

11/15 11/14 11/15 11/14

Source: Smartphone intelligence Premium – Active installed base – IHS Markit

But in Western Europe, smartphone users prefer higher resolution Resolution – Asia Pacific Resolution – Western Europe

Unknown 480 x 320 320 x 240 720 x 720 960 x 540 854 x 480 800 x 480 640 x 480 1280 x 800 1280 x 768 1280 x 720 45% 27% 1920 x 1080 2560 x 1600

2560 x 1440

7/15 1/16 6/16 8/15 9/15 2/16 3/16 4/16 5/16 6/16 7/15 8/15 9/15 1/16 2/16 3/16 4/16 5/16

10/15 11/15 12/15 10/15 11/15 12/15

Source: Smartphone intelligence Premium – Active installed base – IHS Markit

Why is it different?

Average revenue per user of subscription shows big gap between advanced and emerging countries

Subscription ARPU by country

45.0 Blended ARPU (Euro) 50% Content ARPU (Euro) 40.0 45% Content Share in blended ARPU 35.0 40% 35% 30.0 30% 25.0 25% 20.0 20% 15.0 15%

10.0 10%

5.0 5%

0.0 0% Brazil Russia South India Korea US W. Europe China Africa

Source: Mobile Media Intelligence, IHS Markit

Content consumption behavior shows a distinct difference preference by country

Contents revenue share 3.5%

3.0% Strong preference 2.5% for Game content 2.0%

1.5%

1.0%

0.5%

0.0% Brazil Russia South India Korea US Western China Africa Europe Mobile music (consumer) Mobile operator games Mobile TV Mobile video

Source: Mobile Media Intelligence, IHS Markit

But emerging market is evolving, a mobile payment service already started in Kenya

• M-PESA is a mobile phone-based money transfer, financing and microfinancing service in Kenya and Tanzania. • M-PESA allows users to deposit, withdraw, transfer money and pay for goods and services easily with a mobile device.

Image source: IHS Markit

Difference starting points but paths to positive cycles

Starts! Starts!

New Hardware New Software Software Hardware Experience Price Down Experience Development Upgrade

Emerging Advanced Market Market

Needs New Experience Experience Hardware Hardware Upgrade with Upgrade Upgrade Software

Drivers of enlarging and upgrading smartphone screen

• Low-end Emerging market • Premium Advanced market

 Many people never  High resolution had a camera before picture  Subscription free  Color enhancement  Starting point of  Increasing SNS streaming service

 High quality picture  Personal  Color enhancement Entertainment  Replacing DSLR  Subscription free  Cheaper contents  Immersive experience  High resolution picture

Qualcomm announced new chipsets upgrades

Snapdragon Snapdragon Snapdragon Snapdragon 800 600 400 200 Premium tier High tier High volume Entry level smartphones smartphones smartphones smartphones

Camera 21-55MP 21-24MP 13-21MP 5-8MP

Display 1080p-4K 1080p30-4K30 720p-1080p 720p

2017 new Snapdragon supports Dual Camera Snapdragon Snapdragon Snapdragon 653 626 427

Source: Qualcomm 5G summit 2016

Polarization of tier escalates but cost, efficiency and scale must be the foundations for both segments

Low tier segment High tier segment

5G Dual Camera 3G Flexible Display Cost Dual Sim Efficiency Quick Charge Camera Scale IP Rate Cheaper Display Biometric VR Security

Thank you