## 1. Global Sales of PCs and Smartphones

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---

### Key findings and context
- Global smartphone sales peaked at 1.47 billion units in 2016 and declined to 1.37 billion in 2019.
- PC sales peaked in 2011 and declined steadily thereafter as PC technology matured.
- The average price of a smartphone has declined as cheaper producers (Huawei, Samsung, Xiaomi, Oppo) gained market share at the expense of Apple.
- iPhone sales peaked in 2015 with the release of the iPhone 6S (September 2015); official Apple quarterly iPhone sales figures stop at 2018Q3, with IDC (2020) estimates showing continued decline thereafter.
- In 2019, IDC estimates show an 8.7 percent decline in iPhone sales versus the same period the previous year, partly reflecting overall declines in global smartphone shipments and erosion of Apple’s market share, particularly in China.
- Tech-related exports accounted for an estimated 14 percent of global trade in 2018; tech exports contributed negatively to global trade in 2019 as quantities and average prices both declined.

### Smartphone shipments and market shares (table summary)
- Company 2018 Shipments (millions) 2018 Market Share (%) 2019 Shipments (millions) 2019 Market Share (%) Year-Over-Year Change (%)
  - 1. Samsung 292.3 20.8 295.0 21.5 0.9
  - 2. Huawei 206.0 14.7 240.6 17.5 16.8
  - 3. Apple 208.8 14.9 190.6 13.9 -8.7
  - 4. Xiaomi 122.6 8.7 122.8 9.0 0.2
  - 5. OPPO 113.2 8.1 114.4 8.3 1.1
  - Others 462.1 32.9 407.7 29.7 -11.8
  - Total 1404.9 100.0 1371.1 100.0 -2.4
- Source: IDC (2020) (table reproduced exactly as in source).

### Global trade and production chain developments
- Tech exports were a drag on global trade in 2019 after positive contributions in 2017-18 driven by higher prices offsetting lower quantities.
- The negative contribution in 2019 was particularly evident in Asian exports, including from China.
- Following US-China trade tensions, smartphone producers are diversifying supply chains outside mainland China to avoid potential tariffs (most smartphones, including iPhones, have so far been exempted from US tariffs).
  - Examples reported in the source: Foxconn announced production of future iPhone models out of Chennai, India, and planned factories in Vietnam.
  - Suppliers of 5G network infrastructure (Ericsson and Huawei) are moving production to India.
- The coronavirus outbreak led to announced temporary shutdowns of smartphone production in mainland China.

### Simple model of smartphone sales (structure and calibration)
- Sales equation:
  - St = γt Kt−1 + Kt−1 / μt = (γt + 1/μt) Kt−1
  - Interpretation: Global smartphone sales (St) are driven by growth rate (γt) in the stock of smartphones in use worldwide (Kt) and a time-varying replacement cycle (μt), the average number of years users keep a smartphone before replacing it.
  - If γt + 1/μt ≤ 0 then St = 0 (implying vanishing stock).
- Steady state:
  - S* = K* / μ*
  - Steady-state growth rate of the capital stock is zero (γ = 0).
- Calibration examples:
  - GSMA estimated the stock of mobile internet users at close to 3.0 billion in 2015 (used as proxy for Kt−1).
  - Growth rate of the stock of global smartphones (γt) was 4.8 percent in 2016.
  - Worldwide replacement rate (μt) in 2016 estimated by Morgan Stanley at 2.34 years.
  - Using these figures, the model yields an expected smartphone sales value for 2016 of 1.406 billion (close to actual 1.473 billion).
  - In-sample static forecasts reported:
    - 2017 forecast: 1.411 billion vs. actual 1.472 billion.
    - 2018 forecast: 1.461 billion vs. actual 1.371 billion.

### Projections and scenarios (2019–2024)
- Calibration assumptions:
  - GSMA estimated stock of mobile internet users at 3.6 billion in 2018.
  - Growth rate of mobile phone lines in the world about 2 percent in 2019 (assumed equivalent to smartphone growth γt if smartphone share remains unchanged at 60 percent).
  - Average replacement cycle in 2018 about 2.8 years in the US and Korea.
  - Worldwide average replacement cycle (μt) calibrated to be 2.9 in 2019, growing steadily to 3.5 years over 2020-24 as users slow replacement and the secondary market grows.
- Baseline projection:
  - Global smartphone sales are forecast to decline steadily over the next five years.
  - Forecast: sales fall to less than 1.3 billion per year by 2024, while the stock would rise to over 4.0 billion units.
- Downside scenario (zero growth in stock):
  - Assumption: zero growth in the stock of global smartphones (stock remains at 3.6 billion).
  - Result: sales fall to less than 1.1 billion per year by 2024.
- Upside scenario (5G Boost / innovation):
  - Introduction of 5G-compatible smartphones or other innovations could shorten replacement cycles or raise growth.
  - The 5G Boost scenario is based on a higher growth rate of 4 percent per year.
  - Under an upside scenario, sales could recover to about 1.5 billion by 2024, with the stock growing more rapidly.

### Shift to embedded services and implications for trade
- Smartphone producers are diversifying into embedded services that run through the smartphone operating system to boost revenues:
  - Mobile cloud services (applications, backups, files, photos, videos, etc.)
  - Content subscription services (music, news, movie and TV streaming, videogames)
  - Financial services
- In 2019, the market for mobile cloud services was estimated at $31 billion and was dominated by large cloud providers (Apple, Amazon AWS, IBM, Google, Microsoft, and Oracle), mostly based in the US.
- Consequences for global trade:
  - As tech companies shift to embedded services (cloud computing, content subscription, and financial services), the contribution to global trade over the next few years could shift from merchandise exports mostly from Asia to services exports mostly from advanced economies.
  - Services exports are likely to be smoother than merchandise exports, which may reduce the volatility of the tech cycle observed in high-frequency trade data.
  - Profits for mobile cloud services are likely to grow rapidly and are expected to flow mostly to the US in the form of services exports of Information, Communication, and Technology (ICT) services.
- Available BEA data show a significant rise in US services exports associated with these embedded services; US services imports confirm that most of these services come from advanced economies.

### Growth of embedded content subscription services
- Content subscription services include music, news, movie and TV streaming, and videogame subscriptions.
- Producers of smartphone operating systems (Apple IOS and Google Android) have embedded services: Apple Arcade, Music, News+, and TV+; and Android Google Play.
- Video streaming services are expected to reach $30 billion by 2024.
- Royalties from these services will mostly accrue to producers residing in advanced economies, notably the US, as potentially ICT-enabled services.

### Financial services and mobile payments embedded in smartphones
- Mobile financial services have had rapid growth, particularly in less developed countries where traditional financial services were lacking.
- Alipay (a subsidiary of the Alibaba Group) had over 870 million users in 2018 and accounted for more than half of third-party payments in China.
- Apple Cash was introduced in the US in October 2014 and is now available for both domestic and international transactions in 80 countries.
- Google Pay (previously Google Wallet) was introduced in the US in 2015 and has an international presence in 30 countries.
- These embedded financial services will boost potentially ICT-enabled financial services in advanced economies where the managing financial entities reside.

### Apple Inc. as an example of the shift to embedded services
- Apple started providing cloud services through iCloud in 2011 and has now more than an estimated 850 million iCloud users.
- Apple introduced content subscriptions for unlimited music, news, TV and movies, and videogames, and financial services like Apple Cash and the Apple Card (in collaboration with Goldman Sachs).
- Apple Inc.’s revenue from services has steadily increased since the first quarter of 2016 and accounted for $48.1 billion (13.8 percent of total revenue) in 2019, while revenues from iPhone sales have been steadily declining since the third quarter of 2018.

### Impact on global trade composition and the tech cycle
- BEA estimates: US services exports of potentially ICT-enabled services have grown rapidly since 2009 and accounted for more than 3 percent of GDP in 2018, while the share in GDP of ICT services remained broadly flat.
- The growth in potentially ICT-enabled services in the US has coincided with the rise in smartphone use; PC sales were declining during the same period.
- Most US imports of potentially ICT-enabled services in 2018 came from advanced economies, except for India.
- The shift to embedded services could move the tech cycle from being driven by hardware (global smartphone production and merchandise exports from Asia) toward services exports mainly from advanced economies (financial services and royalty payments for music, movies, news and TV programming).
- With a lower contribution to trade from merchandise tech exports and the rise of embedded services exports, the volatility of the tech cycle is likely to diminish in the future.

### Replacement cycle and secondary market effects
- Longer replacement cycles reduce new smartphone sales and may lower growth in the overall stock of smartphones if secondary markets circulate used devices.
- Morgan Stanley (2017) estimates worldwide average replacement cycle rising from 2.1 years in 2013 to 2.6 years in 2016 and projected a further increase to 2.8 years by 2020.
- US 2019 replacement cycles: 2.88 years for consumers and 2.56 for enterprises.
- Surveys: Korea (September 2018) found the average user replaced their smartphone every 2.8 years.
- The secondary market is growing faster than the primary market; the average smartphone may be used by two to three people before it is scrapped.
- Trade-in and refurbishment programs (e.g., Apple’s trade-in program introduced in 2017) extend device lifespans, lengthening replacement cycles and reducing new smartphone sales.

### Uncertainty and policy-relevant observations
- Major sources of uncertainty:
  - Potential reversal of the decline from new innovations (e.g., 5G) that could shorten replacement cycles.
  - Evolution of the secondary market for used smartphones, which lengthens replacement cycles.
  - Geopolitical and public health shocks affecting production locations (trade tensions, coronavirus).
- Supply-chain diversification trends are already observable (assembly and supplier moves to India, Vietnam, etc.).
- Policy implications:
  - Expect a likely continued decline in merchandise trade contributions from smartphones absent a strong innovation-led replacement cycle.
  - Monitor transition to services-intensive revenue models in tech firms, which may shift export patterns toward advanced-economy services and reduce trade volatility tied to hardware cycles.

*Source: wpiea2020070-print-pdf*

### 1. Global Sales of PCs and Smartphones..............................................................................4

### 1. Global Sales of PCs and Smartphones

### Key findings and context
- Global smartphone sales peaked at 1.47 billion units in 2016 and declined to 1.37 billion in 2019.
- PC sales peaked in 2011 and declined steadily thereafter as PC technology matured.
- The average price of a smartphone has declined as cheaper producers (Huawei, Samsung, Xiaomi, Oppo) gained market share at the expense of Apple.
- iPhone sales peaked in 2015 with the release of the iPhone 6S (September 2015); official Apple quarterly iPhone sales figures stop at 2018Q3, with IDC (2020) estimates showing continued decline thereafter.
- In 2019, IDC estimates show an 8.7 percent decline in iPhone sales versus the same period the previous year, partly reflecting overall declines in global smartphone shipments and erosion of Apple’s market share, particularly in China.
- Tech-related exports accounted for an estimated 14 percent of global trade in 2018; tech exports contributed negatively to global trade in 2019 as quantities and average prices both declined.

### Smartphone shipments and market shares (table summary from source)
- Company 2018 Shipments (millions) 2018 Market Share (%) 2019 Shipments (millions) 2019 Market Share (%) Year-Over-Year Change (%)
  - 1. Samsung 292.3 20.8 295.0 21.5 0.9
  - 2. Huawei 206.0 14.7 240.6 17.5 16.8
  - 3. Apple 208.8 14.9 190.6 13.9 -8.7
  - 4. Xiaomi 122.6 8.7 122.8 9.0 0.2
  - 5. OPPO 113.2 8.1 114.4 8.3 1.1
  - Others 462.1 32.9 407.7 29.7 -11.8
  - Total 1404.9 100.0 1371.1 100.0 -2.4
- Source: IDC (2020) (table reproduced exactly as in source).

### Global trade and production chain developments
- Tech exports were a drag on global trade in 2019 after positive contributions in 2017-18 driven by higher prices offsetting lower quantities.
- The negative contribution in 2019 was particularly evident in Asian exports, including from China.
- Following US-China trade tensions, smartphone producers are diversifying supply chains outside mainland China to avoid potential tariffs (most smartphones, including iPhones, have so far been exempted from US tariffs).
  - Examples reported in the source: Foxconn announced production of future iPhone models out of Chennai, India, and planned factories in Vietnam.
  - Suppliers of 5G network infrastructure (Ericsson and Huawei) are moving production to India.
- The coronavirus outbreak led to announced temporary shutdowns of smartphone production in mainland China.

### Simple model of smartphone sales (structure and calibration)
- Sales equation from source:
  - St = γt Kt−1 + Kt−1 / μt = (γt + 1/μt) Kt−1
  - Interpretation: Global smartphone sales (St) are driven by growth rate (γt) in the stock of smartphones in use worldwide (Kt) and a time-varying replacement cycle (μt), the average number of years users keep a smartphone before replacing it.
  - If γt + 1/μt ≤ 0 then St = 0 (implying vanishing stock), which the source notes is unlikely.
- Steady state:
  - S* = K* / μ*
  - Steady-state growth rate of the capital stock is zero (γ = 0).
- Calibration examples from the source:
  - GSMA estimated the stock of mobile internet users at close to 3.0 billion in 2015 (used as proxy for Kt−1).
  - Growth rate of the stock of global smartphones (γt) was 4.8 percent in 2016.
  - Worldwide replacement rate (μt) in 2016 estimated by Morgan Stanley at 2.34 years.
  - Using these figures, the model yields an expected smartphone sales value for 2016 of 1.406 billion (close to actual 1.473 billion).
  - In-sample static forecasts reported in source:
    - 2017 forecast: 1.411 billion vs. actual 1.472 billion.
    - 2018 forecast: 1.461 billion vs. actual 1.371 billion.

### Projections and scenarios (2019–2024)
- Calibration assumptions (from source):
  - GSMA estimated stock of mobile internet users at 3.6 billion in 2018.
  - Growth rate of mobile phone lines in the world about 2 percent in 2019 (assumed equivalent to smartphone growth γt if smartphone share remains unchanged at 60 percent).
  - Average replacement cycle in 2018 about 2.8 years in the US and Korea.
  - Worldwide average replacement cycle (μt) calibrated to be 2.9 in 2019, growing steadily to 3.5 years over 2020-24 as users slow replacement and the secondary market grows.
- Baseline projection (authors’ model):
  - Global smartphone sales are forecast to decline steadily over the next five years.
  - Forecast: sales fall to less than 1.3 billion per year by 2024, while the stock would rise to over 4.0 billion units.
- Downside scenario (zero growth in stock):
  - Assumption: zero growth in the stock of global smartphones (stock remains at 3.6 billion).
  - Result: sales fall to less than 1.1 billion per year by 2024.
- Upside scenario (5G Boost / innovation):
  - Introduction of 5G-compatible smartphones or other innovations could shorten replacement cycles or raise growth.
  - The 5G Boost scenario in the source is based on a higher growth rate of 4 percent per year.
  - Under an upside scenario, sales could recover to about 1.5 billion by 2024, with the stock growing more rapidly.

### Shift to embedded services and implications for trade
- Smartphone producers are diversifying into embedded services that run through the smartphone operating system to boost revenues:
  - Mobile cloud services (applications, backups, files, photos, videos, etc.)
  - Content subscription services (music, news, movie and TV streaming, videogames)
  - Financial services
- In 2019, the market for mobile cloud services was estimated at $31 billion and was dominated by large cloud providers (Apple, Amazon AWS, IBM, Google, Microsoft, and Oracle), mostly based in the US.
- Consequences for global trade:
  - As tech companies shift to embedded services (cloud computing, content subscription, and financial services), the contribution to global trade over the next few years could shift from merchandise exports mostly from Asia to services exports mostly from advanced economies.
  - Services exports are likely to be smoother than merchandise exports, which may reduce the volatility of the tech cycle observed in high-frequency trade data.
  - Profits for mobile cloud services are likely to grow rapidly and are expected to flow mostly to the US in the form of services exports of Information, Communication, and Technology (ICT) services.
- Available BEA data (US Bureau of Economic Analysis) show a significant rise in US services exports associated with these embedded services; US services imports confirm that most of these services come from advanced economies.

### Uncertainty and policy-relevant observations
- Major sources of uncertainty identified in the source:
  - Potential reversal of the decline from new innovations (e.g., 5G) that could shorten replacement cycles.
  - Evolution of the secondary market for used smartphones, which lengthens replacement cycles.
  - Geopolitical and public health shocks affecting production locations (trade tensions, coronavirus).
- Supply-chain diversification trends are already observable (assembly and supplier moves to India, Vietnam, etc.).
- Implication for policymakers and analysts:
  - Expect a likely continued decline in merchandise trade contributions from smartphones absent a strong innovation-led replacement cycle.
  - Monitor transition to services-intensive revenue models in tech firms, which may shift export patterns toward advanced-economy services and reduce trade volatility tied to hardware cycles.

*Source: wpiea2020070-print-pdf*

### introduction of the 5G network.

### introduction of the 5G network.

### Growth of embedded content subscription services
- Content subscription services include music, news, movie and TV streaming, and videogame subscriptions.
- Producers of smartphone operating systems (Apple IOS and Google Android) have embedded services: Apple Arcade, Music, News+, and TV+; and Android Google Play.
- Video streaming services are expected to reach $30 billion by 2024.
- Royalties from these services will mostly accrue to producers residing in advanced economies, notably the US, as potentially ICT-enabled services.

### Financial services and mobile payments embedded in smartphones
- Mobile financial services have had rapid growth, particularly in less developed countries where traditional financial services were lacking.
- Alipay (a subsidiary of the Alibaba Group) had over 870 million users in 2018 and accounted for more than half of third-party payments in China.
- Apple Cash was introduced in the US in October 2014 and is now available for both domestic and international transactions in 80 countries.
- Google Pay (previously Google Wallet) was introduced in the US in 2015 and has an international presence in 30 countries.
- These embedded financial services will boost potentially ICT-enabled financial services in advanced economies where the managing financial entities reside.

### Apple Inc. as an example of the shift to embedded services
- Apple started providing cloud services through iCloud in 2011 and has now more than an estimated 850 million iCloud users.
- Apple introduced content subscriptions for unlimited music, news, TV and movies, and videogames, and financial services like Apple Cash and the Apple Card (in collaboration with Goldman Sachs).
- Apple Inc.’s revenue from services has steadily increased since the first quarter of 2016 and accounted for $48.1 billion (13.8 percent of total revenue) in 2019, while revenues from iPhone sales have been steadily declining since the third quarter of 2018.

### Impact on global trade composition and the tech cycle
- BEA estimates: US services exports of potentially ICT-enabled services have grown rapidly since 2009 and accounted for more than 3 percent of GDP in 2018, while the share in GDP of ICT services remained broadly flat.
- The growth in potentially ICT-enabled services in the US has coincided with the rise in smartphone use; PC sales were declining during the same period.
- Most US imports of potentially ICT-enabled services in 2018 came from advanced economies, except for India.
- The shift to embedded services could move the tech cycle from being driven by hardware (global smartphone production and merchandise exports from Asia) toward services exports mainly from advanced economies (financial services and royalty payments for music, movies, news and TV programming).
- With a lower contribution to trade from merchandise tech exports and the rise of embedded services exports, the volatility of the tech cycle is likely to diminish in the future.

### Smartphone sales outlook and uncertainties
- Smartphone sales appear to have peaked in 2016, suggesting potential market saturation.
- A simple forecasting model predicts that sales of smartphones could continue to decline over the next five years, given slower growth in penetration of smartphone users and longer replacement cycles.
- Significant uncertainty surrounds this forecast; the trend could be reversed if the introduction of the 5G network or other innovations raise demand for new smartphones more rapidly than expected.

### Replacement cycle and secondary market effects
- Longer replacement cycles reduce new smartphone sales and may lower growth in the overall stock of smartphones if secondary markets circulate used devices.
- Morgan Stanley (2017) estimates worldwide average replacement cycle rising from 2.1 years in 2013 to 2.6 years in 2016 and projected a further increase to 2.8 years by 2020.
- US 2019 replacement cycles: 2.88 years for consumers and 2.56 for enterprises.
- Surveys: Korea (September 2018) found the average user replaced their smartphone every 2.8 years.
- The secondary market is growing faster than the primary market; the average smartphone may be used by two to three people before it is scrapped.
- Trade-in and refurbishment programs (e.g., Apple’s trade-in program introduced in 2017) extend device lifespans, lengthening replacement cycles and reducing new smartphone sales.

*Source: wpiea2020070-print-pdf - introduction of the 5G network.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020070-print-pdf.pdf_