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Business trends

Smartphone boom goes silent as iPhone X and China slump

Parts suppliers scramble for solutions to Apple's woes and US ban on ZTE

The iPhone X, pronounced "ten," has underperformed expectations since its November launch.

TOKYO -- Smartphone growth appears to be losing steam with low sales of Apple's iPhone X and a slowdown in the key Chinese market, prompting chipmakers and other information technology suppliers to rethink their strategies and consider seeking a new growth driver.

Sino-American trade friction contributes to the malaise as well, with the U.S. imposing sanctions on major Chinese smartphone maker ZTE, whose larger compatriot Huawei Technologies faces a similar threat.

Since the first iPhone launched in 2007, smartphones have become the foremost driver of the information technology economy.

But "smartphones may have passed their peak," said Toshihiro Kuriyama, president of Japan's Alps Electric, which supplies image stabilizers for iPhones. Alps has been trying to hurry a merger that would lead to automobile parts yielding a greater share of the company's profit, a move some see as geared to offset poor iPhone X sales.

Overall iPhone unit sales grew just 3% on the year to 52.21 million in the January-March quarter. The average unit price of $728 slid 9% from the October-December period, suggesting that the X -- which debuted in early November and retails for around $1,000 -- contributed a smaller proportion of sales.

The X's price tag "gives consumers pause," said Hideaki Yokota at Tokyo-based MM Research Institute.

Apple leveraged its brand strength to continue raising iPhone prices, while parts makers adopted a profitable strategy of developing products to fit iPhones first before selling the same parts to other companies at lower prices. But the X's underperformance has disrupted this approach.

Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, has trimmed its outlook for revenue growth in calendar 2018 to 10%, the low end of its previous guidance of 10% to 15%. Slow sales of the X appeared to be the cause.

The X was the first iPhone to use advanced organic light-emitting diode screens rather than liquid crystal display panels. But the handset's performance has cut into OLED production-line uptime at Samsung Electronics, Apple's sole supplier for the screens. The South Korean company sought to compensate by selling more OLEDs to Chinese phone makers, and that in turn created a glut. Smartphone OLED panel prices have dipped around 10% since the year began.

Global smartphone shipment volumes slipped by 0.1% in 2017, according to research firm IDC -- the first full-year decline since the iPhone's launch. January-March shipments likewise decreased 2.9%.

Shipments declined 11.6% last year in China, the world's largest market with about 30% of the total. That drop continues in 2018, with the January-March figure sinking 27% on the year to 81.87 million handsets. Shipment volume slid 28.6% in March alone.

That slump and other factors have reduced prices of NAND flash memory, used for data storage in smartphones and other devices. Bulk prices of benchmark 128-gigabyte triple-level cell flash memory fell for a second straight month in March to around $4.50 per unit, down 2% from February.

China's smartphone makers have taken a hit as well. The U.S. banned ZTE -- the world's ninth-largest smartphone producer -- from purchasing American technology, citing telecommunications equipment exports found to have violated American sanctions regarding Iran and North Korea. Justice Department officials are reportedly weighing similar measures for Huawei, the No. 3 global player.

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