Jefferies shares cautious outlook on Apple and Xiaomi smartphone demand

The Q2 2025 smartphone market saw modest global shipment growth of 1-2%, with Samsung leading at 8% YoY, while Apple's iPhone shipments grew 1.5-4%, falling short of analyst estimates despite strong China sales. Xiaomi experienced flat global growth, prompting reduced Jefferies forecasts. A significant industry headwind is rising memory costs, with DDR4 prices projected to increase 10-25% by Q4, contributing to Jefferies' cautious H2 2025 outlook due to weak demand and high inventories. Concurrently, Apple is strategically investing in domestic rare earth supply and future product development, including foldable displays, alongside its content success with Apple TV+.

Analysis

The global smartphone market exhibited tepid growth of 1-2% in Q2 2025, with performance diverging significantly among major manufacturers. Samsung led the pack with approximately 8% year-over-year shipment growth, buoyed by its mid-range models. In contrast, Apple's iPhone shipments grew a modest 1.5-4%, falling short of Jefferies' 8% forecast despite a 19% YoY volume increase during China's 618 festival. This underperformance presents a near-term headwind for Apple ahead of its July 31 earnings, even as it maintains a 15.7% global market share. Meanwhile, Xiaomi's flat global growth prompted Jefferies to lower its Q2 revenue and operating profit forecasts to 2.4% and 12% below consensus, respectively. The entire sector faces escalating margin pressure from rising memory costs, with DDR4 prices projected to climb another 10-25% by year-end. This, combined with weak demand and high finished goods inventories averaging 49 days industry-wide, underpins Jefferies' cautious outlook for the second half of the year. Counterbalancing these challenges, Apple is making strategic long-term moves, including a $500 million investment in MP Materials to secure a domestic rare earth supply chain and advancing plans for a foldable iPhone for H2 2026, while its services division demonstrates strength with 81 Emmy nominations for Apple TV+.

Key Decisions for Investors

• Investors should scrutinize Apple's upcoming earnings on July 31 for guidance on consumer demand and margin impact from component costs, given that Q2 shipment growth missed estimates while strategic initiatives in supply chain and services show long-term promise.
• Caution is warranted for Xiaomi, as its flat global shipment growth and significant downward revisions to profit forecasts by analysts suggest deteriorating fundamentals and heightened competitive pressure.
• Monitor inventory levels across the smartphone supply chain, as the reported 49 days of finished goods signals a risk of future order reductions and margin compression for both device manufacturers and their component suppliers.
• The outlook for smartphone component suppliers is bifurcated; while rising memory prices are a tailwind for memory chip producers, high industry-wide inventory poses a risk of reduced future orders for the broader supply chain.