UBS maintains cautious outlook on smartphone supply chain stocks

A UBS Evidence Lab Smartphone Survey indicates weakening consumer demand, with US purchasing intent dropping from 50% to 37% and replacement cycles extending to 31.1 months. Despite a 3.2% YTD unit sell-through increase, UBS forecasts conservative 1.0% growth for 2025 and flat growth in 2026. The firm recommends "Buy" ratings for select supply chain stocks like ASE, AVGO, Hon Hai, and TSMC, while maintaining "Sell" on Hua Hong and "Neutral" on Apple and Xiaomi, reflecting a selective approach to the sector amid slowing growth.

Analysis

UBS's 21st Evidence Lab Smartphone Survey from Q2 2025 reveals a significant downturn in consumer purchasing intentions, particularly in the US where 12-month forward intent fell to 37% from 50% in Q4 2024. This is coupled with an extension of the aspirational smartphone replacement cycle to 31.1 months from 29.7 months, indicating consumers are retaining devices longer. Despite a 3.2% year-to-date unit sell-through increase up to April, UBS projects a conservative global smartphone unit sell-in growth of only 1.0% year-over-year for 2025, followed by flat growth in 2026. Reflecting this cautious outlook, UBS maintains Neutral ratings on major manufacturers Apple (NASDAQ:AAPL) and Xiaomi (OTC:XIACF). However, the firm identifies selective opportunities within the supply chain, issuing Buy ratings for several component suppliers including ASE, Broadcom (AVGO), Hon Hai, MediaTek, Micron (MU), Murata, Samsung, and TSMC. Conversely, UBS holds a Sell rating for Hua Hong and a Neutral rating for LG Display (NYSE:LPL). The overall market sentiment is mixed, leaning cautious, aligning with UBS's view that while some supply chain valuations are near ex-growth levels, specific investment opportunities persist.

Key Decisions for Investors

• Investors should exercise caution regarding broad exposure to the smartphone sector due to declining purchasing intentions and lengthening replacement cycles, which signal potential headwinds for overall market growth.
• Consider focusing on select smartphone supply chain constituents, such as those rated 'Buy' by UBS like ASE, AVGO, MU, and TSMC, which may offer value despite the broader market slowdown.
• Maintain a neutral or watchful stance on major smartphone manufacturers like Apple and Xiaomi, reflecting UBS's current ratings and the challenging consumer demand landscape.
• Monitor upcoming consumer surveys and sell-through data closely for any shifts in purchasing behavior or replacement cycle trends that could alter the sector outlook.